Adobe Systems posts 4Q loss

NEW YORK (AP) -- Adobe Systems Inc. said Tuesday that although it booked a loss in the fiscal fourth quarter, consumer demand improved and allowed the maker of Photoshop and Flash software to post an optimistic outlook for the current period.

The recession has dampened demand for Creative Suite 4, the latest version of the software package targeting professional designers and developers that brings in the bulk of Adobe's revenue. It happened to launch in the fall of 2008, right as the financial meltdown hit.

But the company said Tuesday it saw demand pick up in the fourth quarter, especially in its final month. Chief Financial Officer Mark Garrett said this November uptick -- across many of the company's product lines, mainly in North America and Europe -- was more than what the company had expected. Even so, CS4 will likely end up with sales about 20 percent below its predecessor.

Adobe on Tuesday reported a loss of $32 million, or 6 cents per share, for the three months that ended Nov. 27, compared with a profit of $245.9 million, or 46 cents per share, in the same period a year earlier.

Stripping out special items such as restructuring charges and an income tax adjustment related to its October acquisition of Omniture Inc., Adobe earned 39 cents per share, surpassing Wall Street analysts' expectations.

The quarter's revenue fell 17 percent to $757.3 million, but still topped the $752.5 million expected by analysts polled by Thomson Reuters.

Adobe CEO Shantanu Narayen said he expects Creative Suite 5, which will launch sometime in the current fiscal year, to be a "must-have upgrade" for customers. Creative Suite includes many of Adobe's applications, including Photoshop, Illustrator, Flash and the Web design software Dreamweaver.

Because of the timing of CS4's launch, many customers put off buying the costly package, opting to save money and wait for the next version. Garrett said this group represents pent-up demand, not only because it's difficult to be two versions behind in software but also because many companies will be upgrading their computers and operating systems next year. This benefits Adobe because software upgrades generally follow hardware upgrades.

Adobe hasn't said when CS5 will come out, though Sasa Zorovic, an analyst with Janney Capital Markets, expects it to launch in May.

For the current quarter, Adobe is forecasting a profit of 34 cents to 39 cents per share, excluding items, on sales of $800 million to $850 million. Analysts are predicting earnings of 37 cents per share on revenue of $798.9 million, on average.

Adobe's first-quarter revenue forecast includes about $78 million to $83 million from Omniture, the Web analytics software maker it acquired for $1.8 billion in October. Omniture expands the company's product offerings because it provides a way for businesses to measure the effectiveness of the Web content they create using Adobe's software.

For the full year, the company earned $386.5 million, down 56 percent from a year earlier. Revenue fell 18 percent, to $2.95 billion. Over the past year, Adobe reduced its work force by about 1,300, though it gained some from the Omniture acquisition.

Adobe's shares fluctuated in after-hours trading as investors digested the news. The stock climbed 6 cents to $36.42 in extended trading after closing up 58 cents at $36.36.

Credit Suisse expects to pay $536 million

SAN FRANCISCO (AP) -- Credit Suisse Group said Tuesday that it expects to pay $536 million to settle a five-year Justice Department investigation into business it did with countries subject to U.S. economic sanctions between 2002 and 2007.

The bank said it is in advanced settlement talks with the Justice Department, Federal Reserve, Manhattan district attorney's office and the Treasury Department's Office of Foreign Assets Control. Credit Suisse expects to book a fourth-quarter charge of 445 million euros ($649.2 million) related to the deal.

The Manhattan District Attorney's office confirmed Tuesday it was negotiating with the bank, but spokeswoman Alicia Maxey Greene said there was no final agreement. The DA's office has scheduled a news conference on the subject Wednesday.

The bank said it had previously disclosed the investigation and undertook an internal review of some U.S. dollar payments that involved countries, people or entities who could be subject to U.S. economic sanctions. That review has been completed.

Credit Suisse also said it exited the business in question in December 2005 and conducted an independent investigation into payment activity in Zurich. The company added that in 2006 it stopped doing business with all parties sanctioned by the Office of Foreign Assets Control, and as part of this move shuttered an office in Tehran.

