<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 NO. 0-22688
MACROMEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3155026
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 TOWNSEND STREET
SAN FRANCISCO, CALIFORNIA 94103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(415) 252-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
As of July 31, 1996, there were outstanding 36,643,268 shares of the
Registrant's Common Stock, par value $0.001 per share.
This Report, including exhibits, consists of 16 sequentially numbered pages. The
Index to Exhibits appears on sequentially numbered page 13.
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MACROMEDIA, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
June 30, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Income
Three Months Ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,375 $ 28,829
Short-term investments 99,454 87,833
Accounts receivable, net 14,995 14,601
Inventory 2,023 1,568
Prepaid expenses and other current assets 7,569 8,115
-------- --------
Total current assets 140,416 140,946
Property and equipment, net 21,088 12,219
Other long-term assets 2,261 1,957
-------- --------
Total assets $163,765 $155,122
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,944 $ 11,364
Accrued liabilities 11,590 8,956
Unearned revenue 492 1,235
Other current liabilities 189 331
-------- --------
Total current liabilities 22,215 21,886
Long-term liabilities 37 55
-------- --------
Total liabilities 22,252 21,941
Stockholders' equity:
Common stock, par value $0.001 per share; 80,000,000
shares authorized; 36,620,551 and 36,413,211 shares
issued and outstanding at June 30, 1996 and March 31, 1996,
respectively 37 36
Additional paid-in capital 130,802 129,591
Deferred compensation (415) (415)
Retained earnings 11,089 3,969
-------- --------
Total stockholders' equity 141,513 133,181
-------- --------
Total liabilities and stockholders' equity $163,765 $155,122
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1996 1995
--------- ----------
<S> <C> <C>
Revenues $35,010 $23,857
Cost of revenues 5,434 4,225
------- -------
Gross profit 29,576 19,632
Operating expenses:
Sales and marketing 12,186 9,075
Research and development 6,912 4,105
General and administrative 1,525 1,221
------- -------
Total operating expenses 20,623 14,401
------- -------
Operating income 8,953 5,231
Other income (expenses), net 1,366 297
------- -------
Income before income taxes 10,319 5,528
Provision for income taxes (3,199) (1,105)
------- -------
Net income $ 7,120 $ 4,423
======= =======
Net income per share $ 0.18 $ 0.13
======= =======
Weighted average common shares outstanding 40,572 35,078
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 7,120 $ 4,423
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,380 842
Accounts receivable, net (394) (441)
Inventory (455) 92
Prepaid expenses and other current assets 546 (319)
Accounts payable (1,420) (182)
Accrued liabilities 2,634 1,413
Unearned revenue (743) (532)
Other current liabilities (142) (317)
Other long-term liabilities (18) (13)
-------- -------
Net cash provided by operating activities 8,508 4,966
-------- -------
Cash flows from investing activities:
Capital expenditures (10,019) (2,564)
Net purchase of short-term investments (11,621) (800)
Other long-term assets (534) (321)
-------- -------
Net cash used in investing activities (22,174) (3,685)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,212 1,619
-------- -------
Net cash provided by financing activities 1,212 1,619
-------- -------
(Decrease)/Increase in cash and cash equivalents (12,454) 2,900
Cash and cash equivalents, beginning of period 28,829 10,230
-------- -------
Cash and cash equivalents, end of period $ 16,375 $13,130
======== =======
Supplemental disclosure of cash flow information:
Interest paid during period $ -- $ 1
======== =======
Income taxes paid $ 396 $ 139
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PREPARATION
The condensed consolidated financial statements at June 30, 1996 and for the
three months ended June 30, 1996 and 1995 are unaudited and reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the Company's
financial position and operating results for the interim periods.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's annual report on Form 10-K for the fiscal year ended
March 31, 1996.
The results of operations for the three months ended June 30, 1996 are not
necessarily indicative of the results for the fiscal year ending March 31, 1997
or any other future periods.
All net income per share and other amounts included in this document reflect the
two-for-one stock split which occurred on October 16, 1995.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues. The Company derives revenues primarily from software sales to domestic
and international distributors, value-added resellers, original equipment
manufacturers, corporate accounts and registered users. To a lesser extent,
revenues are also derived from training and consulting services and from
contracts to provide maintenance to customers. The Company's principal products,
from which it derives a substantial majority of its revenues are Authorware,
Director, Extreme 3D, Fontographer, FreeHand, xRes, SoundEdit 16, DECK II , and
Backstage.
