<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 33-6885
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
California 77-0019522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1585 Charleston Road, Mountain View, California 94043-1225
(Address of principal executive offices)
(Zip Code)
(415) 961-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares Outstanding
Class September 1, 1995
----- -----------------
Common stock, no par value 63,819,199
<PAGE>
TABLE OF CONTENTS
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 28
Signature 35
Summary of Trademarks 36
EXHIBITS
Exhibit 11 Computation of Earnings per Common Share
Exhibit 27 Financial Data Schedules
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included under this item are as
follows:
Sequentially
Numbered
Financial Statement Description Page
- ------------------------------------------------------------------ ------------
- - Condensed Consolidated Statements of Income
Quarters Ended September 1, 1995 and August 26, 1994
and Nine Months Ended September 1, 1995 and August 26, 1994 4
- - Condensed Consolidated Balance Sheets
September 1, 1995 and November 25, 1994 5
- - Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 1, 1995 and August 26, 1994 6
- - Notes to Condensed Consolidated Financial Statements 8
3
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------------------- --------------------------
September 1 August 26 September 1 August 26
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing $ 45,091 $ 39,130 $ 136,486 $ 115,713
Application products 111,563 107,507 356,752 316,609
----------- ----------- ----------- -----------
Total revenue 156,654 146,637 493,238 432,322
Direct costs 25,712 26,162 89,267 80,061
----------- ----------- ----------- -----------
Gross margin 130,942 120,475 403,971 352,261
----------- ----------- ----------- -----------
Operating expenses:
Software development costs:
Research and development 29,155 24,353 82,017 69,537
Amortization of capitalized
software development
costs 1,929 3,916 7,084 10,689
Sales, marketing and
customer support 49,682 52,283 144,970 149,401
General and administrative 11,396 12,928 35,062 39,068
Write-off of acquired in-
process research and
development -- -- -- 3,045
----------- ----------- ----------- -----------
Total operating expenses 92,162 93,480 269,133 271,740
----------- ----------- ----------- -----------
Operating income 38,780 26,995 134,838 80,521
Nonoperating income:
Interest, investment and
other income 6,754 1,757 19,028 5,625
----------- ----------- ----------- -----------
Income before income taxes 45,534 28,752 153,866 86,146
Provision for income taxes 16,081 10,691 56,161 31,686
----------- ----------- ----------- -----------
Net income $ 29,453 $ 18,061 $ 97,705 $ 54,460
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $ .44 $ .29 $ 1.48 $ .88
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computing net
income per share 67,121 62,566 66,032 61,874
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 1 November 25
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 108,817 $ 190,091
Short-term investments 365,469 210,269
Receivables 92,762 96,585
Inventories 6,983 9,619
Other current assets 9,912 7,837
Deferred income taxes 19,675 17,962
----------- -----------
Total current assets 603,618 532,363
Property and equipment 43,531 39,104
Other assets 91,089 45,561
Deferred income taxes 9,802 8,475
----------- -----------
$ 748,040 $ 625,503
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables $ 21,916 $ 30,840
Accrued expenses 73,998 79,000
Accrued restructuring costs 8,701 28,457
Income taxes payable 23,695 23,083
Deferred revenue 8,573 7,352
----------- -----------
Total current liabilities 136,883 168,732
----------- -----------
Shareholders' equity:
Preferred stock, no par value;
2,000,000 shares authorized; none issued -- --
Common stock, no par value;
200,000,000 shares authorized;
63,819,199 and 61,150,049 shares issued
and outstanding as of September 1, 1995,
and November 25, 1994, respectively 206,536 142,207
Unrealized gains (losses) on investments 1,656 (1,088)
Retained earnings 407,872 319,704
Cumulative foreign currency translation adjustments (4,907) (4,052)
----------- -----------
Total shareholders' equity 611,157 456,771
----------- -----------
$ 748,040 $ 625,503
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
September 1 August 26
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 97,705 $ 54,460
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense 2,515 752
Depreciation and amortization 37,602 38,159
Deferred income taxes (3,045) (5,129)
Provision for losses on accounts receivable 1,255 767
Tax benefit from employee stock plans 21,158 6,018
Write-off of acquired in-process research
and development -- 3,045
Changes in operating assets and liabilities:
Receivables 1,563 6,803
Inventories 2,560 (1,089)
Other current assets (2,752) (7,339)
Trade and other payables (8,319) 1,881
Accrued expenses (6,255) 2,342
Accrued restructuring costs (16,362) --
Income taxes payable 633 5,244
Deferred revenue 1,182 (921)
----------- -----------
Net cash provided by operating activities 129,440 104,993
----------- -----------
Cash flows from investing activities:
Purchases of short-term investments (2,330,768) (1,069,633)
Maturities and sales of short-term investments 2,178,312 1,032,888
Acquisitions of property and equipment (20,422) (19,406)
Capitalization of software development costs -- (10,487)
Additions to other assets (68,403) (4,139)
Acquisitions, net of cash acquired -- (6,297)
----------- -----------
Net cash used for investing activities (241,281) (77,074)
----------- -----------
</TABLE>
(Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
September 1 August 26
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ 58,379 $ 29,799
Proceeds from sales of put warrants -- 718
Repurchase of common stock (17,725) (6,737)
Payment of dividends (9,532) (6,864)
----------- -----------
Net cash provided by financing activities 31,122 16,916
----------- -----------
Effect of foreign currency exchange rates on
cash and cash equivalents (555) 672
----------- -----------
Net increase (decrease) in cash and cash equivalents (81,274) 45,507
Adjustment for change in Aldus Corporation
fiscal year-end -- (3,554)
Cash and cash equivalents at beginning of period 190,091 134,039
----------- -----------
Cash and cash equivalents at end of period $ 108,817 $ 175,992
----------- -----------
----------- -----------
Supplemental disclosures:
Cash paid during the period for income taxes $ 34,516 $ 21,463
----------- -----------
----------- -----------
Noncash investing and financing activities:
Dividends declared but not paid $ 3,197 $ 3,125
----------- -----------
----------- -----------
Reclassification of put warrants $ -- $ 6,906
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated statements of income, balance
sheets and statements of cash flows reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the financial
position at September 1, 1995, and the statements of income and cash flows for
the interim periods ended September 1, 1995 and August 26, 1994.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not include all information and footnotes necessary for a complete presentation
of the results of operations, the financial position, and cash flows, in
conformity with generally accepted accounting principles. The Company filed
audited consolidated financial statements which included all information and
footnotes necessary for such a presentation of the results of operations,
financial position, and cash flows for the years ended November 25, 1994,
November 26, 1993 and November 27, 1992, in the Company's 1994 Annual Report on
Form 10-K.