Countries under economic sanction by the U.S. include North Korea, Cuba and Iran.

Wells Fargo stock offering to raise $12.25B

NEW YORK (AP) -- Wells Fargo & Co. said Tuesday that a stock offering planned for later this week should raise $12.25 billion that will be used to help repay its government bailout loan.

The offering price of $25 a share was announced a day after Wells Fargo said it would repay the $25 billion it received as part of the Troubled Asset Relief Program.

The stock sale is expected to close on Friday, Wells Fargo said. It will raise $10.65 billion from selling 426 million shares of common stock, and another $1.6 billion from selling another 63.9 million shares to underwriters, bringing the total offering to 489.9 million shares.

The bank's shares outstanding will increase by about 10.4 percent from 4.69 billion shares of common stock outstanding as of Oct. 30. Wells Fargo's shares rose 17 cents to close at $25.66 on Tuesday.

"We are very pleased with the positive reception for this equity offering, and we appreciate the confidence investors have demonstrated in Wells Fargo's strength and future prospects," Chief Financial Officer Howard Atkins said in a prepared statement.

Wells Fargo was the last of the initial eight big banks that received TARP money to announce it would repay the government. The San Francisco-based bank's announcement on Monday came just hours after Citigroup Inc. said it would repay $20 billion in TARP money and the government would sell its nearly 34-percent stake in the bank.

By repaying TARP, Wells Fargo escapes restrictions like caps on executive compensation and dividends. It will also save the bank $1.25 billion annually in interest payments it had to pay the government for the money.

Aside from the stock sale, Wells Fargo also is issuing $1.35 billion in stock to employees instead of giving them cash bonuses. The TARP compensation restrictions affected the size of cash salary and bonuses banks could award their executives.

The size of the stock offering means Wells Fargo will no longer need to raise $1.5 billion through asset sales by the end of 2010, the bank said.

Separately Tuesday, Wells Fargo said it will pay $4.5 billion in cash for Prudential Financial Inc.'s stake in the companies' retail brokerage joint venture, which includes Wells Fargo Advisors LLC. Wells Fargo will buy the noncontrolling stake by Dec. 31.

"Wells Fargo considered the cost of Prudential's put in the assumptions for the Wachovia merger and we are pleased to take this next step pursuant to the agreement between Wachovia and Prudential," Wells Fargo Chief Financial Officer Howard Atkins said. Wells Fargo purchased Wachovia Corp. at the height of the financial market crisis last year.

Prudential Chairman and CEO John Strangfeld said in a statement that the deal will substantially enhance the company's capital position and financial flexibility going forward.

The purchase price is based on the value of Wells Fargo Advisors (then known as Wachovia Securities) at Jan. 1, 2008, prior to the contribution of the retail securities businesses of A.G. Edwards & Sons. Wells Fargo was advised by Greenhill & Co. LLC and Prudential was advised by Barclays Capital Inc. in determining the valuation.

Cobalt International Energy IPO prices below range

DENVER (AP) -- Cobalt International Energy Inc. hoped investors would contribute more than $1 billion to its search for oil miles beneath the ocean even though it has no proven reserves and it expects no revenue for at least another two years.

But the Houston-based company fell short of its goal Tuesday evening, raising $850.5 million in its initial public offering as it priced 63 million shares at $13.50 each -- below the $15 to $17 range it had expected. Proceeds could reach $978.1 million if the offering's underwriters exercise an option to buy 9.45 million more shares.

Cobalt is a risky bet, say analysts who research IPOs.

Founded in 2005 by a group of private equity investors and longtime oil industry executives, including Chairman and CEO Joseph H. Bryant, whose resume includes stints at Unocal Corp., BP and Amoco, Cobalt has posted losses throughout its history and no one really knows where volatile oil prices will be in three years.

When the company strikes oil, it will take Cobalt additional time to get a well in production, analysts said.

