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ADOBE INC. Annual Report, Year Ended Nov 28, 1997

Filing Date
Filed February 17, 1998
Period End
November 28, 1997
Security
ADBE
In the record · 2016–202610-K1110-Q338-K104

ADBE filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 104 current reports (8-K) between 2016 and 2026.

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01—Abstract

Summary

Summary of the 10-K filed February 17, 1998. Cited figures are marked; the original filing is the authoritative source.

Adobe Systems Incorporated's fiscal 1997 (year ended November 28, 1997) results show a company that grew revenue 16% to $911.9 milliona and net income 22% to $186.8 million, or $2.52 per share.

Application products drove the growth, rising 21% to $715.7 millionb, with Windows application revenue surpassing Macintosh for the first time (50.6% vs. 49.4% of application products revenue, excluding platform-independent and UNIX products). Licensing revenue, tied to OEM printer shipments of PostScript and PrintGear, was flat at $196.2 million, pressured by weak Macintosh and Japanese printer markets and the early impact of Hewlett-Packard's non-Adobe PostScript clone in monochrome laser printers. Net income was flattered by non-recurring items.

Investment gains of $34.3 millionc, largely from the Netscape dividend-in-kind and sale of remaining shares, added roughly $0.31 per share. Excluding one-time charges and gains, Adobe's 1997 earnings were about $2.29 per share, versus $1.71 in 1996 on the same basis, so underlying profit growth was still strong. Operating margin improved to about 25% from 19%, helped by lower direct costs from the shift to CD-ROM distribution.

The balance sheet remains conservative, with no long-term debt, $503 milliond in cash and short-term investments, and stockholders' equity of $715.4 million. Cash fell as Adobe spent $275.6 million repurchasing stock under a program authorizing up to 15 million shares over two years, and it paid $0.20 per share in dividends. Management flagged risks including Japanese economic weakness, Macintosh demand, OEM royalty renegotiations, Y2K system readiness (cost not yet determined), and short-term licensing pressure from HP.

02—Key points

Key Highlights

  1. Revenue rose 16% to $911.9 million, led by 21% growth in application products to $715.7 million (78.5% of total revenue).
  2. Licensing revenue was flat at $196.2 million as OEM printer weakness and HP's non-Adobe PostScript clone offset growth in PrintGear and CPSI.
  3. Net income grew 22% to $186.8 million ($2.52 per share), but included $34.3 million of investment gains; excluding one-time items, EPS was about $2.29 versus $1.71 in 1996.
  4. Windows platform application revenue grew 64% and exceeded Macintosh for the first time, at 50.6% of application products revenue.
  5. Gross margin rose to 86.1% from 82.0% as CD-ROM distribution lowered direct costs; management expects gross margin to hold near 1997 levels in 1998.
  6. Stock buybacks totaled $275.6 million (6.2 million shares in 1997) under a September 1997 authorization of up to 15 million shares over two years; cash and short-term investments fell to $503.0 million.
  7. Balance sheet is debt-free, with stockholders' equity of $715.4 million; the Japanese market slowdown and Y2K remediation costs are flagged as near-term risks.

03—Questions

Frequently Asked Questions

  1. How did Adobe's core business perform in fiscal 1997?

    Adobe grew total revenue 16% to $911.9 million. Application products, which include Photoshop, Acrobat, PageMaker, and Illustrator, drove nearly all of the growth, rising 21% to $715.7 million. Licensing revenue from OEM printer makers was flat at $196.2 million.

  2. Is Adobe's 1997 net income a reliable measure of underlying earnings?

    Not fully. Net income of $186.8 million ($2.52 per share) includes $34.3 million of investment gains, mainly from liquidating its Netscape stake. Adjusting for one-time items, EPS was about $2.29, up from $1.71 in 1996, which still reflects solid operating growth.

  3. What risks does management highlight for licensing revenue and the outlook for 1998?

    Management is cautious on licensing. Hewlett-Packard began shipping a non-Adobe PostScript clone and is expected to have a larger impact on 1998 licensing revenue. OEMs are also moving from PostScript Level 2 to PostScript 3 slowly, and Macintosh printer sales and Japanese demand remain weak. Management also expects R&D and sales and marketing spending to rise in absolute dollars in 1998.

  4. How is Adobe using its cash and what does that mean for shareholders?

    Adobe spent $275.6 million on repurchases in 1997, retiring or treasury-holding about 6.2 million shares, and paid $20.9 million in cash dividends ($0.20 per share). The company also distributed Netscape and Siebel shares to stockholders as dividends-in-kind. Cash and short-term investments fell to $503.0 million, but the company still has no long-term debt.

  5. What are the main legal and operational risks disclosed in the filing?

    The main legal matters are a securities class action over the 1995 stock drop, which is in discovery, and a derivative suit tied to the Frame acquisition. Management believes neither will have a material effect. Operationally, the filing highlights reliance on a small number of OEM customers, Japanese market weakness, currency exposure (mainly yen), the year 2000 readiness of its systems (cost not yet determined), and a Windows-platform shift that could affect sales channels and pricing.

04—Continue

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