The results of operations for the interim period ended September 1, 1995, are
not necessarily indicative of the results to be expected for the full year.
NET INCOME PER SHARE
Net income per share is based upon weighted average common and dilutive common
equivalent shares outstanding using the treasury stock method. Dilutive common
equivalent shares include stock options and restricted stock. Fully diluted
earnings per share for the quarters and nine months ended September 1, 1995 and
August 26, 1994 were not materially different from primary earnings per share.
8
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 2.
MERGER WITH ALDUS CORPORATION
On August 31, 1994, the Company issued approximately 14.2 million shares of its
common stock in exchange for all of the common stock of Aldus Corporation
("Aldus"). This business combination has been accounted for as a pooling of
interests, and accordingly, the condensed consolidated financial statements for
the periods prior to the merger have been restated to include the results of
operations, the financial position and cash flows of Aldus.
Prior to the combination, Aldus' fiscal year ended on December 31. In recording
the business combination, Aldus' financial statements for the interim periods
ended August 26, 1994 were combined with the Company's for the same periods.
Aldus' financial statements for the year ended December 31, 1993 were combined
with the Company's for the year ended November 26, 1993. Revenue and net income
for Aldus for the month ended December 31, 1993 were $26.1 million and $4.4
million, respectively. Net income, the foreign currency translation adjustment,
the issuance of common stock and the net increase in cash and cash equivalents
were adjusted to eliminate the effect of including Aldus' results of operations,
financial position and cash flows for the month ended December 31, 1993 in the
interim periods ended August 26, 1994 and the year ended November 26, 1993.
9
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 3.
RECEIVABLES
Receivables consisted of the following:
<TABLE>
<CAPTION>
September 1 November 25
1995 1994
----------- -----------
<S> <C> <C>
Trade receivables $ 57,427 $ 69,628
Royalty receivables 30,671 26,800
Interest and other receivables 7,732 3,410
----------- -----------
95,830 99,838
Less allowance for doubtful accounts 3,068 3,253
----------- -----------
$ 92,762 $ 96,585
----------- -----------
----------- -----------
</TABLE>
NOTE 4.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
September 1 November 25
1995 1994
----------- -----------
<S> <C> <C>
Land $ 782 $ 782
Building 4,549 4,615
Equipment 99,497 88,285
Furniture and fixtures 16,198 15,487
Leasehold improvements 7,425 4,146
----------- -----------
128,451 113,315
Less accumulated depreciation and amortization 84,920 74,211
----------- -----------
$ 43,531 $ 39,104
----------- -----------
----------- -----------
</TABLE>
10
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 5.
OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
September 1 November 25
1995 1994
----------- -----------
<S> <C> <C>
Licensing agreements $ 16,130 $ 15,565
Goodwill 22,034 22,034
Purchased technology 35,626 325
Software development costs 27,199 27,199
Miscellaneous other assets 47,315 16,123
----------- -----------
148,304 81,246
Less accumulated amortization 57,215 35,685
----------- -----------
$ 91,089 $ 45,561
----------- -----------
----------- -----------
</TABLE>
Unamortized software development costs were $2.7 million and $9.1 million at
September 1, 1995 and November 25, 1994, respectively. Amortization of software
development costs was $1.9 million and $3.9 million for the quarters ended
September 1, 1995 and August 26, 1994, respectively, and $7.1 million and
$10.7 million for the nine months ended September 1, 1995 and August 26, 1994,
respectively.
NOTE 6.
ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
September 1 November 25
1995 1994
----------- -----------
<S> <C> <C>
Royalties $ 5,808 $ 10,824
Accrued compensation and benefits 14,673 17,039
Sales and marketing allowances 20,426 19,445
Miscellaneous accrued expenses 33,091 31,692
----------- -----------
$ 73,998 $ 79,000
----------- -----------
----------- -----------
</TABLE>
11
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 7.
ACCRUED RESTRUCTURING COSTS
On August 31, 1994, the Company merged with Aldus, described in "Note 2 --
Merger with Aldus Corporation," and initiated a plan to combine the operations
of the two companies. On this date, the Company recorded a $72.2 million charge
to operating expenses related to the merger transaction and restructuring costs.
Merger transaction costs consist principally of transaction fees for investment
bankers, attorneys, accountants, financial printing and other related charges.
Restructuring costs include the elimination of redundant information systems and
equipment, severance and outplacement of terminated employees, the write-off of
certain assets related to product lines to be divested or eliminated, and
cancellation of certain contractual agreements.
Activity in accrued restructuring costs is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 1, 1995
Accrued as of ---------------------------- Accrued as of
November 25 Cash September 1
1994 Write-offs Payments 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Merger transaction
costs $ 5,863 $ 168 $ 5,695 $ --
Restructuring costs:
Severance and outplacement 11,548 -- 8,109 3,439
Impaired assets and
cancellation of facility
leases 11,046 3,226 2,558 5,262
------------- ------------- ------------- -------------
$ 28,457 $ 3,394 $ 16,362 $ 8,701
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The nature, timing and extent of restructuring costs follows:
SEVERANCE AND OUTPLACEMENT
As a result of the merger, certain technical support, customer service,
distribution and administrative functions were combined and reduced.
Restructuring included severance and outplacement charges related to
approximately 500 terminated employees. Affected employees had received
notification of their termination by September 9, 1994.
12
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 7.
ACCRUED RESTRUCTURING COSTS (CONTINUED)
IMPAIRED ASSETS AND CANCELLATION OF FACILITY LEASES
The Company plans to consolidate duplicate offices in Europe, Japan, Canada and
the United States. Lease payments resulting from the planned closure of these
facilities are expected to continue through the lease term or negotiated early
termination date, if applicable.
