10-QPeriod: Q3 FY2002

ADOBE INC. Quarterly Report for Q3 Ended Aug 30, 2002

Filed October 15, 2002For Securities:ADBE

Summary

Adobe Systems Incorporated reported its financial results for the nine months and third quarter ended August 30, 2002. Total revenue for the nine months declined by 10% year-over-year to $870.1 million, primarily driven by a 10% decrease in product revenue. The third quarter also saw a 3% decline in total revenue to $284.9 million. Net income for the nine months was $151.3 million, a decrease from $171.4 million in the prior year. Operating income showed a significant decrease, impacted by reduced revenues across all segments and increased R&D expenses. Despite the revenue decline, the company made strategic acquisitions, including Accelio Corporation in April 2002, which enhanced its ePaper solutions and contributed to a rise in services and support revenue. The company also managed its operating expenses, with sales and marketing expenses decreasing slightly year-over-year. However, a significant portion of the financial results were impacted by investment losses and a restructuring charge related to the Accelio acquisition. Looking ahead, Adobe faces continued economic weakness and intense competition.

Key Highlights

  • 1Total revenue for the nine months ended August 30, 2002, decreased by 10% to $870.1 million compared to $965.2 million in the prior year.
  • 2Product revenue declined by 10% for the nine months to $864.7 million, reflecting a broad-based weakness across segments.
  • 3Net income for the nine months decreased to $151.3 million from $171.4 million in the prior year.
  • 4Operating income decreased significantly due to lower revenues and increased R&D expenses.
  • 5Adobe acquired Accelio Corporation in April 2002 for $70.2 million, enhancing its ePaper Solutions segment and contributing to the rise in services and support revenue.
  • 6The company reported significant investment losses, particularly in the prior year, impacting overall profitability.
  • 7Restructuring and other charges of $1.6 million were recorded in the nine-month period related to the Accelio acquisition.

Frequently Asked Questions

The primary driver of the revenue decline was a broad-based weakness across all of Adobe's segments, particularly in product revenue, which decreased by 10% year-over-year. This was attributed to continued economic weakness in major markets like Europe and Asia.

The acquisition of Accelio Corporation in April 2002 enhanced Adobe's ePaper Solutions segment. It directly contributed to the significant increase in services and support revenue, which grew by 100% year-over-year for both the third quarter and the nine-month period. The acquisition also resulted in restructuring charges and the allocation of a portion of the purchase price to goodwill and in-process research and development.

Adobe anticipates continued economic weakness, particularly in Europe and Asia, which has impacted all of its product segments. The company faces intense competition and potential delays in new product introductions. Management is targeting revenue for the fourth quarter of fiscal 2002 between $285.0 to $300.0 million, but acknowledges that adverse economic conditions could cause future results to vary materially from these targets.

Investment performance had a significant impact, particularly in the prior fiscal year, where substantial investment losses (especially from equity and cost method investments, including other-than-temporary write-downs) reduced net income. While investment losses were still present in the current period, they were significantly lower than in the prior year, contributing to a less severe year-over-year decline in net income.