"IPO buyers are looking for financials that are tangible, a revenue stream that's visible and profits. They're not looking for concepts right now," said Scott Sweet, senior managing partner of IPOBoutique in Tampa, Fla., comparing Cobalt to an early-stage biotech firm that still needs to go through four phases of testing to get federal approval.

In 2008, the company had a loss of $71.6 million, compared with a loss of $108.9 million the previous year. The company has lost $322.1 million since its inception.

It is unusual for an oil and gas company to go to the public markets without reserves in place or production under way, said research analyst Nick Einhorn of Renaissance Capital based in Greenwich, Conn.

"There's a lot of risks but I think for an investor who kind of believes in this deepwater opportunity, it is a good way to get 100 percent exposure to that," he said.

Cobalt has developed a proprietary method for exploration that involves analyzing geophysical information, including seismic data. It has purchased leases in the Gulf of Mexico, and off the coast of Angola and Gabon, regions where many major oil companies operate.

It has invested about $1 billion and expects to spend $1.4 billion over the next two years on exploration, Einhorn said.

Cobalt is reaching out to the public markets as the oil industry is recovering from the recession. Oil prices have hovered in the $70 range since early October, up from a low of $32.70 per barrel in January. But supplies have remained high and demand has diminished.

The company aims to raise money to finance drilling and exploration through 2011, capital spending and for general corporate purposes.

Cobalt shares will begin trading under the symbol "CIE" on the New York Stock Exchange on Wednesday.

No real consensus on bank overhaul

WASHINGTON (AP) -- After meeting with bank executives, President Barack Obama noted "a big gap" between the CEOs and their lobbyists on his campaign to rewrite the rules governing the financial industry. The CEOs "support reform," Obama said, but their lobbyists have been sending a different message.

Appearing separately after the meeting, the bankers seemed to agree. "We're going to do a better job ... to work with the lobbyists" to address that disconnect, US Bancorp CEO Richard Davis said.

But the "gap" Obama said he discovered is an illusion. The bankers not only are well aware of their lobbyists' efforts, they direct them. They have supported parts of Obama's financial agenda since long before the financial crisis, when they proposed the same measures.

In striking the appearance of agreement, both sides glossed over a dispute on one key proposal: the creation of a new agency to protect consumers from bank abuses. The proposed agency would have rule-writing authority and onsite examiners.

That proposal is the core of Obama's proposed changes, and U.S. banks and their representatives oppose it unanimously. Monday's meeting didn't change that.

"The bankers (in the meeting) said they support consumer protection, but there's no reason as far as I can tell to believe they support" the new consumer protection agency, said Ed Yingling, president of the American Bankers Association.

That bankers support many other items on Obama's agenda should come as no surprise. Many of the president's key provisions track closely with a 2007 report overseen by the CEO of JPMorgan Chase & Co. and the chairman of Wells Fargo & Co., and released by the Financial Services Roundtable, which represents the 100 largest financial firms.

Roundtable lobbyist Scott Talbott said his group supported much of Obama's plan before it was announced. But he said his group and other industry groups have been consistent in opposing the proposed consumer agency.

By suggesting the opposition comes from lobbyists rather than bankers, Obama could be giving his White House guests room to soften their position. It's also a populist tactic that takes aim at a group he has often vilified -- those who play Washington's lucrative influence game.

He also may be attempting to neutralize the U.S. Chamber of Commerce, which has spent millions of dollars on a high-profile campaign to defeat the proposed consumer agency. The Chamber already won key concessions in the version of the bill that passed the House this month.

Obama's own poll numbers have been sagging, and he has little to lose from tapping the vast reservoir of public anger at banks. On Sunday night, the day before meeting with them, he was on TV calling bankers "fat cats" who "don't get it."

Monday's meeting let Obama sharpen his get-tough message, then claim to have discovered common ground.

He criticized the banks' lavish executive pay practices -- even though they have made progress in tying compensation to long-term performance. He pressed them to lend more money to consumers and businesses -- then acknowledged banks are hamstrung by the rough economy and regulators are cracking down on risky lending.

