<PAGE>
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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 March 1, 1996
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)
Registrant's telephone number, including area code: (415) 961-4400
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 March 1, 1996
----- -------------
Common stock, no par value 73,322,081
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<PAGE>
TABLE OF CONTENTS
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 28
Signature 31
Summary of Trademarks 32
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
Quarter Ended March 1, 1996 and March 3, 1995 4
- - Condensed Consolidated Balance Sheets
March 1, 1996 and December 1, 1995 5
- - Condensed Consolidated Statements of Cash Flows
Quarter Ended March 1, 1996 and March 3, 1995 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>
QUARTER ENDED
------------------
MARCH 1 MARCH 3
1996 1995
-------- --------
<S> <C> <C>
Revenue:
Licensing $ 46,911 $ 46,313
Application products 146,731 142,532
-------- --------
Total revenue 193,642 188,845
Direct costs 35,208 33,854
-------- --------
Gross margin 158,434 154,991
-------- --------
Operating expenses:
Software development costs:
Research and development 37,207 31,490
Amortization of capitalized
software development costs 626 2,873
Sales, marketing and
customer support 62,604 55,352
General and administrative 15,651 13,731
-------- --------
Total operating expenses 116,088 103,446
-------- --------
Operating income 42,346 51,545
Nonoperating income:
Interest, investment and
other income 11,515 5,701
-------- --------
Income before income taxes 53,861 57,246
Provision for income taxes 20,198 21,102
-------- --------
Net income $ 33,663 $ 36,144
-------- --------
-------- --------
Net income per share $ .44 $ .50
-------- --------
-------- --------
Shares used in computing net
income per share 76,394 72,888
-------- --------
-------- --------
</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>
MARCH 1 DECEMBER 1
1996 1995
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 86,170 $ 58,493
Short-term investments 453,662 457,547
Receivables 127,384 133,208
Inventories 11,126 7,277
Other current assets 9,372 11,924
Deferred income taxes 25,226 24,338
--------- ---------
Total current assets 712,940 692,787
Property and equipment 56,071 51,708
Other assets 148,542 135,735
Deferred income taxes 9,483 4,502
--------- ---------
$ 927,036 $ 884,732
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables $ 29,491 $ 25,639
Accrued expenses 89,255 94,848
Accrued restructuring costs 15,757 28,151
Income taxes payable 34,330 19,420
Deferred revenue 21,632 18,257
--------- ---------
Total current liabilities 190,465 186,315
--------- ---------
Shareholders' equity:
Preferred stock, no par value;
2,000,000 shares authorized;
none issued-- -- --
Common stock, no par value;
200,000,000 shares authorized;
73,322,081 and 72,834,444 shares issued
and outstanding as of March 1, 1996,
and December 1, 1995, respectively 306,432 293,258
Unrealized gains on investments 14,148 18,831
Retained earnings 420,769 390,793
Cumulative foreign currency translation adjustments (4,778) (4,465)
--------- ---------
Total shareholders' equity 736,571 698,417
--------- ---------
$ 927,036 $ 884,732
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------
MARCH 1 MARCH 3
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 33,663 $ 36,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense 1,067 529
Depreciation and amortization 7,598 11,862
Deferred income taxes (6,735) 1,256
Provision for losses on accounts receivable 149 440
Tax benefit from employee stock plans 2,503 5,073
Changes in operating assets and liabilities:
Receivables 5,389 (4,147)
Inventories (3,898) 2,628
Other current assets 4,117 (4)
Trade and other payables 2,967 (4,329)
Accrued expenses (6,237) 1,780
Accrued restructuring costs (12,385) (14,741)
Income taxes payable 15,294 (4,908)
Deferred revenue 2,304 2,163
--------- ---------
Net cash provided by operating activities 45,796 33,746
--------- ---------
Cash flows from investing activities:
Purchases of short-term investments (236,906) (1,465,603)
Maturities and sales of short-term investments 240,257 1,424,454
Acquisitions of property and equipment (10,476) (10,362)
Capitalization of software development costs -- (487)
Additions to other assets (16,740) (15,095)
--------- ---------
Net cash used for investing activities (23,865) (67,093)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 9,606 25,145
Repurchase of common stock -- (7,765)
Payment of dividends (3,687) (3,131)
Payment of Subchapter S distributions of Mastersoft -- (744)
--------- ---------
Net cash provided by financing activities 5,919 13,505
--------- ---------
(Continued)
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------
MARCH 1 MARCH 3
1996 1995
--------- ---------
<S> <C> <C>
Effect of foreign currency exchange rates on
cash and cash equivalents $ (173) $ 1,054
--------- ---------
Net increase/(decrease) in cash and cash equivalents 27,677 (18,788)
Adjustment for change in Frame Technology
Corporation's fiscal year-end -- (3,591)
Cash and cash equivalents at beginning of period 58,493 204,120
--------- ---------
Cash and cash equivalents at end of period $ 86,170 $181,741
--------- ---------
--------- ---------
Supplemental disclosures:
Cash paid during the period for income taxes $ 2,876 $ 17,417
--------- ---------
--------- ---------
Noncash investing and financing activities:
Dividends declared but not paid $ 3,687 $ 3,133
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 normal recurring
adjustments which are, in the opinion of management, necessary to present a fair
statement of the condensed consolidated financial position at March 1, 1996, and
the condensed consolidated statements of income and cash flows for the interim
periods ended March 1, 1996 and March 3, 1995.
