EX-99.1 4 a2118520zex-99_1.htm EXHIBIT 99.1
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EXHIBIT 99.1

Investor Relations Contact:
Mike Saviage
Adobe Systems Incorporated
408 536.4416
ir@adobe.com

Public Relations Contact:
Holly Campbell
Adobe Systems Incorporated
408 536.6401
campbell@adobe.com

Adobe Systems Reports Strong Third Quarter
Fiscal 2003 Results

Company Exceeds Q3 Revenue and Earnings Targets with 62 Percent ePaper Revenue Growth

SAN JOSE, Calif.—September 10, 2003 (NASDAQ: ADBE)—Adobe Systems Incorporated, the leader in network publishing, today reported financial results for its third quarter ended August 29, 2003 that exceeded the Company's prior revenue and earnings per share target ranges.

In the third quarter of fiscal 2003, Adobe achieved revenue of $319.1 million, compared to $284.9 million reported for the third quarter of fiscal 2002 and $320.1 million reported in the second quarter of fiscal 2003. On a year-over-year basis, this represents 12 percent growth. Adobe's third quarter revenue target range was $300 to $315 million.

GAAP diluted earnings per share for the third quarter of fiscal 2003 were $0.27. Pro forma diluted earnings per share, which does not include an investment loss from the Company's venture program and a partial reversal of a prior restructuring charge, were $0.28. Adobe's GAAP and pro forma third quarter earnings target range was $0.22 to $0.25 per share.

"Our exceptional Q3 performance was driven by year-over-year growth of 62 percent in our ePaper business," said Bruce R. Chizen, president and CEO of Adobe Systems. "As we look to Q4 and beyond, we are optimistic about the growth opportunities across our overall business."

GAAP net income was $64.5 million for the third quarter of fiscal 2003, compared to $47.2 million reported in the third quarter of fiscal 2002, and $64.2 million in the second quarter of fiscal 2003. On a year-over-year basis, GAAP net income grew 37 percent.

Pro forma net income, which does not, as applicable, include amortization of goodwill and purchased intangibles, restructuring and other charges, and investment losses, was $66.3 million for the third quarter of fiscal 2003, compared to $52.5 million in the third quarter of fiscal 2002, and $66.7 million in the second quarter of fiscal 2003. On a year-over-year basis, pro forma net income grew 26 percent.

GAAP diluted earnings per share for the third quarter of fiscal 2003 were $0.27, based on 240.5 million weighted average shares. This compares with GAAP diluted earnings per share of $0.19 reported in the third quarter of fiscal 2002, based on 243.4 million weighted average shares, and GAAP diluted earnings per share of $0.27 reported in the second quarter of fiscal 2003, based on 239.2 million weighted average shares.

Adobe's GAAP operating income was $92.2 million in the third quarter of fiscal 2003, compared to $69.5 million in the third quarter of fiscal 2002 and $91.5 million in the second quarter of fiscal 2003.

As a percent of revenue, GAAP operating income in the third quarter of fiscal 2003 was 28.9 percent, compared to 24.4 percent in the third quarter of fiscal 2002 and 28.6 percent in the second quarter of fiscal 2003.

Adobe's pro forma operating income, which does not, as applicable, include the amortization of goodwill and purchased intangibles, and restructuring and other charges, was $91.8 million in the third quarter of fiscal 2003, compared to $73.0 million in the third quarter of fiscal 2002 and $91.5 million in the second quarter of fiscal 2003. As a percent of revenue, pro forma operating income for the third quarter was 28.8 percent, compared to 25.6 percent in the third quarter of fiscal 2002 and 28.6 percent in the second quarter of fiscal 2003.

For the fourth quarter of fiscal 2003, the Company announced that it is targeting revenue of $330 to $350 million, a gross margin of approximately 93 percent, and GAAP and pro forma operating margin ranges of 31 to 32 percent.

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

Research & Development—approximately 20 to 21 percent
Sales & Marketing—approximately 32 percent
General & Administrative—approximately 9 percent

In addition, Adobe is targeting its share count range to be between 243 and 245 million shares in the fourth quarter of fiscal 2003. The Company also is targeting other income to be approximately $3 million, and a tax rate of 30 percent. These targets lead to GAAP and pro forma earnings per share target ranges of $0.30 to $0.32 in the quarter.

The Company currently believes that targeted pro forma earnings per share and pro forma operating margin results will not differ materially from targeted GAAP results.

