Adobe Systems Reports Strong Q2 Revenue and Earnings; Record Adobe Creative Suite and Adobe Acrobat Revenue Drive 28 Percent Top Line Growth

Business Wire, June 17, 2004

SAN JOSE, Calif. -- Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its second quarter ended June 4, 2004.

In the second quarter of fiscal 2004, Adobe achieved revenue of $410.1 million, compared to $320.1 million reported for the second quarter of fiscal 2003 and $423.3 million reported in the first quarter of fiscal 2004. On a year-over-year basis, this represents 28 percent revenue growth. Adobe's second quarter revenue target range, revised upward on May 3, 2004, was $390 to $410 million.

"Continued strong demand for the Adobe Creative Suites and the Adobe Acrobat product family, combined with solid execution across our business, highlighted another exceptional quarter," said Bruce R. Chizen, president and chief executive officer. "Our strategy of delivering comprehensive platforms to our customers is driving greater revenue than anticipated. As a result, we expect to exceed our previous full year financial targets."

GAAP diluted earnings per share for the second quarter of fiscal 2004 were $0.44. Non-GAAP diluted earnings per share, which does not include an investment gain from the company's venture program, also were $0.44. Adobe's revised GAAP and non-GAAP second quarter earnings target range was $0.39 to $0.44 per share.

GAAP net income was $109.4 million for the second quarter of fiscal 2004, compared to $64.2 million reported in the second quarter of fiscal 2003, and $123.0 million in the first quarter of fiscal 2004. On a year-over-year basis, GAAP net income grew 70 percent.

Non-GAAP net income, which does not include investment gains and losses, was $108.8 million for the second quarter of fiscal 2004, compared to $66.7 million in the second quarter of fiscal 2003, and $123.8 million in the first quarter of fiscal 2004. On a year-over-year basis, non-GAAP net income grew 63 percent.

GAAP diluted earnings per share for the second quarter of fiscal 2004 were $0.44 based on 247.0 million weighted average shares. This compares with GAAP diluted earnings per share of $0.27 reported in the second quarter of fiscal 2003, based on 239.2 million weighted average shares, and GAAP diluted earnings per share of $0.50 reported in the first quarter of fiscal 2004, based on 246.1 million weighted average shares.

Adobe's GAAP and non-GAAP operating income were $141.8 million in the second quarter of fiscal 2004, compared to $91.5 million in the second quarter of fiscal 2003 and $163.3 million in the first quarter of fiscal 2004. As a percent of revenue, GAAP and non-GAAP operating income in the second quarter of fiscal 2004 were 34.6 percent, compared to 28.6 percent in the second quarter of fiscal 2003 and 38.6 percent in the first quarter of fiscal 2004.

Company Provides Third Quarter Financial Targets

For the third quarter of fiscal 2004, the Company announced that it is targeting revenue of $360 to $380 million, a gross margin range of approximately 93 to 94 percent, and GAAP and non-GAAP operating margin ranges of 28 to 31 percent.

As a percent of revenue, Adobe is targeting third quarter expenses as follows:

Research & Development -- approximately 21 to 22 percent

Sales & Marketing -- approximately 32 to 34 percent

General & Administrative -- approximately 9 to 10 percent

In addition, Adobe is targeting its share count range to be between 247 and 249 million shares in the third quarter of fiscal 2004. The Company also is targeting other income in its third quarter to be approximately $4 million, and a tax rate of 26 percent. These targets lead to third quarter GAAP and non-GAAP earnings per share target ranges of $0.31 to $0.36.

The Company currently believes targeted non-GAAP earnings per share and non-GAAP operating margin results will not differ materially from targeted GAAP results.

The Adobe Board of Directors declared this quarter's cash dividend of $0.0125 per share, payable on July 13, 2004 to stockholders of record as of June 29, 2004.

Forward Looking Statements Disclosure

This press release contains forward looking statements, including those related to revenue, gross margin, operating margin, operating expenses, share count, tax rate, and earnings per share, 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: adverse changes in general economic or political conditions in any of the major countries in which we do business, delays in development or shipment of our new products or major new versions of existing products, introduction of new products by existing and new competitors, difficulties in transitions to new business models or markets, changes in demand for application software, computers and printers, intellectual property disputes and litigation, changes to our distribution channel, the impact of malicious code, such as worms and viruses, on our computer network and applications, interruptions or terminations in our relationships with our turnkey assemblers, fluctuations in foreign currency exchange rates, changes in accounting rules, unanticipated changes in tax rates, market risks associated with our equity investments, and our inability to attract and retain key personnel. For further discussion of these and other risks and uncertainties, individuals should refer to the Company's SEC filings, including the 2003 annual report on Form 10-K and quarterly reports on Form 10-Q filed in 2004. The Company does not undertake an obligation to update forward looking statements.