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 December 1, 1995, November
25, 1994 and November 26, 1993, in the Company's 1995 Form 10-K.
The results of operations for the interim period ended March 1, 1996, 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 ended March 1, 1996 and March 3,
1995 were not materially different from primary earnings per share.
8
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. ACQUISITIONS
POOLINGS OF INTERESTS
On October 28, 1995, the Company issued approximately 8.5 million shares of
its common stock in exchange for all of the common stock of Frame Technology
Corporation ("Frame"). Prior to its acquisition by the Company, on July 28,
1995, Frame acquired all of the common stock of Mastersoft, Inc. ("Mastersoft"),
in exchange for approximately 0.6 million equivalent shares of Adobe common
stock. These business combinations have been accounted for as poolings of
interests, and, accordingly, the consolidated financial statements for periods
prior to the combinations have been restated to include the results of
operations, financial position, and cash flows of Frame and Mastersoft.
Prior to the combinations, Frame's fiscal year ended on December 31. In
recording the business combination, Frame's financial statements for the 12
months ended December 1, 1995 were combined with the Company's consolidated
financial statements for the same period. Frame's financial statements for the
year ended December 31, 1994 were combined with the Company's consolidated
financial statements for the year ended November 25, 1994. Revenue and net
income of Frame for the month ended December 31, 1994 were $8.6 million and $2.3
million, respectively. Net income, Subchapter S distributions of Mastersoft, the
issuance of common stock, and the net decrease in cash and cash equivalents were
adjusted to eliminate the effect of including Frame's results of operations,
financial position, and cash flows for the month ended December 31, 1994 in the
years ended December 1, 1995 and November 25, 1994.
9
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. RECEIVABLES
Receivables consisted of the following:
<TABLE>
<CAPTION>
MARCH 1 DECEMBER 1
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Trade receivables $ 85,916 $ 91,296
Royalty receivables 34,886 34,017
Interest and other receivables 10,352 11,593
--------- ---------
131,154 136,906
Less allowance for doubtful accounts 3,770 3,698
--------- ---------
$127,384 $133,208
--------- ---------
--------- ---------
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 1 DECEMBER 1
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Land $ 782 $ 782
Building 4,615 4,615
Equipment 108,404 122,794
Furniture and fixtures 15,059 18,962
Leasehold improvements 9,628 8,790
--------- ---------
138,488 155,943
Less accumulated depreciation and amortization 82,417 104,235
--------- ---------
$ 56,071 $ 51,708
--------- ---------
--------- ---------
</TABLE>
10
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
MARCH 1 DECEMBER 1
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Licensing agreements $ 9,966 $ 16,319
Goodwill 13,751 13,753
Purchased technology 35,376 35,626
Software development costs 9,789 36,988
Equity investments 52,754 53,091
Restricted funds 49,452 35,634
Miscellaneous other assets 16,249 11,363
--------- ---------
187,337 202,774
Less accumulated amortization 38,794 67,039
--------- ---------
$148,543 $135,735
--------- ---------
--------- ---------
</TABLE>
NOTE 6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
MARCH 1 DECEMBER 1
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Royalties $ 6,311 $ 7,194
Accrued compensation and benefits 22,094 26,730
Sales and marketing allowances 20,941 24,586
Other 39,909 36,338
--------- ---------
$ 89,255 $ 94,848
--------- ---------
--------- ---------
</TABLE>
11
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7. ACCRUED RESTRUCTURING COSTS
On October 28, 1995, the Company acquired Frame, described in "Note 2 --
Acquisitions," and initiated a plan to combine the operations of the two
companies. On this date, the Company recorded a $32.5 million charge to
operating expenses related to merger transaction and restructuring costs. On
August 31, 1994, the Company merged with Aldus Corporation ("Aldus") 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
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
equipment, the write-off of certain intangible assets, severance and
outplacement of terminated employees, and cancellation of certain contractual
agreements.
