<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 FEBRUARY 28, 1997
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.)
345 PARK AVENUE, SAN JOSE, CALIFORNIA 95110-2704
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 536-6000
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 February 28, 1997
----- -----------------
Common stock, no par value 71,575,304
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 28
Signature 30
Summary of Trademarks 31
EXHIBITS
Exhibit 10.21.3 Revised Bonus Plan
Exhibit 11 Computation of Earnings per Common Share
Exhibit 27 Financial Data Schedules
<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 February 28, 1997 and March 1, 1996 4
- - Condensed Consolidated Balance Sheets
February 28, 1997 and November 29, 1996 5
- - Condensed Consolidated Statements of Cash Flows
Quarter Ended February 28, 1997 and March 1, 1996 6
- - Notes to Condensed Consolidated Financial Statements 8
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
-------------------------------
FEBRUARY 28 MARCH 1
1997 1996
----------- -----------
Revenue:
Licensing $ 51,460 $ 46,911
Application products 174,999 146,731
----------- -----------
Total revenue 226,459 193,642
Direct costs 34,289 35,208
----------- -----------
Gross margin 192,170 158,434
----------- -----------
Operating expenses:
Software development costs:
Research and development 38,197 37,207
Amortization of capitalized
software development costs - 626
Sales, marketing and
customer support 72,038 62,604
General and administrative 17,496 15,651
Other non-recurring items (2,359) -
----------- -----------
Total operating expenses 125,372 116,088
----------- -----------
Operating income 66,798 42,346
Nonoperating income:
Investment gain (loss) (624) 2,732
Interest and other income 6,993 8,783
----------- -----------
Total nonoperating income 6,369 11,515
----------- -----------
Income before income taxes 73,167 53,861
Provision for income taxes 26,683 20,198
----------- -----------
Net income $ 46,484 $ 33,663
----------- -----------
----------- -----------
Net income per share $ .63 $ .44
----------- -----------
----------- -----------
Shares used in computing net
income per share 73,939 76,394
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
FEBRUARY 28 NOVEMBER 29
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $89,687 $110,745
Short-term investments 478,376 453,371
Receivables, net of allowances
of $4,886 and $5,196, respectively 122,737 115,823
Other current assets 47,396 45,875
----------- -----------
Total current assets 738,196 725,814
Property and equipment 80,298 80,231
Other assets 177,900 195,348
Deferred income taxes 8,717 -
----------- -----------
$ 1,005,111 $ 1,001,393
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables $ 36,374 $ 43,056
Accrued expenses 90,437 83,065
Accrued restructuring costs 9,841 10,854
Income taxes payable 51,740 67,210
Deferred revenue 15,624 15,537
----------- -----------
Total current liabilities 204,016 219,722
----------- -----------
Deferred income taxes - 3,809
Put warrants 62,111 71,348
Shareholders' equity:
Preferred stock, no par value;
2,000 shares authorized; none issued - -
Common stock, no par value;
200,000 shares authorized;
71,575 and 71,476 shares issued
and outstanding, respectively 155,222 148,602
Retained earnings 572,424 529,546
Unrealized gains on investments 17,048 33,514
Cumulative translation adjustment (5,710) (5,148)
----------- -----------
Total shareholders' equity 738,984 706,514
----------- -----------
$ 1,005,111 $ 1,001,393
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
QUARTER ENDED
--------------------------
FEBRUARY 28 MARCH 1
1997 1996
----------- -----------
Cash flows from operating activities:
Net income $ 46,484 $ 33,663
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense 1,171 1,067
Depreciation and amortization 11,210 7,598
Deferred income taxes (725) (6,735)
Provision for losses on accounts receivable 381
149
Tax benefit from employee stock plans 1,031 2,503
Equity in net income of Adobe Ventures 624 -
Changes in operating assets and liabilities:
Receivables (7,039) 5,389
Other current assets (4,989) 219
Trade and other payables (5,669) 2,967
Accrued expenses 9,143 (6,237)
Accrued restructuring costs (906) (12,385)
Income taxes payable (15,189) 15,294
Deferred revenue (40) 2,304
----------- -----------
Net cash provided by operating activities 35,487 45,796
----------- -----------
Cash flows from investing activities:
Purchases of short-term investments (1,426,947) (236,906)
Maturities and sales of short-term investments 1,401,942 240,257
Acquisitions of property and equipment (6,628) (10,476)
Additions to other assets (16,033) (16,740)
----------- -----------
Net cash used for investing activities (47,666) (23,865)
----------- -----------
(Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------
FEBRUARY 28 MARCH 1
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ 11,315 $ 9,606
Repurchase of common stock (16,134) -
Payment of dividends (3,589) (3,687)
----------- -----------
Net cash provided (used) by financing activities (8,408) 5,919
----------- -----------
Effect of foreign currency exchange rates on
cash and cash equivalents (471) (173)
----------- -----------
Net increase (decrease) in cash and cash equivalents (21,058) 27,677
Cash and cash equivalents at beginning of period 110,745 58,493
----------- -----------
Cash and cash equivalents at end of period $ 89,687 $ 86,170
----------- -----------
----------- -----------
Supplemental disclosures:
Cash paid during the period for income taxes $ 37,260 $ 2,876
----------- -----------
----------- -----------
Noncash investing and financing activities:
Dividends declared but not paid $ 3,589 $ 3,687
----------- -----------
----------- -----------
Put warrants written $ 43,767 $ -
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<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 balance sheets and
statements of income and 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 February 28, 1997, and the
condensed consolidated statements of income and cash flows for the interim
periods ended February 28, 1997 and March 1, 1996.