NOTE 8.
ADOBE PHOTOSHOP-TM- TECHNOLOGY
On March 31, 1995, the Company entered into an agreement with the developers of
the technology underlying its Adobe Photoshop product under which the Company
made a lump sum payment to the developers of $34.5 million in lieu of all future
royalty obligations in connection with the technology. This transaction has been
recorded on the balance sheet in other assets as part of purchased technology.
The purchase is being amortized over 36 months. Prior to this agreement, the
Company paid the developers a royalty for each copy of Adobe Photoshop sold by
the Company.
NOTE 9.
ANNOUNCED ACQUISITION OF FRAME TECHNOLOGY CORPORATION
On June 22, 1995, the Company and Frame Technology Corporation ("Frame")
announced a definitive agreement under which the Company will acquire Frame
through an exchange of common stock of the two companies. Frame, a California
corporation established in 1986, provides document creation, management and
distribution software for individuals and workgroups.
13
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 9.
ANNOUNCED ACQUISITION OF FRAME TECHNOLOGY CORPORATION (CONTINUED)
Under the agreement, which has been approved by the Board of Directors of both
companies, the Company will exchange .52 shares of its common stock for each
share of Frame common stock. The acquisition is intended to qualify as a tax-
free reorganization and a pooling of interests for accounting purposes. This
transaction is subject to conditions customary for acquisitions of publicly-held
companies, including approval by Frame's shareholders at a Special Meeting of
Shareholders on October 26, 1995. The Securities and Exchange Commission has
approved the transaction and the applicable waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 expired with no action taken by the
Federal Trade Commission.
Assuming that shareholder approval is obtained, the Company expects the
acquisition to be effective upon the filing of Articles of Merger with the
Secretary of the State of California, which will occur following the receipt of
shareholder approval.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION (PRESENTED IN MILLIONS, EXCEPT PER SHARE
AMOUNTS) SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
RESULTS OF OPERATIONS
OVERVIEW
Adobe develops, markets and supports computer software products and technologies
that enable users to create, display, print and communicate electronic
documents. The Company licenses its technology to major computer, printing and
publishing suppliers, and markets a line of application software and typeface
products for authoring visually rich documents. The Company has subsidiaries in
Europe and the Pacific Rim serving a worldwide network of dealers and
distributors.
In August 1994, the Company merged with Aldus Corporation ("Aldus"). Aldus began
operations in 1984 and created computer software solutions that help people
throughout the world effectively communicate information and ideas. Aldus
focused on three lines of business: applications for the professional print
publishing, graphics and prepress markets; applications for the general consumer
market; and applications for the interactive publishing market. To effect the
combination, approximately 14.2 million shares of Adobe's common stock were
issued in exchange for all of the outstanding common stock of Aldus. The merger
was accounted for by the pooling of interests method, and accordingly, all
interim financial information prior to the merger has been restated to combine
the results of the Company and Aldus.
In connection with the merger with Aldus, the Company has sought to reduce
combined expenses by the elimination of duplicate or unnecessary facilities,
employees, marketing programs and other expenses. The Company believes that the
major impact of such reductions occurred in the fourth quarter of 1994 but
experienced some additional impact in the first nine months of 1995. (See Note 7
- -- Accrued Restructuring Costs.)
15
<PAGE>
REVENUE
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
TOTAL REVENUE $156.7 $146.6 7%
Nine month period:
TOTAL REVENUE $493.2 $432.3 14%
</TABLE>
Revenue growth for the third quarter and nine month periods was due to increases
in both licensing activity and shipments of application products. The
divestiture of FreeHand effective January 1, 1995, and the discontinuance of
PhotoStyler in late 1994, as further discussed below, partially offset the
revenue increase. Product unit volume (as opposed to price) growth was the
principal factor in the Company's revenue growth in application products
revenue.
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
PRODUCT GROUP REVENUE -- LICENSING $45.1 $39.1 15%
Percentage of total revenue 28.8% 26.7%
Nine month period:
PRODUCT GROUP REVENUE -- LICENSING $136.5 $115.7 18%
Percentage of total revenue 27.7% 26.8%
</TABLE>
Licensing revenue is derived from shipments by original equipment manufacturers
("OEM") of products containing the Adobe-TM- PostScript-TM- interpreter and the
Display PostScript-TM- system. Such products include printers in both Roman and
Japanese languages, imagesetters and workstations. Licensing revenue is also
derived from shipments of products containing the Configurable PostScript
Interpreter ("CPSI") by OEM customers. CPSI is a fully functional PostScript
interpreter that resides on the host computer system rather than in a dedicated
controller integrated into an output device. The configuration flexibility of
CPSI allows OEMs and software developers to create and market a variety of
PostScript products independently of controller hardware development.
The number of units shipped by OEMs continued to grow on a quarterly basis.
Royalty per unit is generally calculated as a percentage of the end user list
price of a printer, although there are some components of licensing revenue
based on a flat dollar amount per unit which typically do not change with list
price changes. Some OEMs continued to reduce list prices on their lower-end
printers, which resulted in lower royalties per unit on such printers. However,
in the third quarter and first nine months of 1995, this trend was offset by
increased demand for CPSI and color capability, as well as increased penetration
into the Japanese market, all of which have higher royalties per unit.
16
<PAGE>
The Company has seen year-to-year increases in the number of OEM customers from
which it is receiving licensing revenue, demonstrating continued acceptance of
PostScript software, as well as reflecting a diversification of the Company's
customer base across Macintosh, IBM PC and compatibles, and multiple platform
markets.
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
PRODUCT GROUP REVENUE --
APPLICATION PRODUCTS $111.6 $107.5 4%
Percentage of total revenue 71.2% 73.3%
Nine month period:
PRODUCT GROUP REVENUE --
APPLICATION PRODUCTS $356.8 $316.6 13%
Percentage of total revenue 72.3% 73.2%
</TABLE>
Application products revenue is derived from shipments of application software
programs through retail and distribution channels; however, the information
products are becoming more widely distributed through VARs and systems
integrators.
