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 Adobe Delivers Record Revenue of $2 Billion in Q4
   Thursday, December 14, 2017 4:05:00 PM ET

Adobe (ADBE ) today reported financial results for its fourth quarter and fiscal year 2017 ended Dec. 1, 2017.

In its fourth quarter of fiscal year 2017, Adobe achieved quarterly revenue of $2.01 billion, which represents 25 percent year-over-year growth. In fiscal year 2017, Adobe achieved annual revenue of $7.30 billion, which also represents 25 percent year-over-year growth.

"Adobe delivered record revenue of $2 billion in Q4," said Shantanu Narayen, president and CEO, Adobe. "Our strong business momentum is driven by the market-leading solutions we provide to empower people to create and businesses to digitally transform."

"Adobe achieved record annual and quarterly revenue, and the leverage in our business model once again drove record profit and earnings," said Mark Garrett, executive vice president and CFO, Adobe. "We are raising our fiscal 2018 revenue target and remain bullish about delivering strong top line and bottom line growth."

Fourth Quarter Fiscal Year 2017 Financial Highlights

-- Adobe achieved record quarterly revenue of $2.01 billion in its fourth quarter of fiscal year 2017, which represents 25 percent year-over-year growth.

-- Diluted earnings per share was $1.00 on a GAAP-basis, and $1.26 on a non-GAAP basis.

-- Digital Media segment revenue was $1.39 billion, with Creative and Document Cloud achieving record quarterly revenue of $1.16 billion and $235 million, respectively.

-- Digital Media Annualized Recurring Revenue ("ARR") grew to $5.23 billion exiting the quarter, a quarter-over-quarter increase of $359 million.

-- Adobe Experience Cloud achieved record revenue of $550 million, which represents 18 percent year-over-year growth.

-- Operating income grew 37 percent and net income grew 26 percent year-over-year on a GAAP-basis; operating income grew 37 percent and net income grew 39 percent year-over-year on a non-GAAP basis.

-- Cash flow from operations was a record $833 million and deferred revenue grew to an all-time high of $2.49 billion.

-- The company repurchased approximately 1.9 million shares during the quarter, returning $297 million of cash to stockholders.

Fiscal Year 2017 Financial Highlights

-- Adobe achieved record annual revenue of $7.30 billion in fiscal year 2017, representing 25 percent year-over-year growth.

-- The company reported annual GAAP diluted earnings per share of $3.38 and non-GAAP diluted earnings per share of $4.31.

-- Digital Media segment revenue was $5.01 billion, with Creative and Document Cloud achieving record annual revenue of $4.17 billion and $837 million, respectively. Digital Media ARR grew by $1.24 billion during the year.

-- Adobe Experience Cloud achieved record annual revenue of $2.03 billion, representing 24 percent year-over-year growth.

-- Operating income grew 45 percent and net income grew 45 percent year-over-year on a GAAP-basis; operating income grew 40 percent and net income grew 42 percent year-over-year on a non-GAAP basis.

-- Adobe generated a record $2.91 billion in operating cash flow during the year.

-- The company repurchased 8.2 million shares during the year, returning $1.10 billion of cash to stockholders.

A reconciliation between GAAP and non-GAAP results is provided at the end of this press release and on Adobe’s website.

Adobe to Webcast Earnings Conference Call

Adobe will webcast its fourth quarter and fiscal year 2017 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. Earnings documents, including Adobe management’s prepared conference call remarks with slides, financial targets and an investor datasheet are posted to Adobe’s investor relations website in advance of the conference call for reference. A reconciliation between GAAP and non-GAAP earnings results and financial targets is also provided on the website.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including those related to business momentum, product adoption, revenue, annualized recurring revenue, subscription bookings, non-operating other expense, tax rate on a GAAP and non-GAAP basis, earnings per share on a GAAP and non-GAAP basis, and share count, all of which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to develop, acquire, market and offer products and services that meet customer requirements, introduction of new technology, complex sales cycles, fluctuations in subscription renewal rates, our ability to predict such renewals and risks related to the timing of revenue recognition from our subscription offerings, potential interruptions or delays in hosted services provided by us or third parties, risks associated with cyber-attacks, information security and privacy, failure to realize the anticipated benefits of past or future acquisitions, changes in accounting principles and tax regulations, and uncertainty in the financial markets and economic conditions in the countries we operate as a multinational corporation. For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for our fiscal year 2016 ended Dec. 2, 2016, and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2017.

The financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe’s Annual Report on Form 10-K for our year ended Dec. 1, 2017, which Adobe expects to file in Jan. 2018.

Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

About Adobe

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

(C) 2017 Adobe Systems Incorporated. All rights reserved. Adobe, Adobe Document Cloud, Adobe Experience Cloud, Creative Cloud, and the Adobe logo are either registered trademarks or trademarks of Adobe Systems Incorporated in the United States and/or other countries. All other trademarks are the property of their respective owners.

                                                                                                                                                                               
Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
                                                                                                                                                                                                                                                                                
                                                                                                                                                                   Three Months Ended                                                                                                                                               Year Ended
                                                                                                                   ------------------------------------------------------------------------------------------------------------------                                          --------------------------------------------------------------------------------------------------------------------
                                                                                                                                December 1,                             December 2,                                                                   December 1,                              December 2,
                                                                                                                                   2017*                                                                         2016                                                                          2017*                                                                          2016
                                                                                                                   ---------------------------------                                             ---------------------------------                                             ---------------------------------                                             -----------------------------------
Revenue:
   Subscription                                                                                                       $ 1,695,987                                                                   $ 1,262,273                                                                   $ 6,133,869                                                                     $ 4,584,833
   Product                                                                                                                192,876                                                                       221,926                                                                       706,767                                                                         800,498
   Services and support                                                                                                   117,732                                                    124,220                                                    460,869                                                      469,099  
                                                                                                                   -----------------------------------                                           -----------------------------------                                           -----------------------------------                                           -------------------------------------
      Total revenue                                                                                                     2,006,595                                                  1,608,419                                                  7,301,505                                                    5,854,430  
                                                                                                                   -----------------------------------                                           -----------------------------------                                           -----------------------------------                                           -------------------------------------
                                                                                                                                                                                                                                                                                                                                                              
Cost of revenue:
   Subscription                                                                                                           170,218                                                                       122,196                                                                       623,048                                                                         461,860
   Product                                                                                                                 15,552                                                                        17,427                                                                        57,082                                                                          68,917
   Services and support                                                                                                    85,102                                                     76,933                                                    330,361                                                      289,131  
                                                                                                                   -----------------------------------                                           -----------------------------------                                           -----------------------------------                                           -------------------------------------
                                                                                                                          270,872                                                    216,556                                                  1,010,491                                                      819,908  
      Total cost of revenue
                                                                                                                   -------------  --------------------                                           -------------  --------------------                                           -------------  --------------------                                           ---------------  --------------------
                                                                                                                                                                                                                                                                                                                                                              
Gross profit                                                                                                            1,735,723                                                                     1,391,863                                                                     6,291,014                                                                       5,034,522
                                                                                                                                                                                                                                                                                                                                                              
Operating expenses:
   Research and development                                                                                               324,026                                                                       257,849                                                                     1,224,059                                                                         975,987
   Sales and marketing                                                                                                    574,104                                                                       495,042                                                                     2,197,592                                                                       1,910,197
   General and administrative                                                                                             169,567                                                                       148,192                                                                       624,706                                                                         576,202
   Amortization of purchased intangibles                                                                                   18,686                                                     18,500                                                     76,562                                                       78,534  
                                                                                                                   -----------------------------------                                           -----------------------------------                                           -----------------------------------                                           -------------------------------------
      Total operating expenses                                                                                          1,086,383                                                    919,583                                                  4,122,919                                                    3,540,920  
                                                                                                                   -------------  --------------------                                           -------------  --------------------                                           -------------  --------------------                                           ---------------  --------------------
                                                                                                                                                                                                                                                                                                                                                              
Operating income                                                                                                          649,340                                                                       472,280                                                                     2,168,095                                                                       1,493,602
                                                                                                                                                                                                                                                                                                                                                              
