On Dec. 17, digital media expert Adobe Systems (NASDAQ:ADBE) released fourth-quarter earnings for the period ended Nov. 30.

  • Sales and GAAP net income this quarter were both the highest ever reported for one Adobe quarter. Curiously, the company highlighted the revenue record every chanceĀ it got, but not so for the income mark. Que pasa, amigos?
  • Management expects the operating margin to stay right around 30% throughout the next fiscal year. It's a hefty improvement over 2006, and one of the fattest operating margins you'll find in a software company not named Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), or Oracle (NASDAQ:ORCL).
  • Adobe spent $338 million on share buybacks this quarter, nearly exhausting its authorization allotment. So the board slapped another 30 million shares onto the program, or about $1.2 billion at today's share price.

(Figures in millions, except per-share data)

Income Statement Highlights

Q4 2007

Q4 2006

Change

Sales

$911

$682

33.6%

Net Profit

$222

$183

21.3%

EPS

$0.38

$0.30

26.7%

Diluted Shares

588

602

(2.4%)

Get back to basics with the income statement.

Margin Checkup

Q4 2007

Q4 2006

Change*

Gross Margin

89.2%

88.3%

0.9

Operating Margin

30.3%

24%

6.3

Net Margin

24.4%

26.9%

(2.5)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q4 2007

Q4 2006

Change

Cash + ST Invest.

$1,994

$2,281

(12.6%)

Accounts Rec.

$318

$357

(10.8%)

Liabilities

Q4 2007

Q4 2006

Change

Accounts Payable

$66.9

$55.0

21.5%

Long-Term Debt

$0

$0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

Q4 2007

Q4 2006

Change

Cash From Ops.

$398

$291

36.8%

Capital Expenditures

$28.1

$33.1

(15%)

Free Cash Flow

$370

$258

43.4%

Owner Earnings

$272

$225

20.8%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

Microsoft

$323,560

22.7

***

Apple (NASDAQ:AAPL)

$160,780

46.7

****

Adobe

$24,150

37.2

*****

Autodesk (NASDAQ:ADSK)

$11,480

33.9

****

Avid Technology (NASDAQ:AVID)

$1,040

N/A

*

Using the latest reported numbers from Capital IQ.

Keep your partners close and the competition in your vest pocket.

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