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. Adobe
Systems Incorporated ("Adobe" or 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 29, 1996, December 1, 1995 and November 25,
1994, in the Company's 1996 Form 10-K.
The results of operations for the interim periods ended February 28, 1997,
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. Fully diluted earnings per share
for the quarters ended February 28, 1997 and March 1, 1996, were not materially
different from primary earnings per share.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS 128 establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS No. 128, the Company will be required to
present both basic net income per share and diluted net income per share.
Basic net income per share is expected to be higher than the currently
presented net income per share as the effect of dilutive stock options will
not be considered in computing basic net income per share. Diluted net income
per share is expected to be comparable or slightly lower than the currently
presented net income per share.
The Company plans to adopt SFAS 128 in its fiscal quarter ending February
27, 1998 and at that time all historical net income per share data presented
will be restated to conform to the provisions of SFAS No. 128.
RECLASSFICATIONS
Certain reclassfications have been made to the November 29, 1996 balances
to conform to the presentation at February 28, 1997.
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28 NOVEMBER 29
1997 1996
----------- -----------
<S> <C> <C>
Land $ 782 $ 782
Building 4,478 4,615
Equipment 122,137 121,044
Furniture and fixtures 18,124 18,126
Leasehold improvements 18,353 13,036
----------- -----------
163,874 157,603
Less accumulated depreciation and amortization 83,576 77,372
----------- -----------
$80,298 $80,231
----------- -----------
----------- -----------
</TABLE>
NOTE 3. OTHER ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28 NOVEMBER 29
1997 1996
----------- -----------
<S> <C> <C>
Equity investments $ 74,734 $ 97,679
Purchased technology and licensing
agreements 32,311 32,211
Restricted funds and security deposits 75,695 69,443
Miscellaneous other assets 34,744 35,470
----------- -----------
217,484 234,803
Less accumulated amortization 39,584 39,455
----------- -----------
$ 177,900 $ 195,348
----------- -----------
----------- -----------
</TABLE>
Included above in equity investments at February 28, 1997, are unrealized
gains and losses. The equity investment in Netscape Communications Corporation
was marked-to-market for an unrealized loss of $23.8 million during the first
quarter of 1997.
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
FEBRUARY 28 NOVEMBER 29
1997 1996
------------ -----------
Accrued compensation and benefits $ 25,792 $ 24,673
Sales and marketing allowances 14,079 13,753
Other 50,566 44,639
------------ -----------
$90,437 $83,065
------------ -----------
------------ -----------
NOTE 5. ACCRUED RESTRUCTURING COSTS
In 1995 and 1994, the Company acquired Frame Technology Corporation
("Frame") and Aldus Corporation ("Aldus"), respectively, and initiated a plan to
combine the operations of the companies. In connection with these acqusitions,
in 1995 and 1994 the Company recorded charges of $31.5 million and $72.2
million, respectively, to operating expenses related to merger transaction and
restructuring costs. In addition, Frame undertook certain restructuring measures
in 1993 due to lower than anticipated revenues.
As of February 28, 1997 and November 29, 1996, $9.8 million and $10.9
million, respectively, remained accrued and primarily relates to lease and
third-party contract termination payments, resulting from the planned closure
of duplicate offices in Europe and the United States. These payments are
expected to continue through the contract terms or negotiated early
termination date, if applicable.
NOTE 6. COMMITMENTS AND CONTINGENCIES
REAL ESTATE DEVELOPMENT AGREEMENT
During 1994, the Company entered into a real estate development agreement
and an operating lease agreement in connection with the construction of an
office facility. In August 1996, the construction was completed and the
operating lease commenced. 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 $57.3 million. During the construction
period, the Company was required to pledge certain interest bearing intruments
to the lessor as collateral to secure the performance of its obligations under
the lease. As of February 28, 1997, the Company's deposits under this agreement
totaled approximately $67.3 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.