Merger transaction and restructuring costs (in thousands) are summarized in
the table below:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 1, 1996
ACCRUED AS OF --------------------------- ACCRUED AS OF
DECEMBER 1 CASH MARCH 1
1995 WRITE-OFFS PAYMENTS 1996
------------- ---------- --------- -------------
<S> <C> <C> <C> <C>
FRAME:
Merger transaction
costs $ 5,058 $ -- $ 4,149 $ 909
Restructuring costs:
Severance and
outplacement 9,612 -- 7,666 1,946
Cancellation of
facility leases and
other contracts 5,402 -- 151 5,251
--------- ---------- --------- ---------
$ 20,072 $ -- $ 11,966 $ 8,106
--------- ---------- --------- ---------
--------- ---------- --------- ---------
ALDUS:
Restructuring costs:
Cancellation of
facility leases and
other contracts 6,983 -- 406 6,577
--------- ---------- --------- ---------
$ 6,983 $ -- $ 406 $ 6,577
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
12
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7. ACCRUED RESTRUCTURING COSTS (CONTINUED)
In addition, Frame undertook certain restructuring measures in 1993 due to
lower than anticipated revenues. As of both March 1, 1996 and December 1, 1995,
$1.1 million remained accrued and represented anticipated future cash outflows
related to lease payments on vacated facilities.
The nature, timing, and extent of restructuring costs follow:
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 200 terminated employees for Frame. Affected employees had
received notification of their termination by November 8, 1995, and final
assignments are expected to be completed by mid-1996.
CANCELLATION OF FACILITY LEASES AND OTHER CONTRACTS
The Company has consolidated duplicate offices in Europe, Japan, Canada, and
the United States. Lease and third-party contract termination 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. COMMITMENTS AND CONTINGENCIES
REAL ESTATE DEVELOPMENT AGREEMENT
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 for 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. During the
first quarter of 1996, the Company increased its deposits by approximately $13.8
million, and as of March 1, 1996, the Company's deposits under this agreement
totaled approximately $49.5 million in United States government treasury notes
and money market mutual funds. These deposits are included in "Other assets" in
the Condensed Consolidated Balance Sheets.
13
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL ACTIONS
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes it has adequate legal defenses and
believes that the ultimate outcome of these actions will not have a material
effect on the Company's financial position and results of operations.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS REPORT ON FORM
10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THE SECTION ENTITLED "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S SEC REPORTS
(INCLUDING WITHOUT LIMITATION, ITS REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 1, 1995).
RESULTS OF OPERATIONS
OVERVIEW
Adobe Systems Incorporated ("Adobe" or the "Company") develops, markets, and
supports computer software products and technologies that enable users to
create, display, manage, communicate, and print electronic documents. The
Company licenses its technology to major computer, printing, and publishing
suppliers, and markets a line of application software products and type products
for authoring and editing visually rich documents. The Company distributes its
products through a network of original equipment manufacturer ("OEM") customers,
distributors and dealers, and value-added resellers ("VARs") and system
integrators. The Company has operations in the Americas, Europe, and the Pacific
Rim.
In October 1995, the Company acquired Frame Technology Corporation ("Frame").
