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Mar 17, 2005

Adobe Systems Reports Record Revenue

Press Release: SAN JOSE, Calif. — March 17, 2005 — Adobe Systems Incorporated (Nasdaq:ADBE) today reported strong financial results for its first quarter ended March 4, 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.
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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