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
REAL ESTATE DEVELOPMENT AGREEMENT (CONTINUED)
During the third quarter of 1996, the Company exercised its option under
the development agreement to begin a second phase of development for an
additional office facility. In August 1996, the Company entered into a
construction agreement and an operating lease agreement for this facility. The
operating lease will commence on completion of construction in 1998. 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
$64.3 million. The Company also is required, periodically during the
construction period, to deposit funds with the lessor as an interest bearing
security deposit to secure the performance of its obligations under the lease.
During the first quarter of 1997, the Company deposited approximately $5.0
million, and as of February 28, 1997, the Company's deposits under this
agreement totaled approximately $8.4 million. These deposits are included in
"Other assets" in the Condensed Consolidated Balance Sheets.
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 that
the ultimate outcome of these actions will not have a material effect on the
Company's financial position and results of operations.
<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 CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO.
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT ON FORM 10-Q
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS." READERS SHOULD CAREFULLY REVIEW THE RISKS DESCRIBED IN OTHER
DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE QUARTERLY REPORTS ON FORM 10-Q TO BE FILED BY THE
COMPANY IN 1997. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS QUARTERLY
REPORT ON FORM 10-Q. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
ANY REVISIONS TO THE FORWARD-LOOKING STATEMENTS OR REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF THIS DOCUMENT.
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 North America, Europe, Japan,
Asia-Pacific and Latin America.
<PAGE>
The following table sets forth for the quarters ended February 28, 1997,
and March 1, 1996, the Company's condensed consolidated statements of income
expressed as a percentage of total revenue:
QUARTER ENDED
----------------------------------------
FEBRUARY 28 MARCH 1 INCREASE
1997 1996 (DECREASE)
----------- --------- ----------
Revenue:
Licensing 22.7% 24.2% 9.7%
Application products 77.3 75.8 19.3
----------- --------- ----------
Total revenue 100.0 100.0 16.9
Direct costs 15.1 18.2 (2.6)
----------- --------- ----------
Gross margin 84.9 81.8 21.3
----------- --------- ----------
Operating expenses:
Software development costs:
Research and development 16.9 19.2 2.7
Amortization of capitalized
software development costs - 0.3 (100.0)
Sales, marketing and
customer support 31.8 32.3 15.1
General and administrative 7.7 8.1 11.8
Other non-recurring items (1.0) - -
----------- --------- ----------
Total operating expenses 55.4 59.9 8.0
----------- --------- ----------
Operating income 29.5 21.9 57.7
Nonoperating income, net:
Investment gain (loss) (0.3) 1.4 (122.8)
Interest and other income 3.1 4.5 (20.4)
----------- --------- ----------
Total nonoperating income 2.8 5.9 (44.7)
----------- --------- ----------
Income before income taxes 32.3 27.8 35.8
Provision for income taxes 11.8 10.4 32.1
----------- --------- ----------
Net income 20.5% 17.4% 38.1%
----------- --------- ----------
----------- --------- ----------
<PAGE>
REVENUE
1997 1996 CHANGE
------ ------ ------
First quarter period: (Dollars in millions)
Total revenue $226.5 $193.6 16.9%
Revenue increased significantly from the same quarter last year due to the
release of new products, international language versions of application products
released in prior quarters, as well as demand for application product upgrades
released late in the fourth quarter of 1996. During the quarter, eighty-six new
products containing Adobe PostScript were released to OEM customers. Product
unit volume (as opposed to price) increase was the principal factor in the
Company's revenue growth in application product revenue.
1997 1996 CHANGE
------ ------ ------
First quarter period: (Dollars in millions)
Product group revenue - Licensing $51.5 $46.9 9.7%
Percentage of total revenue 22.7% 24.2%
Licensing revenue is derived from shipments by OEM customers of products
containing the Adobe PostScript interpreter, PrintGear software and the Display
PostScript system. Such PostScript products include standard roman printers as
well as printers that work with Japanese, Chinese, and Korean 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. Adobe PostScript products sell to the small
office/home office ("SOHO") market, as well as the corporate enterprise and
high-end imagesetter markets. PrintGear software is targeted to the SOHO
market.
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. During this period, some OEMs introduced lower end printers or
reduced their list prices on lower end printers, which resulted in lower
royalties per unit on such printers. However, in the first quarters of 1997 and
1996, this trend was offset by increased demand for CPSI and by increased demand
for color capability as well as greater penetration into the Japanese market,
all of which have higher royalties per unit.
The Company has seen year-to-year increases in the number of OEM customers
from which it is receiving licensing revenue and believes that such increases
are attributable to the continued acceptance of PostScript software, as well as
to the diversification of the Company's customer base across multiple platforms.
