<PAGE>
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, 1998
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, 1998, there were outstanding 39,613,767 shares of the
Registrant's Common Stock, par value $0.001 per share.
This Report, including exhibits, consists of 14 sequentially numbered pages.
The Index to Exhibits appears on sequentially numbered page 13 .
----
1
<PAGE>
MACROMEDIA, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page
ITEM 1. FINANCIAL STATEMENTS ----
<S> <C>
Condensed Consolidated Balance Sheets
June 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,873 $ 10,019
Short-term investments 85,361 76,112
Accounts receivable, net 9,634 7,696
Inventory, net 762 743
Prepaid expenses and other current assets 11,192 3,819
Deferred tax assets, short-term 8,548 8,548
-------- --------
Total current assets 124,370 106,937
Land and building, net 20,147 20,372
Other fixed assets, net 16,540 18,528
Other long-term assets 9,378 8,347
-------- --------
Total assets $170,435 $154,184
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,647 $ 4,091
Accrued liabilities 22,406 19,132
Unearned revenue 10,272 1,927
-------- --------
Total current liabilities 34,325 25,150
Deferred tax liabilities, long term 306 306
Other long-term liabilities 225 263
-------- --------
Total liabilities 34,856 25,719
Stockholders' equity:
Common stock, par value $0.001 per share;
80,000,000 shares authorized; 39,022,421
and 38,297,968 shares issued and outstanding
(net of 510,000 treasury shares) at June 30,
1998 and March 31, 1998, respectively 40 39
Other stockholders' equity 135,539 128,426
-------- --------
Total stockholders' equity 135,579 128,465
Total liabilities and stockholders' equity $170,435 $154,184
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
-------------------
1998 1997
------- -------
<S> <C> <C>
Revenues $32,335 $27,329
Cost of revenues 3,119 4,568
------- -------
Gross profit 29,216 22,761
Operating expenses:
Sales and marketing 14,329 14,340
Research and development 8,528 8,701
General and administrative 3,352 2,610
------- -------
Total operating expenses 26,209 25,651
------- -------
Operating income (loss) 3,007 (2,890)
Other income, net 1,282 1,094
------- -------
Income (loss) before income taxes 4,289 (1,796)
(Provision) benefit for income taxes (1,330) 557
------- -------
Net income (loss) $ 2,959 $(1,239)
------- -------
------- -------
Net income (loss) per share
Basic $ 0.08 $ (0.03)
Diluted $ 0.07 $ (0.03)
------- -------
------- -------
Weighted average common shares outstanding
Basic 38,626 37,866
Diluted 43,863 37,866
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
-------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,959 $(1,239)
Adjustments to reconcile net income
(loss) to net cash provided by / (used in)
operating activities:
Depreciation and amortization 2,057 2,374
Deferred compensation 77 12
Changes in operating assets and liabilities:
Accounts receivable, net (1,938) (5,513)
Inventory, net (19) 818
Prepaid expenses and other current assets (7,373) 174
Accounts payable (2,444) (1,570)
Accrued liabilities 3,274 (1,267)
Unearned revenue 8,345 212
Other long-term liabilities (38) 192
------- -------
Net cash provided by / (used in) operating
activities 4,900 (5,807)
------- -------
Cash flows from investing activities:
Capital expenditures (750) (5,860)
Proceeds from sale of fixed assets 961 -
Net (purchases) / sales / maturities of
short-term available-for-sale investments (9,296) 20,941
Other long-term assets (1,086) (690)
------- -------
Net cash (used in) / provided by investing
activities (10,171) 14,391
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 4,125 868
------- -------
Net cash provided by financing activities 4,125 868
------- -------
(Decrease)/increase in cash and cash equivalents (1,146) 9,452
Cash and cash equivalents, beginning of period 10,019 15,397
------- -------
Cash and cash equivalents, end of period $ 8,873 $24,849
------- -------
------- -------
Supplemental disclosure of cash flow information:
Interest paid during period $ 0 $ 0
------- -------
------- -------
Income taxes paid $ 0 $ 85
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PREPARATION
The condensed consolidated financial statements at June 30, 1998 and for the
three months ended June 30, 1998 and 1997 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, 1998.
The results of operations for the three months ended June 30, 1998 are not
necessarily indicative of the results for the fiscal year ending March 31,
1999 or any other future periods.
2. EARNINGS PER SHARE
"Basic" earnings per share is calculated by dividing net income or loss by
the weighted average common shares outstanding during the period. "Diluted"
earnings per share reflects the net incremental shares that would be issued
if outstanding stock options were exercised and if the funds collected for
the employee stock purchase plan were used to purchase treasury shares.
In the case of a net loss, it is assumed that no incremental shares would be
issued because they would be antidilutive. In addition, certain options are
considered antidilutive because the options' exercise prices were above the
average market price during the period. Antidilutive shares are not included
in the computation of diluted earnings per share, in accordance with SFAS No.
128.