The Company's first quarter fiscal 1997 revenues of $35.0 million represent an
increase of 47% from revenues of $23.9 million for the same period in fiscal
1996. The increase for the first quarter resulted primarily from an increase in
units shipped of Director, Authorware, Director Multimedia Studio and FreeHand
Graphics Studio, due in part to the continuing development of the Company's
indirect international sales channels. North America revenues of $18.8 million
contributed 54% of total worldwide sales in the first quarter of fiscal 1997, as
compared to $14.0 million, or 59%, in the first quarter of fiscal 1996.
International revenues increased to $16.2 million, which accounted for 46% of
the Company's revenues in the first quarter of fiscal 1997, as compared to $9.9
million, or 41%, in the first quarter of fiscal 1996. North America revenues
grew by 35%, while international revenues grew by 64% over the same period in
fiscal 1996.
Cost of revenues. Cost of revenues for the first quarter ended June 30, 1996 was
16% of revenues, compared to 18% for the same period in fiscal 1996. This
percentage decrease was due primarily to cost reduction programs which benefited
from increased volumes.
Sales and marketing. Sales and marketing expenses increased by $3.1 million,
from $9.1 million in the first quarter of fiscal 1996 to $12.2 million in the
first quarter of fiscal 1997, but declined as a percentage of revenues from 38%
to 35%. Expenses increased in absolute dollars in fiscal 1997 due to planned
increases in headcount and the Company's commitment to increase spending to
leverage sales.
Research and development. Research and development expenses grew by $2.8 million
from $4.1 million in the first quarter of fiscal 1996 to $6.9 million in the
first quarter of fiscal 1997, and increased as a percentage of revenues from 17%
to 20%. Expenses increased in absolute dollars in fiscal 1997 due to planned
increases in headcount and related increases in instructional media and quality
assurance expenses designed to accommodate the expanded product line and product
release schedule.
General and administrative. General and administrative expenses increased by
$0.3 million, from $1.2 million in the first quarter of fiscal 1996 to $1.5
million in the first quarter of fiscal 1997, but declined as a percentage of
revenues from 5% to 4%. Expenses increased slightly in absolute dollars in
fiscal 1997 due primarily to planned increases in headcount.
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Operating income. Operating income for the first quarter of fiscal 1997 was $9.0
million, a 71% increase over operating income of $5.2 million in the first
quarter of fiscal 1996, and increased as a percentage of revenues from 22% to
26%. The increases, both as a percentage of revenues and in absolute dollars,
were primarily due to higher revenues.
Provision for income taxes. After using available net operating loss
carryforwards, the Company's provision for income taxes for the first three
months of fiscal 1997 was $3.2 million as compared with $1.1 million for the
first three months of fiscal 1996. The Company's effective tax rate increased to
31% for the first three months of fiscal 1997, as compared to 20% for the first
three months of fiscal 1996.
Net income. Net income for the first quarter of fiscal 1997 increased by 61% to
$7.1 million, compared to $4.4 million for the same quarter a year ago. Net
income per share was $0.18, a 38% increase from the $0.13 for the first quarter
of fiscal 1996. The increases in net income and net income per share were
primarily related to the growth in revenues.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward looking statements that involve risks and
uncertainties, including those related to management of growth, quarterly
fluctuations of operating results, impact of competition, the developing
multimedia, internet and on-line services markets, and the other risks detailed
below, and from time to time in the Company's other reports filed with the
Securities and Exchange Commission. The actual results that the Company achieves
may differ materially from any forward looking statements due to such risks and
uncertainties.
Macromedia has grown in substantial part from combinations with other companies.
In January 1995, Macromedia acquired Altsys Corporation, which developed the
FreeHand graphic design and illustration product whose revenues prior to that
date consisted primarily of royalties from Aldus Corporation, which had marketed
FreeHand until January 1995, and revenues from Fontographer. In August 1995, the
Company acquired Fauve Software, Inc., a developer of image editing software. In
December 1995, the Company acquired OSC, a developer of digital audio production
software. In March 1996, the Company acquired iband, Inc., a developer of
Internet Web site development tools. There can be no assurance that sales of the
Company's existing products will either continue at historical rates or
increase, or that new products introduced by the Company, whether developed
internally or acquired, will achieve market acceptance. The Company's historical
rates of growth should not be taken as indicative of growth rates that can be
expected in the future.