Asked about the supposed gap between bank CEOs and their lobbyists, White House spokeswoman Jennifer Psaki said, "We expect the CEOs to say the same thing in public and in private to members of Congress that they said to the president in person yesterday."

And that gap Obama discovered between the bankers' support for the rules rewrite and their lobbyists' rhetoric? Davis, the bank CEO who promised to close the gap between CEOs and lobbyists, is the incoming chairman of the Financial Services Roundtable. The Roundtable has been among the proposed consumer agency's most strident opponents, saying it "would actually harm consumers."

Davis spent the hours after Monday's White House meeting at the Roundtable's offices. The lines of communication between bank executives and their lobbyists remain open.

Aside from the rhetoric, there's no evidence they ever were closed.

Boeing's 787 jetliner finally takes to the air

EVERETT, Wash. (AP) -- The first flight of Boeing's new 787 jetliner brought no surprises -- exactly what pilots, engineers and company officials had anxiously sought for the long-delayed aircraft.

"The airplane responded just as we expected," Randy Neville, one of the two pilots, said after touchdown Tuesday at Seattle's Boeing Field. "It was a joy to fly."

Boeing has billions of dollars and its reputation riding on the sleek, blue-and-white aircraft that lifted off from Everett's Paine Field on a flight over western Washington, beginning the extensive flight testing program needed to obtain Federal Aviation Administration certification.

The widebody jet, the first commercial airplane made mostly of lightweight composite materials, is more than two years behind schedule because of parts problems and labor trouble. Chicago-based Boeing was determined the plane would fly before the end of the year to prove the program was back on track.

Neville and chief pilot Mike Carricker performed a variety of basic system checks, including testing the landing gear and the flaps, before landing about three hours later. Deteriorating but typical Northwest winter weather -- rain, cold and wind -- brought the plane back about an hour earlier than planned.

Before takeoff, the 186-foot-long aircraft paused for several minutes at the end of the runway for final checks, adding to the tension for Boeing employees, customers and airline executives standing on the tarmac. Loud cheers and applause built as the plane started its takeoff roll and took to the sky, its two huge engines kicking up clouds of mist.

"It's very historical. I can't think of a thing about it that I'm not impressed with," said Joe Bierce, a flight instructor for Delta Connection in Jacksonville, Fla., who was among the 25,000 people who gathered to watch the takeoff.

The 787 is a radical departure in aircraft design. Where other passenger jets are made mostly from aluminum and titanium, nearly all of the 787's fuselage and wings are made of lightweight composite materials such as carbon fiber, accounting for about 50 percent of the aircraft by weight.

Those materials have long been used on individual parts such as rudders, and on military planes, but the 787 is the most ambitious use of the technology aboard a passenger plane.

Boeing says the aircraft will be quieter, produce lower emissions and use 20 percent less fuel than comparable planes, while giving passengers a more comfortable cabin with better air quality and larger windows.

Officials cut the flight a little short after rain reduced visibility at Boeing Field and the aircraft ran into poor weather off the Washington coast.

Carriker said there was a "very, very aggressive plan" for tests on the initial flight and that he and Neville were able to accomplish about half those goals. The weather prevented them from flying the long straight stretches they expected, he said, but did allow them to test the plane in turbulence and icing, things not normally encountered on a first flight.

"There were no major issues with the plane, which considering the complexity is a huge statement," he said.

The plane is the first of six 787s Boeing will use in the nine-month flight-test program that will subject the aircraft to conditions well beyond those found in normal airline service, including temperature extremes, flying on one engine and slamming on the brakes at takeoff speed.

Boeing, which has orders for 840 of the jets, plans to make the first delivery to Japan's All Nippon Airways late next year. The 787 remains Boeing's best-selling new plane to date, though some airlines have been forced to cancel or postpone purchases because of the weak economy.

For the first time, Boeing has relied on suppliers around the globe to build nearly all components of the plane, which are then assembled in Everett. But that approach has proved problematic, with ill-fitting parts and other glitches hampering production.

The first flight was supposed to be in 2007, with deliveries the following year. Boeing was forced to push that back five times -- delays that have cost the company credibility, sales and billions of dollars.