Non-operating income (expense):
   Interest and other income (expense), net                                                                                10,496                                                                           553                                                                        36,395                                                                          13,548
   Interest expense                                                                                                       (19,116 )                                                                     (17,518 )                                                                     (74,402 )                                                                       (70,442 )
   Investment gains (losses), net                                                                                           2,292                                                      1,385                                                      7,553                                                       (1,570 )
                                                                                                                   -----------------------------------                                           -----------------------------------                                           -----------------------------------                                           -------------------------------------
      Total non-operating income (expense), net                                                                            (6,328 )                                                                     (15,580 )                                                                     (30,454 )                                                                       (58,464 )
                                                                                                                   -----------------------------------                                           -----------------------------------                                           -----------------------------------                                           -------------------------------------
Income before income taxes                                                                                                643,012                                                                       456,700                                                                     2,137,641                                                                       1,435,138
Provision for income taxes                                                                                                141,463                                                     57,087                                                    443,687                                                      266,356  
                                                                                                                   -----------------------------------                                           -----------------------------------                                           -----------------------------------                                           -------------------------------------
Net income                                                                                                            $   501,549                                                $   399,613                                                $ 1,693,954                                                  $ 1,168,782  
                                                                                                                   ==== ========= ====================                                           ==== ========= ====================                                           ==== ========= ====================                                           ====== ========= ====================
Basic net income per share                                                                                            $      1.02                                                $      0.81                                                $      3.43                                                  $      2.35  
                                                                                                                        ========= ====================                                                ========= ====================                                           ==== ========= ====================                                           ====== ========= ====================
Shares used to compute basic net income per share                                                                         492,108                                                    495,641                                                    493,632                                                      498,345  
                                                                                                                   ===================================                                           ===================================                                           ===================================                                           =====================================
Diluted net income per share                                                                                          $      1.00                                                $      0.80                                                $      3.38                                                  $      2.32  
                                                                                                                        ========= ====================                                                ========= ====================                                           ==== ========= ====================                                           ====== ========= ====================
Shares used to compute diluted net income per share                                                                       500,060                                                    501,176                                                    501,123                                                      504,299  
                                                                                                                   ===================================                                           ===================================                                           ===================================                                           =====================================
                                                                                                                                                                                                                                                                                                                                                                               

_________________________________________

*       We early adopted ASU No. 2016-09, Improvements to Employee
                                                                 Share-Based Payment Accounting, during the first quarter of fiscal
                                                                 2017. As required by the standard, excess tax benefits recognized on
                                                                 stock-based compensation expense were reflected in our provision for
                                                                 income taxes rather than paid-in capital on a prospective basis. We
                                                                 recorded excess tax benefits within our provision for income taxes,
                                                                 rather than paid-in capital, starting the first quarter of fiscal
                                                                 2017.
                                                                  
                                                                                                                             
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
                                                                                                                                                                                                                              
                                                                                                                                                          December 1,                                                                       December 2,
                                                                                                                                                             2017                                                                              2016
                                                                                                                                           -------------------------------------                                             -------------------------------------
                                   ASSETS
                                                                                                                                                                                                                              
Current assets:
   Cash and cash equivalents                                                                                                                     $  2,306,072                                                                      $  1,011,315
   Short-term investments                                                                                                                           3,513,702                                                                         3,749,985
   Trade receivables, net of allowances for doubtful accounts of $9,151                                                                             1,217,968                                                                           833,033
   and $6,214, respectively
   Prepaid expenses and other current assets                                                                                                          210,071                                                        245,441  
                                                                                                                                           ---------------------------------------                                           ---------------------------------------
      Total current assets                                                                                                                          7,247,813                                                                         5,839,774
                                                                                                                                                                                                                              
Property and equipment, net                                                                                                                           936,976                                                                           816,264
Goodwill                                                                                                                                            5,821,561                                                                         5,406,474
Purchased and other intangibles, net                                                                                                                  385,658                                                                           414,405
Investment in lease receivable                                                                                                                 --                                                                            80,439
Other assets                                                                                                                                          143,548                                                        139,890  
                                                                                                                                           ---------------------------------------                                           ---------------------------------------
      Total assets                                                                                                                               $ 14,535,556                                                   $ 12,697,246  
                                                                                                                                           ======= ========== ====================                                           ======= ========== ====================
                                                                                                                                                                                                                              
       LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                                                                                                                                                                                              
Current liabilities:
   Trade payables                                                                                                                                $    113,538                                                                      $     88,024
   Accrued expenses                                                                                                                                   993,773                                                                           739,630
   Income taxes payable                                                                                                                                14,196                                                                            38,362
   Deferred revenue                                                                                                                                 2,405,950                                                      1,945,619  
                                                                                                                                           ---------------------------------------                                           ---------------------------------------
      Total current liabilities                                                                                                                     3,527,457                                                                         2,811,635
                                                                                                                                                                                                                              