The Company's quarterly operating results may vary significantly depending on
the timing of new product introductions and enhancements by the Company. The
Company's quarterly results of operations also may vary significantly depending
on the timing of product introductions by competitors, changes in pricing,
execution of technology licensing agreements and the volume and timing of orders
received during the quarter, which are difficult to forecast. The future
operating results of the Company may fluctuate as a result of these and other
factors, including the Company's ability to continue to develop innovative
products, its product and customer mix and the level of competition. The
Company's results of operations may also be affected by seasonal trends. A
significant portion of the Company's operating expenses is relatively fixed, and
planned expenditures are based primarily on sales forecasts. As a result, if
revenues do not meet the Company's forecasts, operating results may be
materially adversely affected. Although the Company has been
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profitable each quarter since the quarter ended September 30, 1992, there can be
no assurance that the Company will be able to sustain profitability in the
future.
The markets for the Company's products are highly competitive and characterized
by pressure to reduce prices, incorporate new features, and accelerate the
release of new product versions. A number of companies currently offer products
that compete directly or indirectly with one or more of the Company's products.
These companies include Adobe Systems Incorporated ("Adobe"), Aimtech
Corporation, Apple Computer, Inc., Asymetrix Corporation, Autodesk, Inc., Corel
Corporation ("Corel"), Microsoft Corporation ("Microsoft") and Strata
Incorporated. As the Company competes with larger competitors such as Adobe,
Corel and Microsoft across a broader range of product lines, the Company may
face increasing competition from such companies.
The developing multimedia market, Internet, and online services, and the
personal computer industry in general are characterized by rapidly changing
technology, resulting in short product life cycles and rapid price declines. The
Company must continuously update its existing products to keep them current with
changing technology and must develop new products to take advantage of new
technologies that could render the Company's existing products obsolete. The
Company's future prospects are highly dependent on its ability to increase
functionality of existing products in a timely manner and to develop new
products that address new technologies and achieve market acceptance. New
products and enhancements must keep pace with competitive offerings, adapt to
new platforms and emerging industry standards and provide additional
functionality. There can be no assurance that the Company will be successful in
these efforts.
The Company has in the past experienced delays in the development of new
products and enhancement of existing products, and such delays may occur in the
future. If the Company were unable, due to resource constraints or technological
or other reasons, to develop and introduce such products in a timely manner,
this inability could have a material adverse effect on the Company's results of
operations.
A substantial majority of the Company's revenues is derived from the sale of its
products through a variety of distribution channels, including traditional
software distributors, educational distributors, VARs, OEMs, hardware and
software superstores, retail dealers, mail order, and direct sales.
Domestically, the Company's products are sold primarily through distributors,
VARs, and OEMs. Internationally, the Company's products are sold through
distributors. The Company's resellers generally offer products of several
different companies, including in some cases products that are competitive with
the Company's products. There can be no assurance that the Company's resellers
will continue to purchase the Company's products or provide them with adequate
levels of support. In addition, the Company believes that certain distributors
may be reducing their inventory in the channel to better manage their internal
working capital, and that this could result in a one-time reduction in orders,
as this adjustment takes place. The loss of, or a significant reduction in
sales volume to, a significant reseller could have a material adverse effect
on the Company's results of operations.
A majority of the Company's revenues has been derived from its products for the
Macintosh. Although sales of the Company's products for Windows accounted for
approximately one-third of the Company's total revenues in fiscal 1996 and are
expected to become an increasingly important component of the Company's
revenues, a continuing leveling-off or decline in the sales rate of
multimedia-capable Macintosh computers or shifts in mail-order or other
distribution mechanisms for Macintosh products could have a material adverse
effect on the Company's results of operations. For the quarter ended June 30,
1996, Macintosh product revenue comprised 56% of total revenue. Macintosh
product revenue was up 26% over the first quarter of fiscal 1996 but down 13%
from the fourth quarter of fiscal 1996. Windows product revenue comprised 44% of
total revenue for the
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first quarter of fiscal 1997, up 122% over the first quarter of fiscal 1996 and
up 30% from the fourth quarter of fiscal 1996.
For the quarter ended June 30, 1996, the Company derived approximately 46% of
its total revenues from international sales. The Company expects that
international sales will continue to generate a significant percentage of its
total revenues, and the Company is seeking to increase international sales to
approximately half of its total revenues. The Company relies on distributors for
sales of its products in foreign countries and, accordingly, is dependent on
their ability to promote and support the Company's products, and in some cases,
to translate them into foreign languages. International business is subject to a
number of special risks, including foreign government regulation; general
geopolitical risks such as political and economic instability, hostilities with
neighboring countries and changes in diplomatic and trade relationships; more
prevalent software piracy; unexpected changes in, or imposition of, regulatory
requirements, tariffs, import and export restrictions and other barriers and
restrictions; longer payment cycles, greater difficulty in accounts receivable
collection, potentially adverse tax consequences, the burdens of complying with
a variety of foreign laws; and other factors beyond the control of the Company.