In 1997, Adobe expects additional customers to introduce new PrintGear products
that will serve the SOHO markets. Also
<PAGE>
in 1997, one of Adobe's largest PostScript customers, Hewlett-Packard Company,
plans to introduce in the corporate enterprise market, products that do not
contain Adobe PostScript software. These products are expected to contain a
non-Adobe clone version of PostScript and are expected to reach the market in
July of 1997. All of these factors may impact the Company's ability to maintain
or sustain revenue growth in this area.
1997 1996 CHANGE
------- ------- ------
First quarter period: (Dollars in millions)
Product group revenue --
Application products $175.0 $146.7 19.3%
Percentage of total revenue 77.3% 75.8%
Application products revenue is derived predominantly from shipments of
application software programs marketed through retail distribution channels;
however, Adobe PageMill, Adobe SiteMill, Adobe FrameMaker, and Adobe Acrobat
products are becoming more widely distributed through VARs and systems
integrators. Adobe PhotoDeluxe is marketed through bundles with digital camera
manufacturers.
Application products revenue in the first quarter of 1997 was
significantly higher than that of the same quarter in 1996. This reflected
increased demand for Adobe Photoshop 4.0, Adobe PageMaker 6.5, and Acrobat
3.0 which were all released in the second half of 1996. In addition,
increased demand for PhotoDeluxe added to first quarter 1997 revenues. These
increases were partially offset by decreased revenue for Adobe Illustrator,
FrameMaker, Adobe Premiere, and SiteMill. The Company believes the decrease
in demand for Illustrator was caused by customers anticipating the release of
the next version of Illustrator later in 1997 rather than a loss of market
share.
In general, the Company's application products on the Windows platform
have experienced greater growth than those on the Macintosh platform during
the first quarter of 1997. The Company expects this trend to continue for the
foreseeable future.
DIRECT COSTS
1997 1996 CHANGE
-------- -------- ------
First quarter period: (Dollars in millions)
Direct costs $34.3 $35.2 (2.6)%
Percentage of total revenue 15.1% 18.2%
Direct costs include royalties; amortization of acquired technologies;
and direct product, packaging and shipping costs.
Gross margins, in general, are affected by the mix of licensing revenue
versus application products revenue as well as the product mix within
application products. Direct costs were lower in the first quarter of 1997
compared with the same quarter last year due to the distribution of more
application products via CD-ROM media and lower royalty payments on products
being shipped.
<PAGE>
Gross margins for application products are expected to vary for the
remainder of 1997 depending on the product mix sold during the period.
OPERATING EXPENSES
1997 1996 CHANGE
-------- -------- ------
First quarter period: (Dollars in millions)
Software development costs --
Research and development $38.2 $37.2 2.7%
Percentage of total revenue 16.9% 19.2%
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 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. The Company continues to make significant investments in
development of all of its software products, including those targeted for the
emerging Internet market.
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. The Company expects that research and
development expenditures in 1997 will continue to increase in absolute
dollars and increase slightly as a percentage of revenue over the first
quarter 1997 percentage.
1997 1996 CHANGE
------- ------- ------
First quarter period: (Dollars in millions)
Software development costs --
Amortization of capitalized
software development costs -- $0.6 100.0%
Percentage of total revenue -- 0.3%
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 products had
been capitalized and were being amortized over the lives of the respective
products. Full amortization of all Frame products was acheived by the end of
1996. In the first quarter of 1997, software development expenditures on all
products, after reaching technological feasibility, were immaterial and the
Company
<PAGE>
expects this trend to continue in the future.
1997 1996 CHANGE
------- -------- ------
First quarter period: (Dollars in millions)
Sales, marketing and
customer support $72.0 $62.6 15.1%
Percentage of total revenue 31.8% 32.3%
Sales, marketing, and customer support expenses generally include
salaries and benefits, sales commissions, travel expenses, and related
facility 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 revenue, such as
advertising, trade shows, and other market development programs.
The increase in absolute dollars for sales, marketing, and customer
support expenses for the first quarter of 1997 compared with the same period
last year are due to increased advertising and promotional expenditures for
upgrades of existing products and further development of customer and
technical support services to support a growing base of customers.
For the remainder of 1997, sales, marketing, and customer support
expenditures are expected to increase in absolute dollars, but decrease as a
percentage of revenue. The increase in absolute dollars for the remainder of
1997 will be due to new product releases, increased investment in the Windows
market and programs related to furthering worldwide recognition of the Adobe
brand.
1997 1996 CHANGE
-------- -------- ------
First quarter period: (Dollars in millions)
General and administrative $17.5 $15.7 11.8%
Percentage of total revenue 7.7% 8.1%
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.
