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When importing ArcMap generated EPS or PDF files in Adobe Illustrator, the text is often broken into individual letters.
Adobe Illustrator does not correctly interpret kerning values in ArcMap generated EPS files.
Enhanced Metafile (EMF) and Computer Graphics Metafile (CGM) formats maintain labels and annotations as complete strings.
Adobe Illustrator (AI) is another export format that maintains text strings. This exporter is available with Service Pack 1 for ArcGIS 8.1, and can be downloaded from the link below. Later versions of ArcGIS already contain this exporter.