As of April 1, 1996, revenues generated through international sales in certain
European countries are denominated in local currency, while expenses continue to
be denominated in the local currency of the countries in which the Company has
offices. As a result of this new program, the Company has entered into hedging
contracts to protect it from exchange rate fluctuations. As of June 30, 1996,
the contracts outstanding totaled $11.8 million.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash, cash equivalents and short-term
investments of $115.8 million, a decrease of $0.8 million over March 31, 1996
cash, cash equivalent, and short-term investment balances. Working capital
decreased by $0.9 million from March 31, 1996 to $118.2 million at June 30,
1996. The decrease in cash, cash equivalents and short-term investments balances
and working capital was due to the purchase of land for $7.0 million.
For the three months ended June 30, 1996, cash provided by operating activities
of $8.5 million was primarily attributable to net income. Cash used in
investment activities of $22.2 million related primarily to $11.6 million in net
short-term investment purchases, $7.0 million to purchase a parcel of land in
Redwood Shores, California, and $3.0 million for capital equipment, primarily
for management information systems and engineering equipment. Cash provided by
financing activities of $1.2 million was attributable to proceeds received from
the issuance of common stock. In addition to cash, cash equivalents, and
short-term investments, the Company has $15.0 million available under an
unsecured revolving line of credit. The line of credit bears interest at the
bank's prime rate and expires on July 15, 1997. As of June 30, 1996, the Company
had no borrowings outstanding.
The Company believes that existing cash resources, available bank borrowings and
cash generated from operations will be sufficient to meet the Company's cash and
investment requirements through at least fiscal 1997.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On May 31, 1996, the Company held a special meeting of stockholders. The
stockholders passed the following proposal by the votes indicated.
<TABLE>
<CAPTION>
Votes Votes Votes Broker
Matter For Against Abstained Non-Votes
------ ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Amendment of the 1992 Equity 22,864,116 8,923,125 163,674 -
Incentive Plan to increase the number
of Common Stock reserved for
issuance thereunder from 7,200,000
shares to 9,000,000 shares (an
increase of 1,800,000).
</TABLE>
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
Exhibit
Number Exhibit Title
11.01 - Statement regarding computation of per share earnings.
27.01 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the period ended June 30,
1996.
11
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SIGNATURES
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.
MACROMEDIA, INC.
(Registrant)
Date: August 9, 1996 /s/ John C. Colligan
--------------------------------------
John C. Colligan
President and Chief Executive Officer
Date: August 9, 1996 /s/ Richard B. Wood
--------------------------------------
Richard B. Wood
Vice President Operations and Chief
Financial Officer, and Secretary
12
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
11.01 Statement Regarding Computation of Per Share Earnings 14
27.01 Financial Data Schedule 15
</TABLE>
13
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Exhibit Number 11.01 - Statement Regarding Computation of Per Share Earnings
<PAGE> 15
Exhibit 11.01
MACROMEDIA, INC.
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
------- -------
<S> <C> <C>
Net income $ 7,120 $ 4,423
======= =======
Weighted average number of common shares outstanding 36,527 31,295
Number of common stock equivalents as a result
of stock options outstanding 4,045 3,783
------- -------
Total 40,572 35,078
======= =======
Net income per common stock and
common stock equivalent $ 0.18 $ 0.13
======= =======
</TABLE>
All income per share amounts and numbers of shares have been retroactively
restated to reflect a two-for-one stock split which became effective October
16, 1995.
14
<PAGE> 16
Exhibit Number 27.01 - Financial Data Schedules
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 16,375
<SECURITIES> 99,454
<RECEIVABLES> 18,819
<ALLOWANCES> 3,824
<INVENTORY> 2,023
<CURRENT-ASSETS> 140,416
<PP&E> 30,493
<DEPRECIATION> 9,405
<TOTAL-ASSETS> 163,765
<CURRENT-LIABILITIES> 22,215
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 141,476
<TOTAL-LIABILITY-AND-EQUITY> 163,765
<SALES> 35,010
<TOTAL-REVENUES> 35,010
<CGS> 5,434
<TOTAL-COSTS> 5,434
<OTHER-EXPENSES> 20,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,319
<INCOME-TAX> 3,199
<INCOME-CONTINUING> 7,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,120
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
