Adobe Systems Reports Record Revenue in First Quarter of Fiscal 2005

In the first quarter of fiscal 2005, Adobe achieved record revenue of $472.9 million, compared to   $423.3 million reported for the first quarter of fiscal 2004, and $429.5 million reported in the fourth quarter of fiscal  2004.  Adobe’s first quarter revenue target range, revised upward on February 1, 2005, was   $450 to $470 million.

“The explosive growth of digital content continues to drive demand for Adobe solutions across all of our customer  segments,” said Bruce R. Chizen, chief executive officer.  “This demand is particularly evident in our Intelligent  Documents business, where we see increasing adoption of Adobe PDF-based document workflows in organizations  and governments worldwide.  Based on our strong performance in Q1, and a planned major product launch this  quarter, we are increasing our financial targets for fiscal 2005.”

GAAP diluted earnings per share for the first quarter of fiscal 2005 were $0.60. Non-GAAP diluted earnings per share,  which excludes the net tax impact of the planned repatriation of certain foreign earnings, and investment gains and  losses from the Company’s venture program, were $0.53. Adobe’s revised GAAP and non-GAAP first quarter earnings  target range was $0.47 to $0.51 per share. 

GAAP net income was $151.9 million for the first quarter of fiscal 2005, compared to $123.0 million reported in the  first quarter of fiscal 2004, and $113.5 million in the fourth quarter of fiscal 2004.

Non-GAAP net income, which excludes, as applicable, the net tax impact of the planned repatriation of certain  foreign earnings, and investment gains and losses, was $133.8 million for the first quarter of fiscal 2005, compared to  $123.8 million in the first quarter of fiscal 2004, and $110.4 million in the fourth quarter of fiscal 2004.

GAAP diluted earnings per share for the first quarter of fiscal 2005 were $0.60 based on 253.1 million weighted  average shares. This compares with GAAP diluted earnings per share of $0.50 reported in the first quarter of fiscal  2004, based on 246.1 million weighted average shares, and GAAP diluted earnings per share of $0.45 reported in the  fourth quarter of fiscal 2004, based on 250.3 million weighted average shares.  Adobe’s GAAP and non-GAAP operating income was $170.7 million in the first quarter of fiscal 2005, compared to  $163.3 million in the first quarter of fiscal 2004 and $146.4 million in the fourth quarter of fiscal 2004.  As a percent of  revenue, GAAP and non-GAAP operating income in the first quarter of fiscal 2005 was 36.1 percent, compared to 38.6  percent in the first quarter of fiscal 2004 and 34.1 percent in the fourth quarter of fiscal 2004.

Board of Directors Approves Two-For-One Stock Split
Adobe also announced today that its Board of Directors has approved a two-for-one stock split, to be effected in the  form of a stock dividend.  Stockholders of record at the close of business on May 2, 2005 will be issued one additional  share of common stock for each share owned as of that date, with a payment date of May 23, 2005.  Adobe has  provided an FAQ document for the stock split on its Website at www.adobe.com/ADBE.

Adobe’s Board also declared this quarter’s cash dividend of $0.0125 per share, payable on April 12, 2005, to  stockholders of record as of March 29, 2005.

Adobe also indicated it will discontinue its quarterly dividend after the April dividend payment.  To continue the  Company’s goal of returning value to stockholders, the Company intends to utilize the cash used to pay the quarterly  dividend for its ongoing stock repurchase programs.

Adobe Provides Second Quarter Financial Targets
For the second quarter of fiscal 2005, Adobe announced it is targeting revenue of $475 to $495 million, a gross margin  of approximately 94 percent, and GAAP and non-GAAP operating margin ranges of approximately 35 to 37 percent. 

As a percent of revenue, Adobe is targeting second quarter expenses as follows:  Research & Development – approximately 18 to 19 percent  Sales & Marketing – approximately 30 to 31 percent  General & Administrative – approximately 9 percent

In addition, Adobe is targeting its share count range to be between 256 and 257 million shares in the second quarter of  fiscal 2005.  The Company also is targeting other income in its second quarter to be approximately $6 to $7 million,  and a tax rate of 25 percent.  These targets lead to second quarter GAAP and non-GAAP earnings per share target ranges  of $0.51 to $0.55.

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

For fiscal year 2005, the Company also increased its revenue target to approximately $1.925 billion, with an operating  margin target of approximately 36 percent (which does not include the effect of share-based compensation charges  pursuant to SFAS 123R, which are not currently estimable).  The prior target range for fiscal year 2005 revenue was  approximately $1.85 to $1.9 billion, with an operating margin target range of approximately 34 to 35 percent.

Forward Looking Statements Disclosure
This press release contains forward looking statements, including those related to revenue, product releases, 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: adverse changes in general economic or political  conditions in any of the major countries in which Adobe does business, delays in development or shipment of the  Company's new products or major new versions of existing products, introduction of new products by existing and  new competitors, failure to successfully manage transitions to new business models or markets, failure to anticipate  and develop new products in response to changes in demand for application software, computers and printers,  intellectual property disputes and litigation, changes to the Company's distribution channel, the impact of malicious  code, such as worms and viruses, on the Company's computer network and applications, interruptions or  terminations in the Company's relationships with turnkey assemblers, risks associated with international operations,  fluctuations in foreign currency exchange rates, changes in accounting rules and regulations, unanticipated changes in  tax rates, market risks associated with the Company's equity investments, and the Company's 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 2004 annual report on Form 10-K and quarterly reports on Form 10-Q filed in  2005. The Company does not undertake an obligation to update forward looking statements.

NOTES TO EDITORS:

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About Adobe Systems Incorporated
Adobe is the world’s leading provider of software solutions to create, manage and deliver high-impact, reliable digital  content. For more information, visit www.adobe.com.

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