Long-term liabilities:
   Debt                                                                                                                                             1,881,421                                                                         1,892,200
   Deferred revenue                                                                                                                                    88,592                                                                            69,131
   Income taxes payable                                                                                                                               173,088                                                                           184,381
   Deferred income taxes                                                                                                                              279,941                                                                           217,660
   Other liabilities                                                                                                                                  125,188                                                         97,404  
                                                                                                                                           ---------------------------------------                                           ---------------------------------------
      Total liabilities                                                                                                                             6,075,687                                                                         5,272,411
                                                                                                                                                                                                                              
Stockholders’ equity:
   Preferred stock, $0.0001 par value; 2,000 shares authorized                                                                                 --                                                                    --
   Common stock, $0.0001 par value                                                                                                                         61                                                                                61
   Additional paid-in-capital                                                                                                                       5,082,195                                                                         4,616,331
   Retained earnings                                                                                                                                9,573,870                                                                         8,114,517
   Accumulated other comprehensive income (loss)                                                                                                     (111,821 )                                                                        (173,602 )
   Treasury stock, at cost (109,572 and 106,580 shares, respectively),                                                                             (6,084,436 )                                                                      (5,132,472 )
   net of reissuances
                                                                                                                                           -----------------  --------------------                                           -----------------  --------------------
      Total stockholders’ equity                                                                                         8,459,869                                                      7,424,835  
                                                                                                                                           ---------------------------------------                                           ---------------------------------------
      Total liabilities and stockholders’ equity                                                                      $ 14,535,556                                                   $ 12,697,246  
                                                                                                                                           ======= ========== ====================                                           ======= ========== ====================
                                                                                                                                                                                                                                                 
                                                                                                                                                                                                                                                 
                                                                            
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
                                                                                                                                       
                                                                                                                                                                              Three Months Ended
                                                                                                                                      --------------------------------------------------------------------------------------------------
                                                                                                                                                    December 1,                              December 2,
                                                                                                                                                       2017*                                                       2016
                                                                                                                                      ------------------------------------                        -----------------------------------
Cash flows from operating activities:
   Net income                                                                                                                               $   501,549                                                $   399,613
   Adjustments to reconcile net income to net cash provided by
   operating activities:
      Depreciation, amortization and accretion                                                                                                   81,234                                                     81,860
      Stock-based compensation expense                                                                                                          120,050                                                     87,530
      Unrealized investment (gains) losses, net                                                                                                  (2,251 )                                                     (771 )
      Changes in deferred revenue                                                                                                               289,952                                                    216,765
      Changes in other operating assets and liabilities                                                                                        (157,314 )                                                  (89,396 )
                                                                                                                                      --------------------------------------                      -------------------------------------
         Net cash provided by operating activities                                                                                              833,220                                 695,601  
                                                                                                                                      --------------------------------------                      -------------------------------------
                                                                                                                                                                                                   
Cash flows from investing activities:
   Purchases, sales and maturities of short-term investments, net                                                                                62,199                                                    (97,891 )
   Purchases of property and equipment                                                                                                          (37,684 )                                                  (48,633 )
   Purchases and sales of long-term investments, intangibles and other                                                                           (4,149 )                                                    3,426  
   assets, net
                                                                                                                                      ----------------  --------------------                      ---------------  --------------------
                                                                                                                                                 20,366                                (143,098 )
         Net cash provided by (used for) investing activities
                                                                                                                                      ----------------  --------------------                      ---------------  --------------------
                                                                                                                                                                                                   
Cash flows from financing activities:
   Purchases of treasury stock                                                                                                                 (300,000 )                                                 (300,000 )
   Taxes paid related to net share settlement of equity awards, net of                                                                          (18,877 )                                                   (6,283 )
   proceeds from treasury stock reissuances
   Repayment of capital lease obligations                                                                                                          (632 )                                                      (22 )
   Excess tax benefits from stock-based compensation                                                                                     --                                   5,836  
                                                                                                                                      --------------------------------------                      -------------------------------------
         Net cash used for financing activities                                                                                                (319,509 )                                                 (300,469 )
                                                                                                                                      --------------------------------------                      -------------------------------------
Effect of exchange rate changes on cash and cash equivalents                                                                                     (2,555 )                                                   (8,391 )
                                                                                                                                      --------------------------------------                      -------------------------------------
Net increase in cash and cash equivalents                                                                                                       531,522                                                    243,643
Cash and cash equivalents at beginning of period                                                                                              1,774,550                                 767,672  
                                                                                                                                      --------------------------------------                      -------------------------------------
Cash and cash equivalents at end of period                                                                                                  $ 2,306,072                             $ 1,011,315  
                                                                                                                                      ======= ========= ====================                      ====== ========= ====================
                                                                                                                                                                                                                    

