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 Second Quarter Fiscal 2003 Results
Adobe® Acrobat® Release Drives 43 Percent Year-Over-Year Revenue Growth in ePaper Business
SAN JOSE, Calif. — June 12, 2003 (NASDAQ: ADBE) — Adobe Systems Incorporated, the leader in network publishing, today reported financial results for its second quarter ended May 30, 2003 that came in at the high end of the Company’s prior revenue and earnings per share target ranges.
In the second quarter of fiscal 2003, Adobe achieved revenue of $320.1 million, compared to $317.4 million reported for the second quarter of fiscal 2002 and $296.9 million reported in the first quarter of fiscal 2003. Adobe’s revised second quarter revenue target range was $305 to $320 million, up from its prior target range of $300 to $315 million.
GAAP diluted earnings per share for the second quarter of fiscal 2003 were $0.27. Pro forma diluted earnings per share for the second quarter of fiscal 2003, which does not include an investment loss from the Company’s venture program, were $0.28. Adobe’s GAAP and pro forma second quarter earnings target range was $0.24 to $0.28 per share, up from its prior target range of $0.24 to $0.27.
“The release of Acrobat 6.0 in Q2 helped drive record revenue in our ePaper business, and signals the beginning of a strong product cycle,” said Bruce Chizen, president and CEO of Adobe Systems. “This month we’re celebrating 10 years of Acrobat and PDF. From communicating business critical information across the enterprise to sharing photos with friends and family, Acrobat and PDF have clearly become synonymous with the reliable delivery of digital information.”
GAAP net income was $64.2 million for the second quarter of fiscal 2003, compared to $54.3 million reported in the second quarter of fiscal 2002, and $54.2 million in the first quarter of fiscal 2003.
Pro forma net income, which does not, as applicable, include amortization of goodwill and purchased intangibles, restructuring and other charges, acquired in-process research and development, and investment losses, was $66.7 million for the second quarter of fiscal 2003, compared to $67.4 million in the second quarter of fiscal 2002, and $58.9 million in the first quarter of fiscal 2003.
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GAAP diluted earnings per share for the second quarter of fiscal 2003 were $0.27, based on 239.2 million weighted average shares. This compares with GAAP diluted earnings per share of $0.22 reported in the second quarter of fiscal 2002, based on 247.7 million weighted average shares, and GAAP diluted earnings per share of $0.23 reported in the first quarter of fiscal 2003, based on 235.3 million weighted average shares.
Adobe’s GAAP operating income was $91.5 million in the second quarter of fiscal 2003, compared to $90.8 million in the second quarter of fiscal 2002 and $80.5 million in the first quarter of fiscal 2003. As a percent of revenue, GAAP operating income for the second quarter was 28.6 percent, compared to 28.6 percent in the second quarter of fiscal 2002 and 27.1 percent in the first quarter of fiscal 2003.
Adobe’s pro forma operating income, which does not, as applicable, include the amortization of goodwill and purchased intangibles, restructuring and other charges, and acquired in-process research and development, was $91.5 million in the second quarter of fiscal 2003, compared to $96.4 million in the second quarter of fiscal 2002 and $80.5 million in the first quarter of fiscal 2003. As a percent of revenue, pro forma operating income for the second quarter was 28.6 percent, compared to 30.4 percent in the second quarter of fiscal 2002 and 27.1 percent in the first quarter of fiscal 2003.
For the third quarter of fiscal 2003, the Company announced that it is targeting revenue at $300 to $315 million, a gross margin of 92 to 93 percent, and GAAP and pro forma operating margin ranges of 24 to 27 percent.
As a percent of revenue, Adobe is targeting third quarter expenses as follows:
Research & Development — approximately 22 to 23 percent
Sales & Marketing — approximately 34 to 35 percent
General & Administrative — approximately 10 percent
In addition, Adobe is targeting its share count range to be between 243 and 245 million shares in the third 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 target ranges of $0.22 to $0.25 earnings per share in the quarter.
For fiscal 2003 on an annual basis, the Company continues to target GAAP and pro forma operating margins of at least 28 percent.
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 release several of its Creative Professional applications in the fourth quarter of the year.
The Adobe Board of Directors declared this quarter’s cash dividend of $0.0125 per share, payable on July 7, 2003 to stockholders of record as of June 23, 2003.
2
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, corporate business 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, the impact of SARS on our business and the economy, 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.
© 2003 Adobe Systems Incorporated. All rights reserved. Adobe, Acrobat and the Adobe logo are either registered trademarks or trademarks of Adobe Systems Incorporated in the United States and/or other countries. All other trademarks are the property of their respective owners.