Most recently, Boeing needed to reinforce the area where the wings join the fuselage. Tests were completed on that fix just two weeks ago.

An eight-week strike last year by Seattle-area production workers also caused problems and factored into Boeing's decision in October to create a second 787 assembly line in North Charleston, S.C.

Scott Fancher, vice president and general manager of the 787 program, said he believes both the 200-day flight test program and efforts to ramp up 787 production will go as planned. The next test flight for the first 787 is expected in about a week, Carriker said.

The version being tested will be able to fly up to 250 passengers about 9,000 miles. A stretch version will be capable of carrying 290 passengers and a short-range model up to 330.

Boeing rival Airbus has developed the A350 XWB as the main competitor to the 787 line. Like Boeing's jetliner, the Airbus plane also features composite materials, including in the fuselage and wings.

Airbus says it had received 505 orders for the A350 from 32 customers as of November. The European company is aiming to deliver the first plane in 2013.

Tuesday's flight "was very mundane on takeoff and very mundane on the landing, and that's exactly what you want on the first flight of an experimental airplane," said analyst Scott Hamilton of Leeham Co., an aviation consulting firm in Issaquah, east of Seattle. "Boring is good in aviation."

But the significance, he said, lies in the 787's cutting-edge design and the way it's being manufactured.

"All of this is going to set the stage for all Boeing planes in the future," Hamilton said. "It's a very important milestone in the history of the company."

Associated Press Writer Manuel Valdes contributed to this report from Seattle.

Boeing 787 First Flight Web site, including link to flight Webcast: http://787firstflight.newairplane.com

CarMax reports 3Q results Friday

RICHMOND, Va. (AP) -- Car dealership chain CarMax Inc. is scheduled to report earnings for its fiscal third quarter on Friday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The company based in Richmond, Va., said in September that its profit surged more than six-fold to $103 million for its second quarter ended Aug. 31 on a 13 percent rise in sales and a one-time gain related to its auto financing business.

The company predominantly sells used vehicles. While used cars didn't qualify under the federal Cash for Clunkers program that gave rebates for junking older cars and buying more fuel-efficient vehicles, CEO Tom Folliard said the program resulted in a spike in traffic in late July and August. But analysts said some of the sales volume was pulled forward and could likely hurt third-quarter results.

Folliard said he was encouraged by the company's sales execution, solid gross profit and an improved performance from its financing arm. He also said the Clunkers program had a positive effect on improving consumer mindset about the auto industry.

CarMax, which operates 100 stores, also has been focused on eliminating waste and improving execution to weather the weak automotive market and better position it for future growth. For the first half of the year, the company has lowered its expenses by 9.4 percent, or $43.8 million, compared with the year-ago period.

Last year, CarMax said it swung to a $21.9 million loss in the third quarter due to slumping sales and store traffic, and loan loss write-downs in its auto finance arm. Sales fell 23 percent to $1.46 billion in the quarter.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters, on average, expect a third-quarter profit of 15 cents per share on $1.65 billion in revenue.

ANALYST TAKE: Following its second-quarter results, Goldman Sachs analyst Matthew J. Fassler upgraded shares of CarMax, citing increasingly easy credit plus robust margins.

"Through a stellar August quarter, CarMax, virtually uniquely among cyclical retailers, is running margins above 'normal' levels," he wrote in a client note.

He cited strong selling prices that reflect a shortage of trade-ins. He said the company's strong cost controls will keep boosting profits.

William Blair analyst Sharon Zackfia said increasingly easy monthly sales comparisons to year-earlier figures also should also help the stock.

WHAT'S AHEAD: Wall Street will be looking to see when CarMax will resume its long-term plan of growing its store base at annual rate of about 15 percent. Over the past year, the company has curtailed its store growth in response to the weak ecconomic environment.

STOCK PERFORMANCE: During the quarter ended Nov. 30, shares of CarMax rose about 18 percent to end the period at $19.88. Over the past 52 weeks, the stock has traded between $6.92 and $23.07.