General and administrative expenses increased in absolute dollars for the
first quarter of 1997 compared with the same period last year. The increase
resulted primarily from bonus accruals relating to the first quarter's
performance, salary increases, higher rent expense, as well as higher systems
and legal costs.
The Company expects general and administrative spending for the remainder
of 1997 to be slightly higher than the first quarter of 1997 level as a
percentage of revenue as the Company continues to invest in an expanded and more
comprehensive administrative
<PAGE>
infrastructure.
1997 1996 CHANGE
-------- -------- ------
First quarter period: (Dollars in millions)
Other non-recurring items $(2.4) $-- --
Percentage of total revenue (1.0)% --
The non-recurring item which occurred during the first quarter of 1997
represents proceeds on the divestiture of a product line.
NONOPERATING INCOME
1997 1996 CHANGE
-------- -------- ------
First quarter period: (Dollars in millions)
Investment gain/(loss) $(0.6) $2.7 (122.8)%
Percentage of total revenue (0.3)% 1.4%
Investment gain (loss) consists principally of realized gains or losses
from direct investments as well as mark-to-market valuation adjustments for
Adobe Ventures L.P. investments.
In the first quarter of 1997, the $0.6 million loss represents the
mark-to-market adjustment of investments held by Adobe Ventures L.P.
1997 1996 CHANGE
-------- -------- ------
First quarter period: (Dollars in millions)
Interest and other income $7.0 $ 8.8 (20.4)%
Percentage of total revenue 3.1% 4.5%
Interest and other income consists principally of interest earned on
cash, cash equivalents, and short term investments as well as foreign
exchange transaction gains and losses.
In the first quarter of 1997, interest and other income decreased
compared with the same period of 1996. The decrease is primarily due to a
gain realized in the first quarter of 1996 on the disposition of part of the
Company's short-term portfolio.
<PAGE>
PROVISION FOR INCOME TAXES
1997 1996 CHANGE
-------- -------- ------
First quarter period: (Dollars in millions)
Provision for income taxes $26.7 $20.2 32.1%
Percentage of total revenue 11.8% 10.4%
Effective tax rate 36.5% 37.5%
The effective tax rate for the first quarter of 1997 was lower than the
same quarter in 1996 due to an increase in short-term tax-exempt investments
and additional federal research and experimentation tax credits. The Company
expects the tax rate to remain at 36.5% for the remainder of 1997.
NET INCOME AND NET INCOME PER SHARE
1997 1996 CHANGE
-------- -------- ------
First quarter period: (Dollars in millions)
Net income $46.5 $33.7 38.1%
Percentage of total revenue 20.5% 17.4%
Net income per share $.63 $.44 43.3%
Weighted shares (In thousands) 73,939 76,394 (3.2)%
Net income for the first quarter of 1997 increased 38.1% from the first
quarter of 1996. Earnings per share were $.63, a 43.3% increase from the
first quarter of 1996. The increase from quarter to quarter was caused
primarily by higher revenues, lower direct costs and operating expenses
partially offset by decreased nonoperating income. Also, reduced shares
outstanding contributed to a higher earnings per share.
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 delays in shipment of the Company's
new products and major new versions of existing products; market acceptance
of new products and upgrades; renegotiation of royalty arrangements; 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.
The Company's ability to develop and market products, including upgrades
of currently shipping products, that successfully adapt to changing customer
needs may also have an impact on the results of operations. The Company's
ability to extend its core
<PAGE>
technologies into new applications and to anticipate or respond to
technological changes could affect its ability to develop these products. 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 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. If there is a slowdown of customer
purchases in the higher end Macintosh market or if the Company is unable to
increase its sales to Windows customers, the Company's operating results
could be materially adversely affected. Also, as the Company broadens its
customer base to achieve greater penetration in the corporate business and
consumer markets, the Company may need to adapt its application software
distribution channels. The Company could experience decreases in average
selling prices and some transitions in its distribution channel which could
materially adversely affect its operating results. 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.
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 of 1996, there was a change in part of the Company's business
relationship with Hewlett-Packard Company ("Hewlett-Packard"). Beginning in the
second half of 1997, Hewlett-Packard plans not to incorporate Adobe PostScript
software in some Hewlett-Packard LaserJet printers. The Company expects to
continue working with Hewlett-Packard printer operations to incorporate Adobe
PostScript and other technologies in other Hewlett-Packard products.
Through its acquisitions, the Company has experienced significant growth.
The Company's ability to effectively manage its growth will require it to
continue to improve its operational and financial controls and information
management systems, and to attract, retain, motivate and manage employees
effectively. The failure of the Company to effectively manage growth and
transition in multiple areas of its business could have a material adverse
effect on its results of operations.