During the third quarter and first nine months of 1995, application products
revenue grew primarily due to increased demand for Adobe Photoshop-TM-, the
Company's image editing product. In the first quarter of 1995, the Company
released Adobe Premiere-TM- 4.0 for the Windows platform, as well as Japanese
versions of several of its products, including Adobe Premiere 4.0 and Adobe
Persuasion-TM- 3.0 for the Macintosh, and Adobe Photoshop 3.0 for the Windows
platform. Continued demand for these releases as well as for versions of Adobe
Photoshop and Adobe Premiere for the Macintosh platform released in the second
half of fiscal 1994 all contributed to the increased revenue from application
products. The third quarter and first nine months of 1994 include revenue from
FreeHand, which was divested effective January 1, 1995, and PhotoStyler, which
was discontinued in late 1994. These two products aggregated revenue of
$14.3 million and $44.7 million in the third quarter and first nine months of
1994, respectively.
Application products revenue for the third quarter of 1995 was lower than
expected because of significantly lower than normal European revenues. While
European sales for the third quarter are generally less than in other quarters,
the decrease in 1995 was greater than usual and was reflected across all product
lines, all platforms and all European regions. In addition, the Company released
Adobe PageMaker-TM- 6.0 for the Macintosh late in the third quarter. Adobe
PageMaker shipped for less than two weeks in the quarter, which was also a
contributing factor to the lower than expected revenues.
17
<PAGE>
DIRECT COSTS
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
DIRECT COSTS $25.7 $26.2 -2%
Percentage of total revenue 16.4% 17.8%
Nine month period:
DIRECT COSTS $89.3 $80.1 11%
Percentage of total revenue 18.1% 18.5%
</TABLE>
Direct costs include royalties; amortization of acquired technologies; and
direct product, packaging and shipping costs. During 1994, direct costs also
included amortization of typeface production costs, which totaled $1.6 million
and $4.0 million in the third quarter and first nine months of 1994,
respectively.
Gross margins are affected by the mix of licensing revenue versus application
products revenue, as well as the product mix within application products. In
the third quarter and first nine months of 1995, direct costs decreased as a
percentage of total revenue due to the greater proportion of licensing
revenue which typically has higher gross margins than application products
revenue. In addition, the purchase relating to Adobe Photoshop, as further
discussed below, resulted in lower direct costs for that product as a
percentage of its revenue.
On March 31, 1995, the Company entered into an agreement with the developers of
the technology underlying its Adobe Photoshop product under which the Company
made a lump sum payment to the developers of $34.5 million in lieu of all future
royalty obligations in connection with the technology. This transaction has been
recorded on the balance sheet in other assets as part of purchased technology.
The purchase is being amortized over 36 months. Prior to this agreement, the
Company paid the developers a royalty for each copy of Adobe Photoshop sold by
the Company. To date, the amortization expense related to the purchase has been
less than the per-copy royalty expense which would otherwise have been incurred.
The Company also delivers its type library on its Type On Call-TM- CD-ROM media,
and end users wishing to license typeface designs call the Company with a credit
card number to receive the unlocking code for the desired typeface. This method
of delivery also contributes to reduced direct costs. Other applications are
also available through the Company's distributors on CD-ROM.
18
<PAGE>
OPERATING EXPENSES
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
SOFTWARE DEVELOPMENT COSTS --
RESEARCH AND DEVELOPMENT $29.2 $24.4 20%
Percentage of total revenue 18.6% 16.6%
Nine month period:
SOFTWARE DEVELOPMENT COSTS --
RESEARCH AND DEVELOPMENT $82.0 $69.5 18%
Percentage of total revenue 16.6% 16.1%
</TABLE>
Research and development expenses consist principally of salaries and benefits
for software developers, contracted development efforts, related facilities
costs, and expenses associated with computer equipment used in software
development.
Research and development expense has increased in absolute dollars as the
Company invested in new technologies, new product development and the
infrastructure to support such activities. The increase reflects the expansion
of the Company's engineering staff and related costs required to support its
continued emphasis on developing new products and enhancing existing products.
Many of these engineers are working with OEM customers to design and implement
PostScript Level 2 devices. The Company continues to work with many of its OEM
customers in a co-development program. This allows customers to be more self-
sufficient in new device development by taking on more of the implementation
task themselves rather than relying so heavily on the Company's engineers. While
this mitigates certain costs, the Company continues to make significant
investments in development of its PostScript and application software products.
The Company believes that continued investments in research and development are
necessary to remain competitive in the marketplace, and are directly related to
continued, timely development of new and enhanced products. The Company intends
to continue recruiting and hiring experienced software developers, but expects
that research and development expenditures for all of 1995 will approximate
current year-to-date spending levels as a percentage of revenue.
19
<PAGE>
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
SOFTWARE DEVELOPMENT COSTS --
AMORTIZATION OF CAPITALIZED
SOFTWARE DEVELOPMENT COSTS $1.9 $3.9 -51%
Percentage of total revenue 1.2% 2.7%
Nine month period:
SOFTWARE DEVELOPMENT COSTS --
AMORTIZATION OF CAPITALIZED
SOFTWARE DEVELOPMENT COSTS $7.1 $10.7 -34%
Percentage of total revenue 1.4% 2.5%
</TABLE>
In the implementation of Statement of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," software development expenditures on Adobe products, after
achieving technological feasibility, were deemed to be immaterial. Certain
software development expenditures on Aldus products have been capitalized and
are being amortized over the lives of the respective products. In the third
quarter and first nine months of 1995, software development expenditures on all
products, after reaching technological feasibility, were immaterial and the
Company anticipates that this trend will continue in the future. Accordingly,
1995 will reflect the expense of amortizing software development costs acquired
in connection with the Company's merger with Aldus in addition to the actual
development expenditures (classified as research and development) made prior to
achieving technological feasibility.
It is expected that amortization of software development costs will decrease
both in absolute dollars and as a percentage of total revenue during 1995 as
these costs become fully amortized.