Frame, established in 1986, developed, marketed, and supported writing and
publishing software for the creation and distribution of critical business and
technical documents. To effect the combination, approximately 8.5 million shares
of Adobe's common stock were issued in exchange for all of the outstanding
common stock of Frame. The merger was accounted for by the pooling of interests
method, and accordingly, all annual and interim financial information prior to
the merger has been restated to combine the results of the Company and Frame.
In January 1996, the Company divested its prepress applications product
business to a newly established company, Luminous Corporation ("Luminous").
Under the terms of the agreement, Luminous has acquired or licensed and will
continue to develop, market, and distribute Adobe's prepress application
products. Adobe will retain a minority equity interest in Luminous and will
maintain ownership of certain core technologies for Adobe prepress products.
Luminous will pay royalties to Adobe based on a percentage of revenue from
certain products for the next two years. Revenue from prepress application
products was approximately $10.4 million in fiscal year 1995 and $.7 million in
the first quarter of 1996 prior to the divestiture.
15
<PAGE>
The following table sets forth for the quarters ended March 1, 1996, and
March 3, 1995, the Company's condensed consolidated statements of income
expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------
MARCH 1 MARCH 3
1996 1995
--------- ---------
<S> <C> <C>
Revenue:
Licensing 24.2% 24.5%
Application products 75.8 75.5
--------- ---------
Total revenue 100.0 100.0
Direct costs
18.2 17.9
--------- ---------
Gross margin 81.8 82.1
--------- ---------
Operating expenses:
Software development costs:
Research and development 19.2 16.7
Amortization of capitalized
software development costs 0.3 1.5
Sales, marketing and
customer support 32.3 29.3
General and administrative 8.1 7.3
--------- ---------
Total operating expenses 59.9 54.8
--------- ---------
Operating income 21.9 27.3
Nonoperating income:
Interest, investment and
other income 5.9 3.0
--------- ---------
Income before income taxes 27.8 30.3
Provision for income taxes 10.4 11.2
--------- ---------
Net income 17.4% 19.1%
--------- ---------
--------- ---------
</TABLE>
16
<PAGE>
REVENUE
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Total revenue $193.6 $188.8 3%
Revenue growth for the quarter was due primarily to increases in sales of
application products. Product unit volume (as opposed to price) growth was the
principal factor in the Company's revenue growth in application product revenue.
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Product group revenue --
Licensing $46.9 $ 46.3 1%
Percentage of total revenue 24.2% 24.5%
Licensing revenue is derived from shipments by OEM's of products containing
the Adobe PostScript interpreter and the Display PostScript 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 remained flat 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 first quarter of 1996, 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. In addition, the Company has seen
year-to-year increases in the number of OEM customers from which it is receiving
licensing revenue.
17
<PAGE>
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Product group revenue --
Application products $146.7 $142.5 3%
Percentage of total revenue 75.8% 75.5%
Application products revenue is derived from shipments of application
software programs marketed through retail and distribution channels; however,
Adobe PageMill, Adobe SiteMill, and Adobe Acrobat are being more widely
distributed through VARs and systems integrators.
During the first quarter of 1996, application products revenue was slightly
higher than that of the same quarter in 1995. This reflected an increase in
demand for the Acrobat family of products as well as for Adobe Illustrator for
Macintosh and Adobe PageMaker which had new version releases in the first
quarter of 1996 and late 1995, respectively. In addition, PageMill and SiteMill
which were both released in late 1995 added revenue in 1996. These increases
were partially offset by decreases in Adobe Photoshop and Adobe FrameMaker
revenue.
DIRECT COSTS
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Direct costs $35.2 $33.9 4%
Percentage of total revenue 18.2% 17.9%
Direct costs include royalties; amortization of acquired technologies; and
direct product, packaging and shipping costs.
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
first quarter of 1996, direct costs increased slightly as a percentage of total
revenue due to the greater proportion of application products revenue which
typically has lower gross margins than licensing revenue. The increase was
partially offset by an agreement entered into during the second quarter of 1995
whereby the developers of the technology underlying the Adobe Photoshop product
were paid a lump-sum payment by the Company in lieu of future royalty
obligations. To date, the amortization expense related to the purchase has been
less than the per-copy royalty expense that would otherwise have been incurred.