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. In addition, new models for licensing software to
accommodate new information delivery practices will be needed. Moreover,
critical
<PAGE>
issues concerning the commercial use of the Internet (including security,
reliability, ease of use and access, cost, 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.
The Company derives a significant portion of its revenue and operating
income from its subsidiaries located in Europe, Japan, Asia-Pacific and Latin
America. 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.
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.
<PAGE>
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
FEBRUARY 28 NOVEMBER 29
1997 1996 CHANGE
-------- -------- ------
(Dollars in millions)
Cash, cash equivalents and
short-term investments $568.1 $564.1 0.7%
The Company's cash balances and short term investments have increased due
to profitable operations, partially offset by expenditures for the repurchase
of stock, capital outlays, other investments, and deposits required under
real estate development agreements.
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, auction rate certificate 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, "Accounting for Certain
Investments in Debt and 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.
OTHER ASSETS
FEBRUARY 28 NOVEMBER 29
1997 1996 CHANGE
-------- -------- ------
(Dollars in millions)
Other assets $177.9 $195.3 (8.9)%
Included above in other assets at February 28, 1997, are unrealized gains
and losses on marketable debt and equity securities. The equity investment in
Netscape Communications Corporation was marked-to-market for an unrealized
loss of $23.8 million during the first quarter of 1997. The Company has a new
stock dividend program which it will announce from time to time the dividend
of a portion of the marketable stock it holds in publicly traded companies as
a result of prior venture investments it has made in these companies.
<PAGE>
NONCURRENT LIABILITIES AND SHAREHOLDERS' EQUITY
FEBRUARY 28 NOVEMBER 29
1997 1996 CHANGE
----------- ----------- ------
(Dollars in millions)
Noncurrent liabilities and
shareholders' equity $801.1 $781.7 2.5%
Included above is shareholders' equity and at February 28, 1997,
obligations for put warrants. At November 29, 1996, deferred income taxes
related to unrealized gains and losses on equity investments and obligations
for put warrants are included. The Company has no long-term debt. The
increase from November 29, 1996 to February 28, 1997, results from net income
and the issuances of common stock under the Company's stock option and
employee stock purchase plans partially offset by the unrealized loss on the
equity investment in Netscape Communications Corporation and the repurchase
of stock.
Under its stock repurchase program, the Company repurchased 3,321,500
shares at a cost of $124.5 million in 1996. During the first quarter of 1997,
the Company repurchased 477,000 shares at a cost of $16.1 million. The
Company intends to continue to directly repurchase common shares and arrange
options to purchase common shares to partially fund the Company's employee
stock purchase and stock option 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 14, 1997, for the
first quarter of 1997. The dividend will be for shareholders of record as of
April 1, 1997, and will be paid on April 15, 1997. 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.
WORKING CAPITAL
FEBRUARY 28 NOVEMBER 29
1997 1996 CHANGE
-------- -------- ------
(Dollars in millions)
Working capital $534.2 $506.1 5.5%
Net working capital grew to $534.2 million as of February 28, 1997,
compared to $506.1 million as of November 29, 1996. Cash flow provided by
operations for the quarter ended February 28, 1997 was $35.2 million.
Expenditures for property and equipment totaled $6.6 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 used by
financing activities during the quarter ended February 28, 1997 was
<PAGE>
$8.4 million primarily resulting from the repurchase of stock and payment of
dividends, partially offset by the issuance of common stock under employee
stock plans.
The Company's principal commitments as of February 28, 1997 consisted of
obligations under operating leases, venture investing activities, real estate
development agreements, and various service and lease guarantee agreements
with a related party.
VENTURE INVESTING
Adobe conducts a number of major venture investing activities, all of
which share the following objectives: (1) to gain insights into emerging
technologies and markets that can affect Adobe's strategic position in the
software business; (2) to invest in companies that can create extensions to
the features, functionality and/or marketability of Adobe's current products;
and (3) to achieve acceptable financial returns for shareholders at the same
time the strategic advantages of the program are being realized.
Currently Adobe has investments in 23 companies in its venture investing
program. This includes direct investments made by Adobe; investments made in
a limited partnership in which Adobe is the sole limited partner ("Adobe
Ventures I"); and three investments in other companies acquired as part of
Adobe's mergers with Aldus Corporation and Frame Technology Corporation.
Adobe has the authority to invest up to $40 million in Adobe Ventures I, of
which $35.9 million as been invested or committed to date; the uncommitted
authority is expected to be committed in follow-on investment rounds in the
current companies.
