Adobe Systems Reports Record Revenue and Profit

In the first quarter of fiscal 2004, Adobe achieved record revenue of $423.3 million, compared to $296.9 million reported for the first quarter of fiscal 2003 and $358.6 million reported in the fourth quarter of fiscal 2003. On a year-over-year basis, this represents 43 percent growth. Adobe¹s first quarter revenue target range was $380 to $405 million.

"Our outstanding quarter was driven by strong global revenue from the new Adobe Creative Suite and record revenue from our Intelligent Documents business. This highlights the increasing relevance of Adobe technology platforms to creative professionals and enterprises worldwide," said Bruce R. Chizen, president and chief executive officer of Adobe. "Given the impressive start in Q1, we have raised our fiscal 2004 financial targets."

GAAP diluted earnings per share for the first quarter of fiscal 2004 were $0.50. Non-GAAP diluted earnings per share, which does not include an investment loss from the company¹s venture program, also were $0.50. Adobe¹s revised GAAP and non-GAAP first quarter earnings target range was $0.36 to $0.42 per share.

GAAP net income was a record $123.0 million for the first quarter of fiscal 2004, compared to $54.2 million reported in the first quarter of fiscal 2003, and $83.3 million in the fourth quarter of fiscal 2003. On a year-over-year basis, GAAP net income grew 127 percent.

Non-GAAP net income, which does not, as applicable, include a partial reversal of prior restructuring charges and investment gains and losses, was a record $123.8 million for the first quarter of fiscal 2004, compared to $58.9 million in the first quarter of fiscal 2003, and $83.0 million in the fourth quarter of fiscal 2003. On a year-over-year basis, non-GAAP net income grew 110 percent.

GAAP diluted earnings per share for the first quarter of fiscal 2004 were $0.50 based on 246.1 million weighted average shares. This compares with GAAP diluted earnings per share of $0.23 reported in the first quarter of fiscal 2003, based on 235.3 million weighted average shares, and GAAP diluted earnings per share of $0.34 reported in the fourth quarter of fiscal 2003, based on 245.5 million weighted average shares.

Adobe¹s GAAP operating income was $163.3 million in the first quarter of fiscal 2004, compared to $80.5 million in the first quarter of fiscal 2003 and $115.3 million in the fourth quarter of fiscal 2003. As a percent of revenue, GAAP operating income in the first quarter of fiscal 2004 was 38.6 percent, compared to 27.1 percent in the first quarter of fiscal 2003 and 32.1 percent in the fourth quarter of fiscal 2003.

Adobe¹s non-GAAP operating income, which does not, as applicable, include a partial reversal of prior restructuring charges, was $163.3 million in the first quarter of fiscal 2004, compared to $80.5 million in the first quarter of fiscal 2003 and $115.2 million in the fourth quarter of fiscal 2003. As a percent of revenue, non-GAAP operating income for the first quarter of fiscal 2004 was 38.6 percent, compared to 27.1 percent in the first quarter of fiscal 2003 and 32.1 percent in the fourth quarter of fiscal 2003.

Company Provides Second Quarter Financial Targets and Raises Fiscal Year 2004 Targets
For the second quarter of fiscal 2004, the Company announced that it is targeting revenue of $365 to $385 million, a gross margin of approximately 93 to 94 percent, and GAAP and non-GAAP operating margin ranges of 30 to 33 percent.

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

Research & Development ­ approximately 19 to 20 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 second quarter of fiscal 2004. The Company also is targeting other income in its second quarter to be approximately $3 to $4 million, and a tax rate of 26 percent. These targets lead to second quarter GAAP and non-GAAP earnings per share target ranges of $0.33 to $0.39.

For fiscal year 2004, Adobe increased its revenue target to a range of $1.475 to $1.5 billion. The Company also increased its annual operating margin target to a range of 31 to 32 percent, with a targeted GAAP and non-GAAP earnings per share range between $1.40 and $1.46. The Company¹s prior fiscal 2004 targets were revenue of approximately $1.425 billion, with an operating margin of approximately 30 percent.

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 quarter¹s cash dividend of $0.0125 per share, payable on April 13, 2004 to stockholders of record as of March 30, 2004.

Forward Looking Statements Disclosure
This press release contains forward looking statements, including those related to revenue, gross margin, operating expenses, operating margin, other income, tax rate, share count 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: 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 implementing strategic alliances, difficulties in transitions to new business models or markets in the enterprise, government, consumer and creative professional markets, changes to our distribution channel, inability to attract and retain key personnel, lack of market acceptance of new products, upgrades and services, changes in demand for application software, computers and printers, 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, unanticipated changes in tax rates 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 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.

About Adobe Systems Incorporated
Adobe helps people and businesses communicate better through its world-leading digital imaging, design and document technology platforms for consumers, creative professionals and enterprises. Adobe's revenue in the last fiscal year exceeded $1 billion. For more information about Adobe, visit www.adobe.com.

© 2004 Adobe Systems Incorporated. All rights reserved. Adobe and the Adobe logo are registered trademarks of Adobe Systems Incorporated in the United States and/or other countries.

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