18
<PAGE>
OPERATING EXPENSES
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Software development costs --
Research and development $37.2 $31.5 18%
Percentage of total revenue 19.2% 16.7%
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 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 continued working 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 tasks 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. Accordingly, the
Company intends to continue recruiting and hiring experienced software
developers. While the Company expects that research and development expenditures
in 1996 will continue to increase in absolute dollars, such expenditures are
expected to remain approximately the same as 1995 as a percentage of revenue.
19
<PAGE>
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Software development costs --
Amortization of capitalized
software development costs $0.6 $2.9 (78)%
Percentage of total revenue 0.3% 1.5%
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 Frame and Aldus products have been
capitalized and are being amortized over the lives of the respective products.
In the first quarter of 1996, software development expenditures on all products,
after reaching technological feasibility, were immaterial and the Company
expects this trend to continue in the future.
Amortization of capitalized software development costs decreased in the first
quarter of 1996 as a result of achieving full amortization of all Aldus products
by the end of 1995. Amortization of software development costs are expected to
remain relatively constant during the remainder of 1996 as the software products
acquired with Frame become fully amortized.
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Sales, marketing and
customer support $62.6 $55.4 13%
Percentage of total revenue 32.3% 29.3%
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 increased in the first quarter
of 1996 compared with the same quarter of 1995. The increase resulted primarily
from Frame integration costs and a higher headcount entering the first quarter
of 1996, 1995 focal increases, and higher rent expense. Costs related to
continuing efforts to expand markets and increase penetration into targeted
software markets, as well as responding to increased competition in the software
industry, will be partially offset by decreased costs expected to result from
the restructuring of the combined company after the acquisition of Frame. As a
result, for all of 1996, sales, marketing, and customer support expenditures are
expected to increase in absolute dollars and increase slightly from 1995
spending levels as a percentage of revenue.
20
<PAGE>
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
General and administrative $15.7 $13.7 14%
Percentage of total revenue 8.1% 7.3%
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.
In the first quarter of 1996, general and administrative expenses increased
compared with the same quarter of 1995. The increase resulted primarily from
Frame integration costs and a higher headcount entering the first quarter of
1996. While the Company expects that general and administrative expenditures in
1996 will continue to increase in absolute dollars, such expenditures are
expected to remain approximately the same as 1995 as a percentage of revenue.
NONOPERATING INCOME
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Interest, investment and
other income $11.5 $5.7 102%
Percentage of total revenue 5.9% 3.0%
The increase in interest, investment and other income is primarily due to a
significantly larger investment base and a realized gain of approximately $2.8
million on the sale of an equity investment. In addition, the Company has
increased the weighted average days-to-maturity of its investments during the
first quarter of 1996 compared to the same period in 1995, which has generated
higher rates of return.
21
<PAGE>
PROVISION FOR INCOME TAXES
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Provision for income taxes $20.2 $21.1 (4)%
Percentage of total revenue 10.4% 11.2%
Effective tax rate 37.5% 36.9%
The effective tax rate for first quarter of 1996 was higher than the same
quarter of 1995 due to the fact that the Company was not able to utilize the
federal research and experimentation tax credit which expired on June 30, 1995.
It remains unclear whether the research and experimentation credit will be
renewed. Nonrenewal would continue to adversely impact the Company's 1996
effective tax rate.
NET INCOME AND NET INCOME PER SHARE
1996 1995 CHANGE
---- ---- ------
First quarter period: (Dollars in millions)
Net income $33.7 $36.1 (7)%
Percentage of total revenue 17.4% 19.1%
Net income per share $.44 $.50 (12)%
Weighted shares (In thousands) 76,394 72,888 5%
Net income for the first quarter of 1996 decreased 7% from the first quarter
of 1995. Earnings per share were $.44, a 12% decrease from the first quarter of
1995. The decrease was caused primarily by the increase in operating expenses
and increased shares outstanding.
22
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company believes that in the future its results of operations could be
affected by various factors such as the ability of the Company to integrate
Adobe 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; industry transitions to new business and
information delivery models; and adverse changes in general economic conditions
in any of the countries in which the Company does business.
In connection with the merger with Frame, 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 will occur in the first and second quarters of
1996 but expects some additional impact in later quarters of 1996. The Company
expects that these reductions will benefit future operating results, but the
reductions could adversely impact the earnings of the combined company. In
addition, the integration of the product lines of the two companies could have a
material adverse effect on the results of operations, including the potential
for charges for certain discontinued business components.