Adobe has established a second venture investment limited partnership
("Adobe Ventures II") with an authorized funding of $40 million, of which
none has been committed or invested to date. Also, consistent with past
practice, Adobe management may from time to time propose specific direct
venture investments for Board of Directors' approval, and such approved
amounts are not included in the $40 million funding authority of Adobe
Ventures II.
To date Adobe has a cumulative cost basis of $60.1 million in all venture
investments, including in several companies where either the company has been
sold to a third party or where Adobe has already liquidated a portion of its
holdings in a registered secondary offering. To date Adobe has received $72.6
million in net cash proceeds from these sales and liquidations of venture
investments. The remaining current portfolio of venture investments,
including investments in the limited partnerships, was valued at $72.2
million as of March 14, 1997. The valuation methodology is based on the
following criteria. Investments in (1) private companies are valued at cost
or market, whichever is lower; (2) publicly traded companies are valued at
the market price if the shares are freely tradable, or at a discount, which
varies depending on the duration and nature of the trading restriction and
depending on whether it is direct investment or a partnership investment,
which are governed by different accounting rules.
As part of its venture investing program, Adobe has established a new
venture dividend program for shareholders. Under this program, Adobe will
announce from time to time the dividend of one or more stocks it holds in
publicly traded companies as a result of prior venture investments it has
made in these companies. These announcements will be made after Adobe's
shares in these companies are freely tradable and after these
<PAGE>
companies have publicly released their quarterly earnings. The objective of
the venture dividend program is to allow shareholders to participate directly
in the financial benefits of this program.
Also as part of its venture investing program, Adobe established in March
1997 an internal limited partnership ("Adobe Incentive Partners") which
enables certain executives of Adobe to participate in cash or stock
distributions from venture investments. Adobe is both the general partner and
a limited partner. Other limited partners are executive officers of Adobe who
are involved in Adobe's venture investing activities and whose participation
is deemed critical to the success of the program.
Adobe's Class A senior partnership interest includes both a liquidation
preference and a preference in recovery of the cost basis of each specific
investment. The executives' Class B junior partnership interest qualifies for
partnership distributions only after: (a) Adobe has fully recovered the cost
basis of its investment in the specific company for which a distribution is
made; and (b) each participating executive has met the vesting requirement
for distribution, which is identical to the 1994 stock option plan vesting
period, which is a monthly vesting schedule of 2.08% per month for the first
24 months and 4.17% for the remaining 12 months. Any new participating
officer must also be employed by Adobe for 12 months before any interest is
vested. The limited partnership investments are restricted to venture
investments in companies that are private at the time of the establishment of
the Partnership or when the investment is made, whichever is later.
Partnership interests may be allocated to designated officers only while the
company is still private. Class B interests may not exceed a maximum of 20%
of the venture investments included in Adobe Incentive Partnership.
Because the partnership's investments are in private companies, and
because Adobe has a liquidation preference and cost recovery preference for
its Class A participation units, the cost to Adobe and the initial value of
Class B participation units at the formation of the partnership is modest.
REAL ESTATE DEVELOPMENT
During 1994, the Company entered into a real estate development agreement
and an operating lease agreement in connection with the construction of an
office facility. In August 1996, the construction was completed and the
operating lease commenced. 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 $57.3
million. During the construction period, the Company was required to pledge
certain interest bearing intruments to the lessor as collateral to secure
the performance of its obligations under the lease. As of February 28, 1997,
the Company's deposits under this agreement totaled approximately $67.3
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.
During the third quarter of 1996, the Company exercised its option under
the development agreement to begin a second phase of development for an
additional office
<PAGE>
facility. In August 1996, the Company entered into a construction agreement
and an operating lease agreement for this facility. The operating lease will
commence on completion of construction in 1998. 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
$64.3 million. The Company also is required, periodically during the
construction period, to deposit funds with the lessor as an interest bearing
security deposit to secure the performance of its obligations under the
lease. During the first quarter of 1997, the Company deposited approximately
$5.0 million, and as of February 28, 1997, the Company's deposits under this
agreement totaled approximately $8.4 million. These deposits are included in
"Other assets" in the Condensed Consolidated Balance Sheets.
SERVICE AND LEASE GUARANTEES
The Company holds a 17 percent equity interest in McQueen Holdings
Limited ("McQueen"), a U.K. Company, and accounts for the investment at cost.
During 1994, the Company entered into various agreements with McQueen,
whereby the Company contracted with McQueen to perform product localization
and technical support functions and to provide printing, assembly, and
warehousing services.
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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Quantel Limited, a U.K. corporation, filed and served on the Company in
January 1996 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. The complaint seeks a
permanent injunction and unspecified damages. The Company has analyzed the
patents and believes it has adequate legal defenses to the major causes of
action and intends to vigorously defend the lawsuit. The case is currently in
the discovery phase.