20
<PAGE>
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
SALES, MARKETING AND
CUSTOMER SUPPORT $49.7 $52.3 -5%
Percentage of total revenue 31.7% 35.7%
Nine month period:
SALES, MARKETING AND
CUSTOMER SUPPORT $145.0 $149.4 -3%
Percentage of total revenue 29.4% 34.6%
</TABLE>
Sales, marketing and customer support expenses generally include salaries and
benefits, sales commissions, travel expenses and related facilities costs for
the Company's sales, marketing, customer support and distribution personnel.
Sales, marketing and customer support expenses also include the costs of
programs aimed at increasing revenues, such as advertising, trade shows and
other market development programs.
Sales, marketing and customer support expenses decreased for the third quarter
and first nine months of 1995 compared with the same periods of 1994. The timing
of product release schedules and major trade shows will affect the level of
expense in any given quarter. In the third quarter and first nine months of 1995
reduced costs resulting from the restructuring of the combined company following
the merger with Aldus are partially offset by increased advertising relating to
the release of Adobe PageMaker 6.0 for the Macintosh and expenses from several
major trade shows.
Continuing efforts to expand markets and increase penetration into targeted
software markets, as well as increasing competition in the software industry are
expected to cause sales, marketing and customer support expenditures for all of
1995 to approximate 1994 spending levels in absolute dollars.
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
GENERAL AND ADMINISTRATIVE $11.4 $12.9 -12%
Percentage of total revenue 7.3% 8.8%
Nine month period:
GENERAL AND ADMINISTRATIVE $35.1 $39.1 -10%
Percentage of total revenue 7.1% 9.0%
</TABLE>
General and administrative expenses consist principally of salaries and
benefits, travel expenses, and related facility costs for the finance, human
resources, legal, information services and administrative personnel of the
Company. General and administrative expenses also include outside legal and
accounting fees, bad debts and expenses associated with computer equipment and
software used in the administration of the business.
21
<PAGE>
In the third quarter and first nine months of 1995, general and administrative
expenses reflect savings related to the restructuring of the combined company
after the merger with Aldus. The Company expects general and administrative
spending for all of 1995 to approximate the year-to-date level as a percentage
of revenue.
NONOPERATING INCOME
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
INTEREST, INVESTMENT AND
OTHER INCOME $6.8 $1.8 284%
Percentage of total revenue 4.3% 1.2%
Nine month period:
INTEREST, INVESTMENT AND
OTHER INCOME $19.0 $5.6 238%
Percentage of total revenue 3.9% 1.3%
</TABLE>
The increase in interest, investment and other income is primarily due to a
larger investment base and generally higher interest rates compared to 1994. In
1995, the Company has increased the weighted average days-to-maturity of its
investments, which has generated higher rates of return.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
PROVISION FOR INCOME TAXES $16.1 $10.7 50%
Percentage of total revenue 10.3% 7.3%
Effective tax rate 35.3% 37.2%
Nine month period:
PROVISION FOR INCOME TAXES $56.2 $31.7 77%
Percentage of total revenue 11.4% 7.3%
Effective tax rate 36.5% 36.8%
</TABLE>
The effective tax rate for the nine month period of 1995 was slightly lower than
that of 1994. The Company anticipates that the effective tax rate for the full
year of 1995 will approximate that of the nine month period of 1995.
22
<PAGE>
NET INCOME AND NET INCOME PER SHARE
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ----------
<S> <C> <C> <C>
Third quarter period:
NET INCOME $29.5 $18.1 63%
Percentage of total revenue 18.8% 12.3%
NET INCOME PER SHARE $0.44 $0.29 52%
Weighted shares (In thousands) 67,121 62,566
Nine month period:
NET INCOME $97.7 $54.5 79%
Percentage of total revenue 19.8% 12.6%
NET INCOME PER SHARE $1.48 $0.88 68%
Weighted shares (In thousands) 66,032 61,874
</TABLE>
Net income for the third quarter of 1995 increased 63% from the third quarter of
1994. Earnings per share were $.44, a 52% increase from the third quarter of
1994. Net income for the nine months ended September 1, 1995 increased 79% over
the same period in 1994 and earnings per share increased 68% for the same
period.
The increase in earnings per share was caused by increased revenue, lower
expense levels as a percentage of revenue and a relatively constant tax rate.
ANNOUNCED ACQUISITION OF FRAME TECHNOLOGY CORPORATION
As described in the Company's Form 10-Q for the second quarter of 1995, on
June 22, 1995, the Company and Frame Technology Corporation ("Frame") announced
a definitive agreement under which the Company will acquire Frame through an
exchange of common stock of the two companies. Frame, a California corporation
established in 1986, provides document creation, management and distribution
software for individuals and workgroups.
Under the agreement, which has been approved by the Board of Directors of both
companies, the Company will exchange .52 shares of its common stock for each
share of Frame common stock. The acquisition is intended to qualify as a tax-
free reorganization and a pooling of interests for accounting purposes. This
transaction is subject to conditions customary for acquisitions of publicly-held
companies, including approval by Frame's shareholders at a Special Meeting of
Shareholders on October 26, 1995. The Securities and Exchange Commission has
approved the transaction and the applicable waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 expired with no action taken by the
Federal Trade Commission.
Assuming that shareholder approval is obtained, the Company expects the
acquisition to be effective upon the filing of Articles of Merger with the
Secretary of the State of California, which will occur following the receipt of
shareholder approval.
23
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company believes that in the future its results of operations could be
impacted by factors such as the ability of the Company to integrate Adobe, Aldus
and Frame product lines, renegotiation of royalty arrangements, delays in
shipment of the Company's new products and major new versions of existing
products, market acceptance of new products and upgrades, growth in worldwide
personal computer and printer sales and sales price adjustments, consolidation
in the OEM printer business, and adverse changes in general economic conditions
in any of the countries in which the Company does business.
In connection with the acquisition of Frame, the Company intends to seek to
reduce expenses by the elimination of duplicate or unnecessary facilities,
employees, marketing programs and other expenses. There can be no assurance that
the Company will be able to reduce expenses in this fashion, that there will not
be high costs associated with such activities, that such reductions will not
result in a decrease in revenue or that there will not be other material adverse
effects of the Company's integration efforts. Such effects could materially
reduce the earnings of the combined company. The Company will incur estimated
merger transaction costs of approximately $13.5 million related to the
acquisition, which will be charged to operations in the fourth quarter of 1995.