3
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| May 30, |
| May 31, |
| May 30, |
| May 31, |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
| ||||
Products |
| $ | 314,150 |
| $ | 316,254 |
| $ | 604,905 |
| $ | 584,150 |
|
Services and support |
| 5,996 |
| 1,105 |
| 12,136 |
| 1,105 |
| ||||
Total revenue |
| 320,146 |
| 317,359 |
| 617,041 |
| 585,255 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total cost of revenue: |
|
|
|
|
|
|
|
|
| ||||
Products |
| 20,212 |
| 23,835 |
| 39,572 |
| 44,832 |
| ||||
Services and support |
| 3,144 |
| 1,298 |
| 6,146 |
| 1,298 |
| ||||
Total cost of revenue |
| 23,356 |
| 25,133 |
| 45,718 |
| 46,130 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
| 296,790 |
| 292,226 |
| 571,323 |
| 539,125 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
Research and development |
| 69,117 |
| 62,858 |
| 135,078 |
| 122,155 |
| ||||
Sales and marketing |
| 105,712 |
| 103,898 |
| 203,740 |
| 193,216 |
| ||||
General and administrative |
| 30,500 |
| 29,066 |
| 60,536 |
| 54,665 |
| ||||
Restructuring and other charges |
| — |
| 1,605 |
| — |
| 1,605 |
| ||||
Acquired in-process research and development |
| — |
| 410 |
| — |
| 5,769 |
| ||||
Amortization of goodwill and purchased intangibles |
| — |
| 3,541 |
| — |
| 7,082 |
| ||||
Total operating expenses |
| 205,329 |
| 201,378 |
| 399,354 |
| 384,492 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| 91,461 |
| 90,848 |
| 171,969 |
| 154,633 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Non-operating income: |
|
|
|
|
|
|
|
|
| ||||
Investment loss |
| (3,566 | ) | (13,728 | ) | (10,258 | ) | (9,195 | ) | ||||
Interest and other income |
| 3,885 |
| 2,735 |
| 7,534 |
| 7,664 |
| ||||
Total non-operating income (loss) |
| 319 |
| (10,993 | ) | (2,724 | ) | (1,531 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
| 91,780 |
| 79,855 |
| 169,245 |
| 153,102 |
| ||||
Provision for income taxes |
| 27,534 |
| 25,554 |
| 50,774 |
| 48,993 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 64,246 |
| $ | 54,301 |
| $ | 118,471 |
| $ | 104,109 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic net income per share |
| $ | 0.28 |
| $ | 0.23 |
| $ | 0.51 |
| $ | 0.44 |
|
|
|
|
|
|
|
|
|
|
| ||||
Shares used in computing basic net income per share |
| 232,124 |
| 238,202 |
| 231,649 |
| 237,369 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted net income per share |
| $ | 0.27 |
| $ | 0.22 |
| $ | 0.50 |
| $ | 0.42 |
|
|
|
|
|
|
|
|
|
|
| ||||
Shares used in computing diluted net income per share |
| 239,237 |
| 247,687 |
| 237,420 |
| 246,358 |
|
4
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
|
| May 30, |
| November 29, |
| ||
|
| (Unaudited) |
| (Audited) |
| ||
ASSETS |
| ||||||
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 141,831 |
| $ | 183,684 |
|
Short-term investments |
| 640,791 |
| 434,053 |
| ||
Trade receivables |
| 129,226 |
| 116,506 |
| ||
Other receivables |
| 29,365 |
| 30,367 |
| ||
Deferred income taxes |
| 20,297 |
| 31,530 |
| ||
Other current assets |
| 24,535 |
| 18,032 |
| ||
|
|
|
|
|
| ||
Total current assets |
| 986,045 |
| 814,172 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
| 73,626 |
| 71,090 |
| ||
Goodwill and other intangibles, net |
| 111,980 |
| 98,813 |
| ||
Other assets |
| 42,357 |
| 43,085 |
| ||
Deferred income taxes, long-term |
| 25,728 |
| 24,450 |
| ||
|
|
|
|
|
| ||
Total assets |
| $ | 1,239,736 |
| $ | 1,051,610 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| ||||||
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Trade and other payables |
| $ | 41,306 |
| $ | 37,765 |
|
Accrued expenses |
| 157,942 |
| 135,028 |
| ||
Income taxes payable |
| 191,530 |
| 173,311 |
| ||
Deferred revenue |
| 42,021 |
| 31,185 |
| ||
|
|
|
|
|
| ||
Total current liabilities |
| 432,799 |
| 377,289 |
| ||
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Common stock, $0.0001 par value |
| 29,576 |
| 29,576 |
| ||
Additional paid-in-capital |
| 746,008 |
| 710,273 |
| ||
Retained earnings |
| 1,658,434 |
| 1,545,776 |
| ||
Accumulated other comprehensive loss |
| (506 | ) | (3,950 | ) | ||
Treasury stock, at cost, net of re-issuances |
| (1,626,575 | ) | (1,607,354 | ) | ||
|
|
|
|
|