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. During
the first quarter, there was a change in part of the Company's business
relationship with Hewlett-Packard Company. Beginning in the second half of
1997, Hewlett-Packard plans not to incorporate PostScript software in some
Hewlett-Packard LaserJet printers. Royalty revenue from all LaserJet products
accounted for approximately five percent of 1995 total revenue. The Company
expects to continue working with Hewlett-Packard printer operations to
incorporate PostScript and other technologies in other Hewlett-Packard products.
The Company derives a significant portion of its revenue and operating income
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 revenue from its European operations in the third quarter
because many customers reduce their business activities in the summer months.
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 product introductions
could have an adverse effect on the Company's revenue, earnings, or stock price.
The Company cannot
23
<PAGE>
determine the ultimate effect that these new products or upgrades will have on
its sales or results of operations.
Although the Company generally offers its application products on Macintosh,
Windows, and UNIX platforms, a majority of the overall sales of these products
to date has been for the Macintosh platform, particularly for the higher end
Macintosh computers. To the extent that there is a slowdown of customer
purchases in the higher end Macintosh market or if other operating systems, such
as Windows 95, become more prevalent among the Company's customers, the
Company's operating results could be materially adversely affected. In
addition, to the extent that there is a slowdown of customer purchases of
personal computers in general, the Company's operating results could be
materially adversely affected.
During 1995, the Company entered the Internet market, which has only recently
begun to develop. The Internet market is rapidly evolving and is characterized
by an increasing number of market entrants who have introduced or developed
products addressing authoring and communication over the Internet. As is typical
in the case of a new and evolving industry, demand and market acceptance for
recently introduced products and services are subject to a high level of
uncertainty. The software industry addressing the authoring and electronic
publishing requirements of the Internet is young and has few proven products.
Moreover, critical issues concerning the commercial use of the Internet
(including security, reliability, cost, ease of use and access, and quality of
service) remain unresolved and may impact the growth of Internet use, together
with the software standards and electronic media employed in such markets.
Through its acquisitions in 1994 and 1995, the Company has experienced
significant growth. The Company's ability to manage its growth and the industry
transition to the Internet effectively will require it to continue to improve
its operational and Financial controls and information management systems, to
develop new models for licensing its software to accommodate new information
delivery practices, and to attract, retain, motivate and manage employees
effectively. The failure of the Company to manage effectively growth and
transition in multiple areas of its business could have a material adverse
effect on its 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. In addition to factors specific to the Company, changes in analysts'
earnings estimates for the Company or its industry and factors affecting the
corporate environment or the securities markets in general will often result in
significant volatility of the Company's common stock price.
24
<PAGE>
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
MARCH 1 DECEMBER 1
1996 1995 CHANGE
---- ---- ------
(Dollars in millions)
Cash, cash equivalents and
short-term investments $539.8 $516.0 5%
The Company's cash balances and short term investments have increased due to
profitable operations, partially offset by capital outlays, other investments
and deposits required under a real estate development agreement.
Cash equivalents consist of highly liquid money market instruments. All of
the Company's cash equivalents and 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
Statement of Financial Accounting Standards No. 115. The securities are carried
at fair value with the unrealized gains and losses, net of tax, reported as a
separate component of shareholders' equity.
NONCURRENT LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 1 DECEMBER 1
1996 1995 CHANGE
---- ---- ------
(Dollars in millions)
Shareholders' equity $736.6 $698.4 5%
The Company has no long-term debt or other noncurrent liabilities. A portion
of the increase in shareholders' equity is attributable to issuance of common
stock under the Company's stock option and employee stock purchase plans.
The Board of Directors of the Company declared a cash dividend on the
Company's common stock of $.05 per common share on March 18, 1996, for the first
quarter of 1996. The dividend will be for shareholders of record as of April 4,
1996, and will be paid on April 18, 1996. 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.