In addition, the Company expects to incur a restructuring charge during the
fourth quarter of 1995, currently estimated to be in the range of $15.0 million
to $25.0 million, to reflect the costs associated with combining the two
companies, including severance and outplacement costs and the elimination of
duplicate facilities (including cancellation of leases). These amounts are
preliminary estimates only and are therefore subject to change. In addition,
there can be no assurance that the Company will not incur additional charges in
subsequent quarters to reflect costs associated with the acquisition.
As previously stated, effective January 1, 1995, the Company no longer markets
FreeHand and discontinued marketing PhotoStyler in late 1994. These two products
aggregated $53.2 million of revenue and $35.4 million of gross profit in fiscal
year 1994. There can be no assurance that the Company will be able to continue
to replace this lost revenue or that it will be able to do so as profitably.
The Company's OEM customers on occasion seek to renegotiate their royalty
arrangements. The Company evaluates these requests on a case-by-case basis. If
an agreement is not reached, a customer may decide to pursue other options,
including licensing a PostScript language compatible interpreter from a third
party, which could result in lower licensing revenue for the Company.
With the acquisition of Aldus, the Company derives a larger portion of its
revenue from its subsidiaries located in Europe and the Pacific Rim. While most
of the revenue of these subsidiaries is denominated in U.S. dollars, the
majority of their expense transactions are denominated in foreign currencies,
including the Japanese yen and most major European currencies. As a result, the
Company's operating results are subject to fluctuations in foreign currency
exchange rates. To date, the impact of such fluctuations has been insignificant
and the Company has not engaged in any significant activities to hedge its
exposure to foreign currency exchange rate fluctuations. In addition, the
Company generally experiences lower revenues from its European operations in the
third quarter.
24
<PAGE>
The Company's ability to develop and market products, including upgrades of
currently shipping products, that successfully adapt to current market needs may
also have an impact on the results of operations. A portion of the Company's
future revenue will come from these products. Delays in such introductions could
have an adverse effect on the Company's revenue, earnings or stock price. The
Company cannot determine the ultimate effect that these new products or upgrades
will have on its sales or results of operations.
Due to the factors noted above, the Company's future earnings and stock price
may be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in any given period. Additionally, the Company may
not learn of such shortfalls until late in the fiscal quarter, which could
result in an even more immediate and adverse effect on the trading price of the
Company's common stock. Finally, the Company participates in a highly dynamic
industry, which often results in significant volatility of the Company's common
stock price.
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
September 1 November 25
1995 1994 Change
----------- ----------- -----------
<S> <C> <C> <C>
CASH, CASH EQUIVALENTS AND
SHORT-TERM INVESTMENTS $474.3 $400.4 18%
</TABLE>
The Company's cash balances and short-term investments have increased each year
due to profitable operations, partially offset by expenditures for capital
outlays and other investments. Cash equivalents consist of highly liquid money
market instruments. Certain cash equivalents and all of the Company's short-
term investments, consisting principally of municipal bonds, commercial paper,
auction rate securities, United States government and government agency
securities and asset-backed securities, are classified as available-for-sale
under the provisions of SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The securities are carried at fair value with the
unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. The Company does not invest in securities which involve a
high degree of risk or complexity.
25
<PAGE>
NONCURRENT LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 1 November 25
1995 1994 Change
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY $611.2 $456.8 34%
</TABLE>
The Company has no long-term debt or other noncurrent liabilities.
The Board of Directors of the Company declared a cash dividend on the Company's
common stock of $.05 per common share on September 18, 1995, for the third
quarter of 1995. The dividend will be for shareholders of record as of
October 6, 1995, and will be paid on October 20, 1995. The declaration of
future dividends is within the discretion of the Board of Directors of the
Company and will depend upon business conditions, results of operations, the
financial condition of the Company and other factors.
Under its stock repurchase program, the Company repurchased 434,003 shares at a
cost of $17.7 million in the first nine months of 1995. These share repurchases
are intended to fund the employee stock purchase and stock option plans.
Additional repurchases of the Company's common stock in the open market to
provide shares for issuance under its stock plans will continue subsequent to
the completion of the announced acquisition of Frame.
WORKING CAPITAL
<TABLE>
<CAPTION>
September 1 November 25
1995 1994 Change
----------- ----------- -----------
<S> <C> <C> <C>
WORKING CAPITAL $466.7 $363.6 28%
</TABLE>
Net working capital grew to $466.7 million as of September 1, 1995, compared to
$363.6 million as of November 25, 1994. Cash flow provided by operations during
the first nine months of 1995 was $129.4 million. Expenditures for property and
equipment totaled $20.4 million. Such expenditures are expected to continue,
including computer systems for development, sales and marketing, product
support, and administrative staff.
In the future, cash may be used to acquire technology, or to invest in companies
owning key technologies, where appropriate. On March 31, 1995, the Company
entered into an agreement with the developers of the technology underlying its
Adobe Photoshop product to pay the developers a lump sum payment of
$34.5 million in lieu of all future royalty obligations in connection with the
technology (see Note 8 -- Adobe Photoshop Technology).
Net cash provided by financing activities during the first nine months of 1995
was $31.1 million; $58.4 million was provided by proceeds from issuance of
common stock; $17.7 million was used to repurchase common stock; and
$9.5 million was used to pay cash dividends.