EU drops Microsoft browser charges

BRUSSELS (AP) -- The European Union said Wednesday it is dropping antitrust charges against Microsoft Corp. after the company agreed to give Windows users a choice of up to 12 other Web browsers.

Under the terms of the deal with regulators, Microsoft will avoid further EU fines if it provides a pop-up screen that lets European users -- from March -- replace Microsoft's Internet Explorer or add another browser such as Mozilla's Firefox or Google's Chrome.

This will also allow computer manufacturers to ship PCs without Internet Explorer in Europe.

Neelie Kroes, the EU's competition commissioner, said it was an "early Christmas present for more than hundreds of millions of Europeans" who stood to benefit from having "effective and unbiased choice" between Microsoft's Internet Explorer and competing browsers.

"The (European) Commission has resolved a serious competition concern for a key market for the development of the Internet," she told reporters.

"It is as if you went to the supermarket and they only offered you one brand of shampoo on the shelf, and all the other choices are hidden out the back, and not everyone knows about them," she said. "What we are saying today is that all the brands should be on the shelf."

Microsoft general counsel Brad Smith said the company was pleased with "final resolution of several long-standing competition law issues in Europe" and looked forward to building "on the dialogue and trust that has been established between Microsoft and the Commission."

Microsoft is not out of the woods yet though, as it was warned it can still be fined up to 10 percent of yearly global turnover without regulators having to prove their case if it doesn't stick to this commitment for the next five years.

The deal comes after more than a decade of EU antitrust action against the world's biggest software company that has already seen it pay euro1.7 billion in fines.

Kroes also warned that she was still looking at complaints from software rivals that the company wasn't sharing key information that help others make products compatible with Microsoft software.

In January, the EU charged Microsoft with monopoly abuse for tying its browser, Internet Explorer to the Windows operating system software used on most desktop computers -- this, they said, was an "artificial distribution advantage" that rivals didn't have.

Kroes said since Internet Explorer was present "on virtually every PC in Europe," a lot of Internet content was specially adapted to Internet Explorer. Other software makers complain that this caused technical problems that made it hard to use other browsers.

The EU said Monday that a pop-up choice screen would eliminate those concerns when it is downloaded as an automatic update to all users of Windows XP, Windows Vista and Windows 7 in Europe who have Internet Explorer set as their default browser. Other users will be asked if they want it.

The choice screen will list the 12 most-widely used Web browsers running on Windows -- listing five prominently. Users can pick and download one or several of them, choosing from Apple's Safari, Chrome, Internet Explorer, Firefox, Opera, AOL, Maxthon, K-Meleon, Flock, Avant Browser, Sleipnir and Slim Browser.

Some 100 million computers will likely display the screen by mid-March and around 30 million new computers will show it over the next five years, the EU said.

People can keep Internet Explorer if they want -- but they will for the first time be exposed to other browsers, providing a massive new audience to many smaller browser makers.

The choice of browsers will be updated every six months on the basis of several independent sources of market share information.

Microsoft will report back regularly to the European Commission, starting in six month's time, on how the rollout of the screen is going -- and could make changes if the EU asks. The EU is also able to review the entire deal at the end of 2011.

Microsoft will also provide more information to help software developers make products compatible with Windows, Windows Server, Office, Exchange and SharePoint and will publish what the EU says is an "improved version" of an offer that Microsoft first made in July.

The EU says it is still investigating whether Microsoft is holding back some of the key data that developers need to make products that work with its software.

Regulators said they welcomed Microsoft's move but that the offer was still "informal" and wouldn't end their probe. But they offered some hope saying they would "carefully monitor the impact" of the deal on the market.

Thomas Vinje, a lawyer for browser company Opera and the European Committee for Interoperable Systems, said it was "not yet clear" that Microsoft's offer would create "a more level competitive playing field where open source software is not subject to Microsoft patent fear uncertainty and doubt."

Vinje helped file the complaints to EU regulators that triggered the investigations into Microsoft's browsers and interoperability sharing.