_________________________________________

*       We early adopted ASU No. 2016-09, Improvements to Employee
                                                                 Share-Based Payment Accounting, during the first quarter of fiscal
                                                                 2017. As required by the standard, excess tax benefits recognized on
                                                                 stock-based compensation expense were reflected in our provision for
                                                                 income taxes rather than paid-in capital on a prospective basis. We
                                                                 also elected to prospectively apply the change in presentation of
                                                                 excess tax benefits wherein excess tax benefits recognized on
                                                                 stock-based compensation expense were classified as operating
                                                                 activities in our condensed consolidated statements of cash flows
                                                                 starting the first quarter of fiscal 2017. Prior period
                                                                 classification of cash flows related to excess tax benefits was not
                                                                 adjusted.
                                                                  
                                                                                                                                                                                                                                                                  
Non-GAAP Results
(In thousands, except per share data)
 
The following tables show Adobe’s GAAP results reconciled to
non-GAAP results included in this release.
                                                                                                                                                                                                                                                                                                                                                                   
                                                                                                                                                                                                             Three Months Ended                                                                                                                                                                     Year Ended
                                                                                                                     ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------                     -------------------- ---------------------------------------------------------------------------------------------------------------------
                                                                                                                                  December 1,                              December 2,                             September 1,                                                                    December 1,                              December 2,
                                                                                                                                     2017                                                                           2016                                                                           2017                                                                           2017                                                                           2016
                                                                                                                     ----------------------------------                                             ----------------------------------                                             ----------------------------------                                             ---------------------------------                        -------------------- ------------------------------------
Operating income:                                                                                                                                                                                                                                                                                                                                                                                                           
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
GAAP operating income                                                                                                      $ 649,340                                                                      $ 472,280                                                                      $ 545,674                                                                   $ 2,168,095                                                                      $ 1,493,602
Stock-based and deferred compensation expense                                                                                122,180                                                                         86,584                                                                        117,968                                                                       462,317                                                                          351,553
Restructuring and other charges                                                                                                 (359 )                                                                         (285 )                                                               --                                                                          (456 )                                                                         (1,508 )
Amortization of purchased intangibles                                                                                         34,817                                                      31,143                                                      36,655                                                    143,492                                    136,056  
                                                                                                                     ------------------------------------                                           ------------------------------------                                           ------------------------------------                                           -----------------------------------                      -------------------- --------------------------------------
Non-GAAP operating income                                                                                                  $ 805,978                                                   $ 589,722                                                   $ 700,297                                                $ 2,773,448                                $ 1,979,703  
                                                                                                                     ======= ======= ====================                                           ======= ======= ====================                                           ======= ======= ====================                                           ==== ========= ====================                      ==================== ======= ========= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Net income:
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
GAAP net income*                                                                                                           $ 501,549                                                                      $ 399,613                                                                      $ 419,569                                                                   $ 1,693,954                                                                      $ 1,168,782
Stock-based and deferred compensation expense                                                                                122,180                                                                         86,584                                                                        117,968                                                                       462,317                                                                          351,553
Restructuring and other charges                                                                                                 (359 )                                                                         (285 )                                                               --                                                                          (456 )                                                                         (1,508 )
Amortization of purchased intangibles                                                                                         34,817                                                                         31,143                                                                         36,655                                                                       143,492                                                                          136,056
Investment (gains) losses, net                                                                                                (2,292 )                                                                       (1,385 )                                                                         (975 )                                                                      (7,553 )                                                                          1,570
Income tax adjustments                                                                                                       (25,982 )                                                                      (63,118 )                                                                      (24,146 )                                                                    (130,756 )                                                    (137,350 )
                                                                                                                     ------------------------------------                                           ------------------------------------                                           ------------------------------------                                           -----------------------------------                      -------------------- --------------------------------------
Non-GAAP net income                                                                                                        $ 629,913                                                   $ 452,552                                                   $ 549,071                                                $ 2,160,998                                $ 1,519,103  
                                                                                                                     ======= ======= ====================                                           ======= ======= ====================                                           ======= ======= ====================                                           ==== ========= ====================                      ==================== ======= ========= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Diluted net income per share:
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
GAAP diluted net income per share*                                                                                         $    1.00                                                                      $    0.80                                                                      $    0.84                                                                   $      3.38                                                                      $      2.32
Stock-based and deferred compensation expense                                                                                   0.24                                                                           0.17                                                                           0.24                                                                          0.92                                                                             0.70
Amortization of purchased intangibles                                                                                           0.07                                                                           0.06                                                                           0.07                                                                          0.29                                                                             0.27
Investment (gains) losses, net                                                                                        --                                                                 --                                                                 --                                                                         (0.02 )                                                                 --
Income tax adjustments                                                                                                         (0.05 )                                                                        (0.13 )                                                                        (0.05 )                                                                       (0.26 )                                                       (0.28 )
                                                                                                                     ------------------------------------                                           ------------------------------------                                           ------------------------------------                                           -----------------------------------                      -------------------- --------------------------------------
Non-GAAP diluted net income per share                                                                                      $    1.26                                                   $    0.90                                                   $    1.10                                                $      4.31                                $      3.01  
                                                                                                                     ======= ======= ====================                                           ======= ======= ====================                                           ======= ======= ====================                                           ==== ========= ====================                      ==================== ======= ========= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Shares used in computing diluted net income per share                                                                        500,060                                                                        501,176                                                                        500,398                                                                       501,123                                                                          504,299
                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
                                                   
