By Ann Levine September 12, 2003 – Adobe Systems Inc., (NASDAQ: ADBE) announced third quarter GAAP earnings per diluted share of $0.27. Revenues were $319.1 million in the quarter as compared to $284.9 million for the same period last year. Year over year revenues showed a 12% growth and exceeded Adobe's original expectation of $300-$315 million in revenue. The third quarter was the fourth consecutive of year over year growth. GAAP net income for the third quarter was $64.5 million up from $64.2 million in the second quarter of 2003 and up from $47.2 million in third quarter of 2002. Gross margins were 93.1% in the third quarter. Business is increasingly being driven by licensing revenue which is favorable to gross margins. Topics of this summary: * Segment Performance * e-Paper Business * Guidance for Fourth Quarter * Q & A Segment Performance By segment, Adobe reported the following revenue ($ in millions):   Q3 2003 Q3 2002 Q2 2003 Creative/Imaging $82 $86.6 $93.7 Digital Imaging $88.3 $96 $95.4 OEM Postscript $21.8 $23.7 $23 e-Paper Solutions $127 $78.6 $108.1 Geographic revenue performance included the America 's making up 49%, Europe 26% and Asia 25%. Europe and the Americas met the company's expectations. The education business showed solid results in August and Europe showed a seasonal upswing. Performance in Japan exceeded expectations indicating a modest improvement. E-Paper Business Adobe's e-Paper business grew a record 62% on a year over year basis fueled by the release of Acrobat products. Acrobat 6 release showed stronger results than expected as upgrades is higher in the newest version than they were in version 5. Licensing agreements have also been strong over the shrink-wrap versions of Acrobat 6 accounting for 38.7% of revenue. The English version of Acrobat was shipped in the second quarter. During the early part of Q3, other languages were shipped and the company has seen strong global demand. In the server-based business, Adobe has seen a number of new partners with the FAA, Employment Standards Administration (DOL), Orange County , CA , Australian Civil Aviation and the German Federal Finance Office. Whereas the enterprise market has seen wins with clients such as Prudential Real Estate and Relocation, British Airways, Toyota , and Deutsche AG.. The average of top ten transactions was $466K. Guidance for Fourth Quarter Adobe is expects revenue in the fourth quarter of $330-$350 million. GAAP and pro forma earnings per share are expected to be $0.30 to $0.32 range. The gross margin is targeted at 93% with operating margin ranges of 31% to 32%. Product announcements will be made on September 29 th in New York City , which may impact fourth quarter earnings. Company officials would not speculate on the impact of product announcements. The annual financial analyst meeting will be on October 27 th , 2003 . Q &A 1. Even though there was a strong quarter with the ePaper business and a modest improvement of operations in Japan , Adobe expects a stable economy and does not expect major improvement in the economy. 2. With regard to Apple and some new products, the G5 product excites the company, but it is not factoring this in as a key driver with regard to the outlook for the next quarter. The company stands ready to take full advantage of this product as it is launched. 3. Adobe declined to state whether specific products, such as an announcement on Photoshop, will be included in the 29 th conference call. 4. The company is factoring in a decline in the upgrade desktop revenue between Q3 to Q4, which is expected to lead an overall decline in the e-Paper segment. 5. The strategy with regard to bundling technology for the Creative Pro is to deliver applications to customers that ensure the products work well together and that the desktop systems and work group systems work together seamlessly. The company is not making any announcements on pricing on stand-alone products vs. bundled products. 6. The company's target and goals for the enterprise side is to have 60% of the sales and field marketing organization to be focused on e-Paper solutions. Adobe claims it has reached that milestone. The company does not break out how many employees this includes. 7. Adobe expects quarter- to-quarter growth with regard to Photoshop. Consumers have continued to adopt software with the digital revolution and Adobe wants to be the product of choice. There were market share gains in the third quarter and Adobe expects to grow that market share in the fourth quarter. 8. Adobe is pleased with the Acrobat desktop performance, while early in the product cycle; Acrobat Pro revenue has been stronger than expected. Acrobat standard still makes up the majority of the revenue. Acrobat Elements has been a small part in the revenue mix. 9. With the enterprise sales force, Adobe is pleased with customer references, large transactions and increases in revenue for the servers. Laying this foundation has been the company's focus and the enterprise segment pipeline continues to build. The server business for Adobe represents largest opportunity. The company is pleased to see sequential growth in tough times. 10. The cost of product revenue saw a decline in the third quarter which was driven by more business moving to licensing software. 11. Volume in licensing in desktop products was 31.8% of revenue. Server transactions were $466K in Q3 and $293K in Q2. 12. Adobe is expressing cautious optimism with regard to the economy due to pre-purchase activity. The activity indicates the there is stabilization in the economy, however, no improvement to date. 13. Adobe expects an increase in expenses from Q3 to Q4 due to launch activities expected in Q4. They will continue to invest in other activities that will impact 2004 operations. 14. Instead of customer confusion, Adobe officials stated that the 3 versions of Acrobat on the market benefited customers as it provided more choice. 15. Growth drivers in 2004 will be discussed in more detail at the September 29 th meeting and at the analyst meeting. The company reiterated building a foundation that will allow growth in 2004 and beyond. 16. On a product basis, a leading indicator that will show an economic upturn could come from the marketing communications segment. As corporate spending increases with marketing efforts, there will likely be activity with the creative professional product.