On February 6, 1996, a securities class action complaint was filed
against Adobe, certain of its officers and directors, certain former officers
of Adobe and 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. The case is currently in
the discovery phase.
Management believes that the ultimate resolution of these matters will
not have a material impact on the Company's financial position or results of
operations.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
EXHIBIT -------------------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
- ------- ---------------------------- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C>
3.2.9 Restated Bylaws 10-Q 05/31/96 3.2.9
4.1 Shareholders Rights 10-Q 05/31/96 4.1
Plan, as amended*
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)
10.21.2 Revised Bonus Plan* 10-K 11/26/93 10.21.2
10.21.3 Revised Bonus Plan* X
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*
10.32 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
(Phase 1)
</TABLE>
<PAGE>
(Continued)
3. Index to Exhibits (Continued)
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
EXHIBIT -------------------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
- ------- ---------------------------- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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*
10.36 1996 Outside Directors 10-Q 05/31/96 10.36
Stock Option plan*
10.37 Confidential Resignation 10-Q 05/31/96 10.37
Agreement*
10.38 Sublease of the Land and 10-Q 08/30/96 10.38
Lease of the Improvements
By and Between
Sumitomo Bank Leasing
and Finance Inc. and
Adobe Systems Incorporated
(Phase 2)
11 Computation of Earnings X
Per Common Share
27 Financial Data Schedule X
</TABLE>
- ------------
*Compensatory plan or arrangement
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended February 28, 1997.
<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 14, 1997
By /s/ P. Jackson Bell
--------------------------------
P. Jackson Bell,
Executive Vice President,
Chief Financial Officer,
Chief Administrative Officer,
and Assistant Secretary
(Principal Financial Officer)
<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
Illustrator
FrameMaker
PageMaker
PageMill
PhotoDeluxe
Photoshop
PostScript
PrintGear
SiteMill
All other brand or product names are trademarks or registered trademarks
of their respective holders.
<PAGE>
ADOBE SYSTEMS INCORPORATED
EXHIBIT 10.21.3
REVISED EXECUTIVE BONUS PLAN
Beginning in fiscal 1997, a management by objective ("MBO") bonus will be
paid, on a semi-annual basis, as a percentage of annual base salary. A
significant portion of the bonus is determined by the Company's overall
performance on revenue and operating income performance to plan. For
executives who are general managers of either a division or geography, their
relevant division/geography performance is also a significant component. A
third component is based upon the individual's achievement of objectives. In
addition, if the Company exceeds the established targets by a predetermined
percentage, then the executives would be eligible to receive an
overachievement bonus. The latter bonus does not apply to the portion of MBO
bonus related to the achievement of individual objectives.
<PAGE>
ADOBE SYSTEMS INCORPORATED
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
-----------------------------
FEBRUARY MARCH 1
1997 1996
----------- -----------
Net income $ 46,484 $ 33,663
----------- -----------
----------- -----------
Primary shares outstanding:
Weighted average shares
outstanding during the period 71,639 73,108
Common stock equivalent shares 2,300 3,286
----------- -----------
73,939 76,394
----------- -----------
----------- -----------
Fully diluted shares outstanding:
Weighted average shares
outstanding during the period 71,639 73,108
Common stock equivalent shares 2,300 3,286
----------- -----------
73,939 76,394
----------- -----------
----------- -----------
Primary net income per
common stock and
common stock equivalent share $ .63 $ .44
----------- -----------
----------- -----------
Fully diluted net income per
common stock and common
stock equivalent share $ .63 $ .44
----------- -----------
----------- -----------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT FEBRUARY 28, 1997, AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE QUARTER ENDED FEBRUARY 28, 1997, 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> FEB-28-1997
<PERIOD-START> NOV-30-1996
<PERIOD-END> FEB-28-1997
<CASH> 89,687
<SECURITIES> 478,376
<RECEIVABLES> 127,623
<ALLOWANCES> 4,886
<INVENTORY> 8,327
<CURRENT-ASSETS> 738,196
<PP&E> 163,874
<DEPRECIATION> 83,576
<TOTAL-ASSETS> 1,005,111
<CURRENT-LIABILITIES> 204,016
<BONDS> 0
0
0
<COMMON> 155,222
<OTHER-SE> 583,762
<TOTAL-LIABILITY-AND-EQUITY> 1,005,111
<SALES> 51,460
<TOTAL-REVENUES> 226,459
<CGS> 34,289
<TOTAL-COSTS> 34,289
<OTHER-EXPENSES> 124,948
<LOSS-PROVISION> 424
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 73,167
<INCOME-TAX> 26,683
<INCOME-CONTINUING> 46,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,484
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