26
<PAGE>
The Company's principal commitments as of September 1, 1995, consisted of
obligations under operating leases for facilities, a real estate development
agreement and various service and lease guarantee agreements with a related
party. The Company has entered into a real estate development agreement for the
construction of an office facility and in 1996 will enter into an operating
lease agreement for this facility. The Company will have the option to purchase
the facility at the end of the lease term. In the event the Company chooses not
to exercise this option, the Company is obligated to arrange the sale of the
facility to an unrelated party and is required to pay the lessor any difference
between the net sales proceeds and the lessor's net investment in the facility,
in an amount not to exceed that which would preclude classification of the lease
as an operating lease, approximately $52.0 million. The Company also is
required, periodically during the construction period, to deposit funds with the
lessor to secure the performance of its obligations under the lease and as of
September 1, 1995, the Company had deposited approximately $20.0 million in time
deposit securities. The Company has also entered into various agreements with
McQueen Holdings Limited ("McQueen"), a European operating entity, whereby the
Company has agreed to guarantee obligations under operating leases for certain
European facilities utilized by McQueen, and to guarantee certain levels of
business between Adobe and McQueen. The Company currently owns approximately 16
percent of the outstanding stock in McQueen.
The Company believes that existing cash, cash equivalents and short-term
investments, together with cash generated from operations, will provide
sufficient funds for the Company to meet its operating cash requirements in the
foreseeable future.
27
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Incorporated by Reference
Exhibit ------------------------------
Number Exhibit Description Form Date Number
------- ------------------------- ------ -------- ------
10.1 1984 Stock Option Plan S-1 07/01/86 10.1
10.1.1 1984 Stock Option Plan,
as amended 10-K 11/30/87 10.1.1
10.1.2 1984 Stock Option Plan,
as amended 10-K 11/30/88 10.1.2
10.1.3 1984 Stock Option Plan,
as amended 10-K 11/30/89 10.1.3
10.1.4 1984 Stock Option Plan,
as amended 10-K 11/30/90 10.1.4
10.1.5 1984 Stock Option Plan,
as amended 10-K 11/27/92 10.1.5
10.1.6 1984 Stock Option Plan,
as amended 10-Q 07/02/93 10.1.6
10.1.7 1994 Stock Option Plan 10-Q 07/06/94 10.1.7
10.2 Common Stock Purchase
Agreement of John E.
Warnock dated December
29, 1982, and, as amended
November 30, 1983 S-1 07/01/86 10.2
10.3 Common Stock Purchase
Agreement of Charles M.
Geschke dated December
29, 1982, and, as amended
November 30, 1983 S-1 07/01/86 10.3
10.4 Common Stock Purchase
Agreement of Q.T. Wiles
dated December 29, 1982 S-1 07/01/86 10.4
10.5 Common Stock Purchase
Agreement of David Evans
dated December 29, 1982 S-1 07/01/86 10.5
(Continued)
28
<PAGE>
a) Index to Exhibits (Continued)
Incorporated by Reference
Exhibit ------------------------------
Number Exhibit Description Form Date Number
------- ------------------------- ------ -------- ------
10.6 Common Stock Purchase
Agreement of William
Hambrecht dated December
29, 1982 S-1 07/01/86 10.6
10.7 Exchange Agreement
dated December 29,
1983, for John E.
Warnock S-1 07/01/86 10.7
10.8 Exchange Agreement
dated December 29,
1983, for Charles M.
Geschke S-1 07/01/86 10.8
10.9 Form of Shareholders
Exchange Agreement used
in connection with the
exchange of shares of Old
Adobe for shares of the
Company S-1 07/01/86 10.9
10.10 Form of Agreement for
Assignment of Limited
Partnership Interest used
in connection with exchange
of limited partnership
interests in Adobe Systems
Limited, a California limited
partnership, for shares of the
Series B Preferred Stock of
the Company S-1 07/01/86 10.10
10.11 Registration Rights
Agreement dated December
29, 1983 S-1 07/01/86 10.11
10.12 Old Adobe's 1983 Stock
Purchase Plan and the
Company's 1984 Stock
Purchase Plan with standard
form of Stock Purchase
Agreement S-1 07/01/86 10.12
10.12.1 1988 Employee Stock
Purchase Plan, as amended 10-Q 07/06/94 10.12.1
(Continued)
29
<PAGE>
a) Index to Exhibits (Continued)
Incorporated by Reference
Exhibit ------------------------------
Number Exhibit Description Form Date Number
------- ------------------------- ------ -------- ------
10.13 Form of Employee
Common Stock Purchase
Agreement dated July 23,
1984 S-1 07/01/86 10.13
10.14 Warrant to Purchase Series
C Preferred Stock to Apple
Computer, Inc., dated
November 26, 1984, with
executed subscription form
dated November 28, 1984 S-1 07/01/86 10.14
10.15 Warrant to Purchase
Series C Preferred Stock
to Evans & Sutherland
Computer Corporation
dated April 25, 1984,
with executed subscription
form dated June 19, 1986 S-1 07/01/86 10.15
10.16 License Agreement
between the Company
and Evans & Sutherland
Computer Corporation
dated April 25, 1984 S-1 07/01/86 10.16
10.17 License Agreement
between the Company and
Apple Computer, Inc., dated
November 12, 1985
(confidential treatment
granted) S-1 07/01/86 10.17
10.17.1 License Agreement
Restatement between the
Company and Apple
Computer, Inc., dated April
1, 1987 (confidential
treatment granted) 10-K 11/30/88 10.17.1
(Continued)
30
<PAGE>
(a) Index to Exhibits (Continued)
Incorporated by Reference
Exhibit ------------------------------
Number Exhibit Description Form Date Number
------- ------------------------- ------ -------- ------
10.17.2 Amendment No. 1 to the
License Agreement
Restatement between the
Company and Apple
Computer, Inc., dated
November 27, 1990
(confidential treatment
granted). 10-K 11/30/90 10.17.2
10.18 Lease Agreement dated
November 11, 1983,
between Mozart Family
Trust and Epson America
Inc. S-1 07/01/86 10.18
10.19 Assignment of Lease
dated November 11, 1983,
between Epson America
Inc. and the Company