25
<PAGE>
WORKING CAPITAL
MARCH 1 DECEMBER 1
1996 1995 CHANGE
---- ---- ------
(Dollars in millions)
Working capital $522.5 $506.5 3%
Net working capital grew to $522.5 million as of March 1, 1996, compared to
$506.5 million as of December 1, 1995. Cash flow provided by operations during
the quarter ended March 1, 1996 was $45.8 million.
Expenditures for property and equipment totaled $10.5 million. Such
expenditures are expected to continue, including computer systems for
development, sales and marketing, product support, and administrative staff. In
the future, additional cash may be used to acquire software products or
technologies complementary to the Company's business. Net cash provided by
financing activities during the quarter ended March 1, 1996 was $5.9 million
primarily resulting from the issuance of common stock under employee stock
plans, partially offset by the payment of dividends.
The Company's principal commitments as of March 1, 1996 consisted of
obligations under operating leases, 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 for 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. During the
first quarter of 1996, the Company increased its deposits by approximately $13.8
million, and as of March 1, 1996, the Company's deposits under this agreement
totaled approximately $49.5 million in United States government treasury notes
and money market mutual funds. These deposits are included in "Other assets" in
the Condensed Consolidated Balance Sheets.
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 owns 16% 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.
26
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Quantel Limited, a U.K. corporation, has filed and served on the Company a
complaint alleging that the Adobe Photoshop program infringes five U.S. patents
held by Quantel. The complaint was filed in the United States District Court
for the District of Delaware. Since the complaint arrived without prior notice
from Quantel, the Company is unable at this time to determine whether the
complaint has any merit. The Company is actively investigating the allegations.
The complaint seeks a permanent injunction and unspecified damages.
On February 6, 1996, a securities class action complaint was filed against
Adobe, certain of its officers and directors, certain former officers of Frame
Technology Corporation ("Frame"), Hambrecht & Quist, LLP ("H&Q"), investment
banker for Frame, and certain H&Q employees, in connection with the drop in the
price of Adobe stock following its announcement of financial results for the
quarter ended December 1, 1995. The complaint was filed in the Superior Court
of the State of California, County of Santa Clara. The complaint alleges that
the defendants misrepresented material adverse information regarding Adobe and
Frame and engaged in a scheme to defraud investors. The complaint seeks
unspecified damages for alleged violations of California law. Adobe believes
that the allegations against it and its officers and directors are without merit
and intends to vigorously defend the lawsuit.
27
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
EXHIBIT INCORPORATED BY REFERENCE FILED
-------------------------
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
------- ----------------------- ---- ---- ------ --------
10.1.6 1984 Stock Option Plan, 10-Q 07/02/93 10.1.6
as amended(*)
10.1.7 1994 Stock Option Plan(*) 10-Q 05/27/94 10.1.7
10.12.1 1988 Employee Stock 10-Q 07/06/94 10.12.1
Purchase Plan, as
amended*
10.17.1 License Agreement 10-K 11/30/88 10.17.1
Restatement between the
Company and Apple
Computer, Inc., dated
April 1, 1987
(confidential treatment
granted)
10.17.2 Amendment No. 1 to the 10-K 11/30/90 10.17.2
License Agreement
Restatement between the
Company and Apple
Computer, Inc., dated
November 27, 1990
(confidential treatment
granted)
10.18 Lease Agreement dated S-1 07/01/86 10.18
November 11, 1983,
between Mozart Family
Trust and Epson
America Inc.