| ||
Total stockholders’ equity |
| 806,937 |
| 674,321 |
| ||
Total liabilities and stockholders’ equity |
| $ | 1,239,736 |
| $ | 1,051,610 |
|
5
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
| Three Months Ended |
| ||||
|
| May 30, |
| May 31, |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
| $ | 64,246 |
| $ | 54,301 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 12,065 |
| 15,722 |
| ||
Stock compensation expense |
| 847 |
| 1,787 |
| ||
Deferred income taxes |
| 2,033 |
| (9,684 | ) | ||
Provision for losses on receivables |
| 821 |
| 922 |
| ||
Tax benefit from employee stock option plans |
| 8,091 |
| 12,553 |
| ||
Acquired in process research and development |
| — |
| 410 |
| ||
Loss on equity and cost method investments |
| 3,626 |
| 5,172 |
| ||
Gains on sale of equity securities |
| (60 | ) | (259 | ) | ||
Loss on other-than-temporary declines of equity securities |
| — |
| 8,815 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Receivables |
| (473 | ) | 12,071 |
| ||
Other current assets |
| (4,492 | ) | (2,195 | ) | ||
Trade and other payables |
| 7,115 |
| (9,882 | ) | ||
Accrued expenses |
| 14,077 |
| 9,225 |
| ||
Accrued restructuring charges |
| (2,727 | ) | (2,978 | ) | ||
Income taxes payable |
| 13,328 |
| 12,969 |
| ||
Deferred revenue |
| 9,537 |
| (179 | ) | ||
|
|
|
|
|
| ||
Net cash provided by operating activities |
| 128,034 |
| 108,770 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Purchases of short-term investments |
| (204,997 | ) | (470,119 | ) | ||
Maturities and sales of short-term investments |
| 77,075 |
| 393,049 |
| ||
Acquisitions of property and equipment |
| (11,811 | ) | (7,261 | ) | ||
Purchases of long-term investments |
| (3,913 | ) | (6,983 | ) | ||
Additions to other assets |
| (19,694 | ) | (3,326 | ) | ||
Cash received net of cash paid for acquisition |
| — |
| 7,345 |
| ||
Proceeds from sale of equity securities |
| 537 |
| 705 |
| ||
|
|
|
|
|
| ||
Net cash used for investing activities |
| (162,803 | ) | (86,590 | ) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Purchase of treasury stock |
| (143 | ) | (36,271 | ) | ||
Proceeds from issuance of treasury stock |
| 36,231 |
| 26,576 |
| ||
Payment of dividends |
| (2,898 | ) | (2,972 | ) | ||
|
|
|
|
|
| ||
Net cash provided by (used for) financing activities |
| 33,190 |
| (12,667 | ) | ||
Effect of foreign currency exchange rates on cash and cash equivalents |
| 1,313 |
| 1,039 |
| ||
|
|
|
|
|
| ||
Net increase (decrease) in cash and cash equivalents |
| (266 | ) | 10,552 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents at beginning of period |
| 142,097 |
| 220,700 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents at end of period |
| $ | 141,831 |
| $ | 231,252 |
|
6
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 |
| Six Months Ended |
| ||||||||
|
| May 30, |
| May 31, |
| May 30, |
| May 31, |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
| $ | 91,780 |
| $ | 79,855 |
| $ | 169,245 |
| $ | 153,102 |
|
Restructuring and other charges |
| — |
| 1,605 |
| — |
| 1,605 |
| ||||
Acquired in-process research and development |
| — |
| 410 |
| — |
| 5,769 |
| ||||
Amortization of goodwill and purchased intangibles |
| — |
| 3,541 |
| — |
| 7,082 |
| ||||
Investment loss |
| 3,566 |
| 13,728 |
| 10,258 |
| 9,195 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pro forma income before taxes |
| 95,346 |
| 99,139 |
| 179,503 |
| 176,753 |
| ||||
Provision for income taxes |
| 28,604 |
| 31,724 |
| 53,851 |
| 56,561 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Pro forma net income |
| $ | 66,742 |
| $ | 67,415 |
| $ | 125,652 |
| $ | 120,192 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic net income per share |
| $ | 0.29 |
| $ | 0.28 |
| $ | 0.54 |
| $ | 0.51 |
|
|
|
|
|
|
|
|
|
|
| ||||
Shares used in computing basic net income per share |
| 232,124 |
| 238,202 |
| 231,649 |
| 237,369 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted net income per share |
| $ | 0.28 |
| $ | 0.27 |
| $ | 0.53 |
| $ | 0.49 |
|
|
|
|
|
|
|
|
|
|
| ||||
Shares used in computing diluted net income per share |
| 239,237 |
| 247,687 |
| 237,420 |
| 246,358 |
|
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.
7