Adobe Systems Reports Strong Third Quarter Fiscal 2003 Results; Company Exceeds Q3 Revenue and Earnings Targets with 62 Percent ePaper Revenue Growth.Business Editors/High-Tech Writers SAN JOSE San Jose, city, United States San Jose (sănəzā`, săn hōzā`), city (1990 pop. 782,248), seat of Santa Clara co., W central Calif.; founded 1777, inc. 1850. , Calif.--(BUSINESS WIRE)--Sept. 10, 2003 Adobe Systems Adobe Systems Incorporated (pronounced a-DOE-bee IPA: /əˈdoʊbiː/) (NASDAQ: ADBE) (LSE: ABS) is an American computer software company headquartered in San Jose, California, USA. Incorporated, (Nasdaq:ADBE ADBE Adobe Systems, Inc. (stock symbol) ) 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 adobe (ədō`bē): see rammed earth. adobe Handmade sun-dried bricks formed from a mixture of heavy clay and straw found in arid regions. 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 GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the third quarter of fiscal 2003 were $0.27. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma diluted earnings per share, which does not include an investment loss from the Company's venture program and a partial reversal reversal n. the decision of a court of appeal ruling that the judgment of a lower court was incorrect and is reversed. The result is that the lower court which tried the case is instructed to dismiss the original action, retry the case, or is ordered to change its of a prior restructuring charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. , 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 Bruce, Scottish royal family descended from an 11th-century Norman duke, Robert de Brus. He aided William I in his conquest of England (1066) and was given lands in England. R. Chizen, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Adobe Systems. "As we look to Q4 and beyond, we are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op 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 Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. , restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). 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 Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. 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 ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 93 percent, and GAAP and pro forma operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: 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 pro forma earnings Income not necessarily calculated in accordance with generally accepted accounting principles. For example, a company might report pro forma earnings that exclude depreciation expense and nonrecurring expenses such as restructuring costs. 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 September: see month. 29, 2003 at a customer event in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. . A simultaneous Webcast of the keynote keynote /key·note/ (ke´not) in homeopathy, the characteristic property of a drug that indicates its use in treating a similar symptom of disease. presentation from the event will be made available over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the from Adobe.com. Additional details regarding this event will be announced in advance of the event taking place. The Adobe Board of Directors declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. this quarter's cash dividend of $0.0125 per share, payable on October October: see month. 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 COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. , 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 An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , industry transitions to new business models, renegotiation or termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of royalty Compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, expressed as a percentage of receipts from using the property or as a payment for each unit produced. 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and quarterly reports on Form 10-Q Form 10-Q See 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 The Forbes Global 2000 includes the following list of the world's largest software companies. Relative rank Global rank Name Country Sales ($bil) Profits ($bil) Assets ($bil) Market Value ($bil) 1 54 Microsoft United States . Adobe and the Adobe logo are registered trademarks of Adobe Systems Incorporated in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. other countries.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------- -------------------
August August August August
29, 30, 29, 30,
2003 2002 2003 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, November 29,
2003 2002
(Unaudited) (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, August 30,
2003 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 August August August
29, 30, 29, 30,
2003 2002 2003 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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