10.19 Assignment of Lease S-1 07/01/86 10.19
dated November 11,
1983, between Epson
America Inc. and the
Company dated February
1, 1986
(Continued)
28
<PAGE>
3. Exhibits (Continued)
EXHIBIT INCORPORATED BY REFERENCE FILED
-------------------------
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
------- ----------------------- ---- ---- ------ --------
10.20 Lease Agreement between S-1 07/01/86 10.20
Mozart Family Trust and
the Company dated
November 30, 1983
10.21.2 Revised Bonus Plan(*) 10-K 11/26/93 10.21.2
10.22.4 Restricted Stock Option 10-Q 07/06/94 10.22.4
Plan, as amended(*)
10.24.1 1994 Performance and S-4 07/27/94 10.1
Restricted Stock Plan(*)
10.25 Form of Indemnity 10-K 11/30/88 10.25
Agreement(*)
10.26 Lease Agreement by 10-K 11/30/88 10.26
and between Charleston
Place Associates and
Adobe Systems Incorporated
dated April 14, 1987
10.26.1 Amendment One to Lease 10-K 11/30/88 10.26.1
Agreement dated March
1, 1988
10.26.2 Amendment Two to Lease 10-K 11/30/88 10.26.2
Agreement dated
September 1, 1988
10.27 Lease Agreement by and 10-K 11/30/88 10.27
between John Mozart and
Adobe Systems Incorporated
dated July 20, 1988
10.31 Restated Agreement and S-4 07/13/94 10.31
Plan of Merger and
Reorganization By and
Among Adobe Systems
Incorporated, P
Acquisition Corp and
Aldus Corporation
(Continued)
29
<PAGE>
3. Exhibits (Continued)
EXHIBIT INCORPORATED BY REFERENCE FILED
-------------------------
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
------- ----------------------- ---- ---- ------ --------
10.32 Sublease of the Land and 10-K 11/25/94 10.32
Lease of the Improvements
By and Between
Sumitomo Bank Leasing
and finance Inc. and
Adobe Systems Incorporated
10.33 Sale of Rights under 10-Q 06/02/95 10.33
Software Development
and Acquisition Agreement
By and Between Adobe
Systems Incorporated and
Thomas Knoll and John
Knoll (confidential
treatment granted)
10.34 Agreement and Plan of S-4 08/18/95 2.1
Merger and Reorganization
By and Among Adobe
Systems Incorporated, J
Acquisition Corporation
and Frame Technology
Corporation
10.35 Form of Executive 10-K 12/01/95 10.35
Severance and Change
of Control Agreement *
11 Computation of Earnings X
Per Common Share
27 Financial Data Schedule X
- ----------------------------------------
* Compensatory plan or arrangement
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended March 1,
1996.
30
<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: April 9, 1996
By /s/ M. Bruce Nakao
---------------------
M. Bruce Nakao,
Senior Vice President, Finance and
Administration, Chief Financial
Officer, Treasurer and Assistant
Secretary (Principal Financial
Officer)
31
<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:
Acrobat
Adobe
Display PostScript
Illustrator
FrameMaker
PageMaker
PageMill
Photoshop
Display PostScript
PostScript
SiteMill
All other brand or product names are trademarks or registered trademarks of
their respective holders.
32
<PAGE>
ADOBE SYSTEMS INCORPORATED
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------
MARCH 1 MARCH 3
1996 1995
-------- --------
<S> <C> <C>
Net income $33,663 $36,144
-------- --------
-------- --------
Primary shares outstanding:
Weighted average shares
outstanding during the
period 73,108 69,859
Common stock equivalent
shares 3,286 3,029
-------- --------
76,394 72,888
-------- --------
-------- --------
Fully diluted shares outstanding:
Weighted average shares
outstanding during the
period 73,108 69,859
Common stock equivalent
shares 3,286 3,478
-------- --------
76,394 73,337
-------- --------
-------- --------
Primary net income per
common stock and
common stock equivalent
share $ .44 $ .50
-------- --------
-------- --------
Fully diluted net income per
common stock and common
stock equivalent share $ .44 $ .49
-------- --------
-------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 1, 1996, AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE THREE MONTHS ENDED MARCH 1, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-29-1996
<PERIOD-START> DEC-02-1995
<PERIOD-END> MAR-01-1996
<CASH> 86,170
<SECURITIES> 453,662
<RECEIVABLES> 131,154
<ALLOWANCES> 3,770
<INVENTORY> 11,126
<CURRENT-ASSETS> 712,940
<PP&E> 138,488
<DEPRECIATION> 82,417
<TOTAL-ASSETS> 927,036
<CURRENT-LIABILITIES> 190,465
<BONDS> 0
0
0
<COMMON> 306,432
<OTHER-SE> 430,139
<TOTAL-LIABILITY-AND-EQUITY> 927,036
<SALES> 46,911
<TOTAL-REVENUES> 193,642
<CGS> 35,208
<TOTAL-COSTS> 35,208
<OTHER-EXPENSES> 115,798
<LOSS-PROVISION> 290
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 53,861
<INCOME-TAX> 20,198
<INCOME-CONTINUING> 33,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,663
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