The Company also said that it plans to make several major product announcements on September 29, 2003 at a customer event in New York City. A simultaneous Webcast of the keynote presentation from the event will be made available over the Internet from Adobe.com. Additional details regarding this event will be announced in advance of the event taking place.

The Adobe Board of Directors declared this quarter's cash dividend of $0.0125 per share, payable on October 7, 2003 to stockholders of record as of September 23, 2003.

Forward Looking Statements Disclosure

This press release contains forward looking statements, including those related to revenue, earnings per share, and product releases, 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: general economic or political conditions in any of the major countries in which we do business, introduction of new products by existing and new competitors, delays in development or shipment of our new products or major new versions of existing products, difficulties in transitions to new markets, including the enterprise, government, and consumer markets, changes to our distribution channel, inability to attract and retain key personnel, lack of market acceptance of new products and upgrades, changes in demand for application software, computers and printers, sales price adjustments, intellectual property disputes and litigation, industry transitions to new business models, renegotiation or termination of royalty or intellectual property licensing arrangements, changes in accounting rules, and market risks associated with our equity investments. For further discussion of these and other risks and uncertainties, individuals should refer to the Company's SEC filings, including the 2002 annual report on Form 10-K and quarterly reports on Form 10-Q filed in 2003. The Company does not undertake an obligation to update forward looking statements.

About Adobe Systems Incorporated

Founded in 1982, Adobe Systems Incorporated (www.adobe.com), the leader in network publishing, offers a comprehensive line of software for enterprise and creative professional customers. Its products enable customers to create, manage and deliver visually rich, compelling and reliable content. Based in San Jose, Calif., Adobe is one of the world's largest software companies.

Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)

			Three Months Ended						Nine Months Ended
			August 29, 2003			August 30, 2002			August 29, 2003			August 30, 2002
Revenue:
	Products		$	312,633		$	280,505		$	917,538		$	864,655
	Services and support			6,489			4,374			18,625			5,479

		Total revenue		319,122			284,879			936,163			870,134

Total cost of revenue:
	Products			18,854			28,471			58,426			73,303
	Services and support			3,223			3,165			9,369			4,463

		Total cost of revenue		22,077			31,636			67,795			77,766

Gross profit				297,045			253,243			868,368			792,368
Operating Expenses:
	Research and development			68,814			59,746			203,892			181,901
	Sales and marketing			106,134			93,837			309,874			287,053
	General and administrative			30,321			26,649			90,857			81,314
	Restructuring and other charges			(439	)		—			(439	)		1,605
	Acquired in-process research and development			—			—			—			5,769
	Amortization of goodwill and purchased intangibles			—			3,541			—			10,623

		Total operating expenses		204,830			183,773			604,184			568,265

Operating income				92,215			69,470			264,184			224,103
Non-operating income (loss):
	Investment loss			(2,996	)		(4,198	)		(13,254	)		(13,393	)
	Interest and other income			2,958			4,141			10,492			11,805

		Total non-operating loss		(38	)		(57	)		(2,762	)		(1,588	)

Income before income taxes				92,177			69,413			261,422			222,515
Provision for income taxes				27,653			22,212			78,427			71,205

Net income			$	64,524		$	47,201		$	182,995		$	151,310

Basic net income per share			$	0.28		$	0.20		$	0.79		$	0.64

Shares used in computing basic net income per share				233,364			238,010			232,288			237,812

Diluted net income per share			$	0.27		$	0.19		$	0.77		$	0.62

Shares used in computing diluted net income per share				240,495			243,375			238,592			245,119

Condensed Consolidated Balance Sheets
(In thousands, except per share data)

			August 29, 2003 (Unaudited)			November 29, 2002 (Audited)
ASSETS
Current assets:
	Cash and cash equivalents		$	144,461		$	183,684
	Short-term investments			708,269			434,053
	Trade receivables			108,707			116,506
	Other receivables			32,348			30,367
	Deferred income taxes			12,141			31,530
	Other current assets			31,236			18,032

		Total current assets		1,037,162			814,172

Property and equipment, net				72,874			71,090
Goodwill and other intangibles, net				112,450			98,813
Other assets				39,498			43,085
Deferred income taxes, long-term				24,797			24,450

Total assets			$	1,286,781		$	1,051,610

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Trade and other payables		$	32,070		$	37,765
	Accrued expenses			148,301			135,028
	Income taxes payable			201,025			173,311
	Deferred revenue			41,609			31,185