                                                                                                                    Three Months Ended
                                                                                                             --------------------------------
                                                                                                                        December 1,
                                                                                                                           2017
                                                                                                             ------------------------------
Effective income tax rate:
                                                                                                              
GAAP effective income tax rate*                                                                                    22.0                    %
Stock-based and deferred compensation expense                                                                       0.2
Income tax adjustments                                                                                             (1.2 )
                                                                                                             ---------- --------------------
Non-GAAP effective income tax rate**                                                                               21.0                    %
                                                                                                             ========== ====================
                                                                                                                         

_________________________________________

*        We early adopted ASU No. 2016-09, Improvements to Employee
                                                                  Share-Based Payment Accounting, during the first quarter of fiscal
                                                                  2017. As required by the standard, excess tax benefits recognized on
                                                                  stock-based compensation expense were reflected in our provision for
                                                                  income taxes rather than paid-in capital on a prospective basis. We
                                                                  recorded excess tax benefits within our provision for income taxes,
                                                                  rather than paid-in capital, starting the first quarter of fiscal
                                                                  2017.
                                                                   
**                                                                Our non-GAAP effective income tax rate of 21% is an annualized rate
                                                                  based on estimates for the entire fiscal year, whereas the GAAP
                                                                  effective income tax rate of 22% is the rate for the quarter based
                                                                  on tax events within the quarter. Income tax adjustments, which are
                                                                  included in both GAAP and non-GAAP earnings, will fluctuate from
                                                                  quarter-to-quarter but will normalize over the fiscal year due to
                                                                  the timing of tax events including the timing of recognition of
                                                                  excess tax benefits within each quarter.
                                                                   

Use of Non-GAAP Financial Information

Adobe continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Adobe uses non-GAAP financial information to evaluate its ongoing operations and for internal planning and forecasting purposes. Adobe’s management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adobe presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Adobe’s operating results. Adobe believes these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. This allows institutional investors, the analyst community and others to better understand and evaluate our operating results and future prospects in the same manner as management.

Adobe’s management believes it is useful for itself and investors to review, as applicable, both GAAP information as well as non-GAAP measures, which may exclude items such as stock-based and deferred compensation expenses, restructuring and other charges, amortization of purchased intangibles and certain activity in connection with technology license arrangements, investment gains and losses, the related tax impact of all of these items, income tax adjustments, and the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. Adobe uses these non-GAAP measures in order to assess the performance of Adobe’s business and for planning and forecasting in subsequent periods. Whenever such a non-GAAP measure is used, Adobe provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20171214006267r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20171214006267/en/

SOURCE: Adobe

Investor Relations 
Adobe 
Mike Saviage, 408-536-4416 
ir@adobe.com 
or 
Public Relations 
Adobe 
Dan Berthiaume, 408-536-2584 
dberthia@adobe.com


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