dated February 1, 1986 S-1 07/01/86 10.19
10.20 Lease Agreement
between Mozart Family
Trust and the Company
dated November 30, 1983 S-1 07/01/86 10.20
10.21 Bonus Plans S-1 07/01/86 10.21
10.21.1 Revised Bonus Plan 10-K 11/27/92 10.21.1
10.21.2 Revised Bonus Plan 10-K 11/26/93 10.21.2
10.22 Restricted Stock Option
Plan 10-K 11/30/87 10.22
10.22.1 Restricted Stock Option
Plan, as amended 10-K 11/30/89 10.22.1
10.22.2 Restricted Stock Option
Plan, as amended 10-K 11/30/90 10.22.2
10.22.3 Restricted Stock Option
Plan, as amended 10-K 11/29/91 10.22.3
10.22.4 Restricted Stock Option
Plan, as amended 10-Q 07/06/94 10.22.4
(Continued)
31
<PAGE>
(a) Index to Exhibits (Continued)
Incorporated by Reference
Exhibit ------------------------------
Number Exhibit Description Form Date Number
------- ------------------------- ------ -------- ------
10.23 Amended and Restated
Software License Agree-
ment between the Company
and QMS, Inc., dated May
15, 1987 (confidential
treatment granted) 10-K 11/30/88 10.23
10.24 1989 Restricted Stock Plan 10-K 11/30/88 10.24
10.24.1 1994 Performance and
Restricted Stock Plan S-4 07/27/94 10.1
10.25 Form of Indemnity Agree-
ment 10-K 11/30/88 10.25
10.26 Lease Agreement by and
between Charleston Place
Associates and Adobe
Systems Incorporated dated
April 14, 1987 10-K 11/30/88 10.26
10.26.1 Amendment One to Lease
Agreement dated March 1,
1988 10-K 11/30/88 10.26.1
10.26.2 Amendment Two to Lease
Agreement dated
September 1, 1988 10-K 11/30/88 10.26.2
10.27 Lease Agreement by and
between John Mozart and
Adobe Systems
Incorporated dated July
20, 1988 10-K 11/30/88 10.27
10.28 Limited Partnership
Agreement of University
Circle Building I, Ltd.,
dated May 22, 1991 10-K 11/29/91 10.28
10.29 University Centre
Building I Lease Agree-
ment dated May 22, 1991 10-K 11/29/91 10.29
10.30 University Circle
Termination and Security
Agreement and Mutual
Release dated January 7,
1993 10-K 11/27/92 10.30
(Continued)
32
<PAGE>
(a) Index to Exhibits (Continued)
Incorporated by Reference
Exhibit ------------------------------
Number Exhibit Description Form Date Number
------- ------------------------- ------ -------- ------
10.31 Restated Agreement and
and Plan of Merger and
Reorganization By and
Among Adobe Systems
Incorporated, P Acquisition
Corp and Aldus
Corporation S-4 07/13/94 10.31
10.32 Sublease of the Land and
Lease of the Improvements
By and Between Sumitomo
Bank Leasing and Finance
Inc. and Adobe Systems
Incorporated 10-K 11/25/94 10.32
10.33 Sale of Rights under
Software Development
and Acquisition Agreement
By and Between Adobe
Systems Incorporated and
Thomas Knoll and John
Knoll (confidential
treatment granted) 10-Q 6/2/95 10.33
10.34 Agreement and Plan of
Merger and Reorganization
By and Among Adobe
Systems Incorporated, J
Acquisition Corporation
and Frame Technology
Corporation S-4 8/18/95 2.1
11 Computation of Earnings
Per Common Share N/A N/A N/A
27 Financial Data Schedule N/A N/A N/A
33
<PAGE>
(b) Reports on Form 8-K
One report dated June 28, 1995 was filed by the Company, reporting the
execution of a definitive agreement under which the Company will acquire
Frame Technology Corporation through an exchange of the common stock of the
two companies.
34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADOBE SYSTEMS INCORPORATED
Date: October 12, 1995
By /s/ M. Bruce Nakao
----------------------------------------
M. Bruce Nakao,
Senior Vice President, Finance and
Administration, Chief Financial Officer,
Treasurer and Assistant Secretary
(Principal Financial Officer)
35
<PAGE>
SUMMARY OF TRADEMARKS
The following trademarks of Adobe Systems Incorporated, which may be registered
in certain jurisdictions, are referenced in this Form 10-Q:
Adobe
Adobe Illustrator
Adobe PageMaker
Adobe Persuasion
Adobe Photoshop
Adobe Premiere
Display PostScript
PostScript
Type On Call
All other brand or product names are trademarks or registered trademarks of
their respective holders.
36
<PAGE>
ADOBE SYSTEMS INCORPORATED
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------------------- --------------------------
September 1 August 26 September 1 August 26
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 29,453 $ 18,061 $ 97,705 $ 54,460
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary shares outstanding:
Weighted average shares
outstanding during the
period 63,664 59,914 62,707 59,390
Common stock equivalent
shares 3,457 2,652 3,325 2,484
----------- ----------- ----------- -----------
67,121 62,566 66,032 61,874
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully diluted shares outstanding:
Weighted average shares
outstanding during the
period 63,664 59,914 62,707 59,390
Common stock equivalent
shares 3,458 2,971 3,486 2,750
----------- ----------- ----------- -----------
67,122 62,885 66,193 62,140
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary net income per
common stock and common
stock equivalent share $ .44 $ . 29 $ 1.48 $ .88
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully diluted net income per
common stock and common
stock equivalent share $ .44 $ .29 $ 1.48 $ .88
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 1, 1995, AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 1, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-01-1995
<PERIOD-START> NOV-26-1994
<PERIOD-END> SEP-01-1995
<CASH> 108,817
<SECURITIES> 365,469
<RECEIVABLES> 95,830
<ALLOWANCES> 3,068
<INVENTORY> 6,983
<CURRENT-ASSETS> 9,912
<PP&E> 128,451
<DEPRECIATION> 84,920
<TOTAL-ASSETS> 748,040
<CURRENT-LIABILITIES> 136,883
<BONDS> 0
<COMMON> 206,536
0
0
<OTHER-SE> 404,621
<TOTAL-LIABILITY-AND-EQUITY> 748,040
<SALES> 136,484
<TOTAL-REVENUES> 493,267
<CGS> 89,267
<TOTAL-COSTS> 89,267
<OTHER-EXPENSES> 268,230
<LOSS-PROVISION> 903
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 153,866
<INCOME-TAX> 56,161
<INCOME-CONTINUING> 97,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,705
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.48
</TABLE>