		Total current liabilities		423,005			377,289

Stockholders' equity:
	Common stock, $0.0001 par value			29,576			29,576
	Additional paid-in-capital			764,323			710,273
	Retained earnings			1,720,037			1,545,776
	Accumulated other comprehensive loss			(127	)		(3,950	)
	Treasury stock, at cost, net of re-issuances			(1,650,033	)		(1,607,354	)

		Total stockholders' equity		863,776			674,321

Total liabilities and stockholders' equity			$	1,286,781		$	1,051,610

Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

					Three Months Ended
					August 29, 2003			August 30, 2002
Cash flows from operating activities:
	Net income				$	64,524		$	47,201
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				12,182			16,841
		Stock compensation expense				660			1,216
		Deferred income taxes				9,547			(10,796	)
		Provision for losses on receivables				(16	)		(573	)
		Tax benefit from employee stock option plans				2,244			995
		Loss on impairment				—			5,545
		Loss on equity and cost method investments				2,822			2,989
		(Gains) losses on sale of equity securities				99			(70	)
		Loss on other-than-temporary declines of equity securities				75			1,279
		Changes in operating assets and liabilities:
			Receivables			17,552			(9,277	)
			Other current assets			(5,262	)		(9,868	)
			Trade and other payables			(9,236	)		(844	)
			Accrued expenses			(5,795	)		(16,500	)
			Accrued restructuring charges			(1,396	)		(6,199	)
			Income taxes payable			9,495			23,121
			Deferred revenue			(412	)		1,519

				Net cash provided by operating activities		97,083			46,579

Cash flows from investing activities:
	Purchases of short-term investments					(153,807	)		(186,371	)
	Maturities and sales of short-term investments					83,722			159,240
	Acquisitions of property and equipment					(7,682	)		(7,278	)
	Purchases of long-term investments					(594	)		(3,713	)
	Additions to other assets					(4,465	)		(3,172	)
	Proceeds from sale of equity securities					20			671

				Net cash used for investing activities		(82,806	)		(40,623	)

Cash flows from financing activities:
	Purchase of treasury stock					(39,187	)		(111,080	)
	Proceeds from issuance of treasury stock					31,140			17,570
	Payment of dividends					(2,916	)		(2,994	)

				Net cash used for financing activities		(10,963	)		(96,504	)

	Effect of foreign currency exchange rates on cash and cash equivalents					(684	)		650

Net increase (decrease) in cash and cash equivalents						2,630			(89,898	)
Cash and cash equivalents at beginning of period						141,831			231,252

Cash and cash equivalents at end of period					$	144,461		$	141,354

Pro Forma Results
(In thousands, except per share data)

The following table shows the Company's pro forma results reconciled to the Generally Accepted Accounting Principles ("GAAP") Condensed Consolidated Statements of Income table included on page 4 of this release. The Company's pro forma results do not, as applicable, include restructuring and other charges, acquired in-process research and development, amortization of goodwill and purchased intangibles, or losses on investments in equity securities.

	Three Months Ended					Nine Months Ended
	August 29, 2003			August 30, 2002		August 29, 2003			August 30, 2002
Income before income taxes	$	92,177		$	69,413	$	261,422		$	222,515
Restructuring and other charges		(439	)		—		(439	)		1,605
Acquired in-process research and development		—			—		—			5,769
Amortization of goodwill and purchased intangibles		—			3,541		—			10,623
Investment loss		2,996			4,198		13,254			13,393

Pro forma income before taxes		94,734			77,152		274,237			253,905
Provision for income taxes		28,420			24,689		82,271			81,250

Pro forma net income	$	66,314		$	52,463	$	191,966		$	172,655

Basic net income per share	$	0.28		$	0.22	$	0.83		$	0.73

Shares used in computing basic net income per share		233,364			238,010		232,288			237,812

Diluted net income per share	$	0.28		$	0.22	$	0.80		$	0.70

Shares used in computing diluted net income per share		240,495			243,375		238,592			245,119

The above results are supplied to provide meaningful supplemental information regarding Adobe's core operating results because such information excludes amounts that are not necessarily related to its core operating results. Adobe uses this pro forma financial information in assessing the performance of the Company's ongoing operations, and for planning and forecasting in future periods. This pro forma information should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

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EXHIBIT 99.1