<TABLE>
<CAPTION>
Three months ended June 30,
(In thousands except per share data) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
BASIC NET INCOME (LOSS) PER SHARE COMPUTATION
Numerator:
Net income (loss) $ 2,959 $(1,239)
-------------------
Denominator:
Weighted average number of common shares
outstanding during the period 38,626 37,866
Basic net income (loss) per share $ 0.08 $ (0.03)
-------------------
DILUTED NET INCOME (LOSS) PER SHARE COMPUTATION
Numerator:
Net Income (loss) $ 2,959 $(1,239)
-------------------
Denominator:
Weighted average number of common shares
outstanding during the period 38,626 37,866
Effect of dilutive securities:
Employee stock options 5,211 -
Employee stock purchase plans 26 -
-------------------
Total 43,863 37,866
-------------------
Diluted net income (loss) per share $ 0.07 $ (0.03)
-------------------
-------------------
</TABLE>
6
<PAGE>
3. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards of
reporting and display of comprehensive income and its components of net
income and "other comprehensive income" in a full set of general purpose
financial statements. "Other comprehensive income" refers to revenues,
expenses, gains and losses that are not included in net income but rather are
recorded directly in stockholders' equity. SFAS No. 130 is effective for
annual and interim periods beginning after December 15, 1997 and for periods
ended before that date when presented for comparative purposes. For the three
months ended June 30, 1998 and 1997, the difference between comprehensive
income and net income was immaterial. The primary components of other
comprehensive income in the first quarter of fiscal year 1999 are unrealized
gains and losses related to the Company's available-for-sale securities.
4. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the manner in which public companies report
information about operating segments in annual and interim financial
statements. The Company is currently evaluating the operating segment
information that it will be required to report. The Company is required to
adopt the new standard for its year ending March 31, 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Company is currently evaluating the impact of
the new rule on the Company's consolidated financial statements. The Company
is required to adopt the new standard in the first quarter of fiscal year
2001.
5. INCOME TAXES
The Company provides for income taxes during interim reporting periods based
upon an estimate of the annual effective tax rate. Such an estimate reflects
an effective tax rate lower than the federal statutory rate primarily because
of utilization of research and experimentation tax credits, and foreign
operating results, which are taxed at rates other than the US statutory rate.
The effective rate used for the quarter ended June 30, 1998 was 31%.
7
<PAGE>
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 (VARs),
original equipment manufacturers (OEMs), corporate accounts, and registered
users. To a lesser extent, revenues are also derived from contracts to
provide maintenance to customers and technology licensing. Two of the
Company's products, Director and FreeHand, continue to provide a majority of
the Company's revenues; however, new Web products such as Flash, Dreamweaver
and Fireworks, and Web-related revenues, accounted for 32% of revenue in the
first quarter of fiscal 1999. In addition, revenue deferred in the first
quarter arising from the sale and licensing of certain intellectual property
will be recognized over the appropriate contract and support obligation
periods, which range from 1 year to 3 years.
The Company's first quarter fiscal 1999 revenues of $32.3 million increased
18% from revenues of $27.3 million during the same quarter in fiscal 1998.
The increase is principally due to revenue streams from new Web-related
products and services, lower returns during the quarter and lower reserves
for anticipated future product returns, offset by the timing impact of
version releases of core products year over year. During the first quarter
of fiscal year 1999, the Company shipped new versions of Flash and
Dreamweaver, an upgrade to Director, and Fireworks, a new Web graphics
production tool. During the first quarter of fiscal 1999, Macintosh-related
revenues increased 11% over the first quarter of fiscal 1998 and 14% over the
fourth quarter of fiscal 1998, primarily as a result of sales of new Web
products.
North American revenues increased $1.9 million to $18.3 million in the first
quarter of fiscal 1999 from $16.4 million in the first quarter of fiscal
1998, and were 57% of total revenues, versus 60% in the first quarter of
fiscal 1998. International revenues increased $3.1 million to $14.0 million
in the first quarter of fiscal 1999 from $10.9 million in the first quarter
of fiscal 1998, and increased to 43% from 40% of total revenues. Revenues by
geographic region vary quarter to quarter depending on product cycles and the
timing of the release of localized versions of products. The table below
summarizes revenue by geography:
<TABLE>
($ in millions) Three months ended
June 30,
--------------------------------
1998 1997 % change
<S> <C> <C> <C>
North America $ 18.3 $ 16.4 12%
% of total revenue 57% 60%
International 14.0 10.9 29%
% of total revenue 43% 40%
Total revenue $ 32.3 $ 27.3
</TABLE>
GROSS MARGIN. Gross margin for the first quarter of fiscal 1999 was 90%
compared to 83% for the same period in fiscal 1998. The improvement is
primarily due to the results of cost control programs implemented over the
past year, including a move to just-in-time manufacturing which resulted in
lower inventory obsolescence and lower inventory levels, and improved
inventory review procedures.
8
<PAGE>
SALES AND MARKETING. Sales and marketing expenses decreased as a percentage
of revenues by 8%, from 52% in the first quarter of fiscal 1998 to 44% in the
first quarter of fiscal 1999 but remained constant in absolute dollars at
$14.3 million. Expenses decreased as a percentage of revenues due to higher
sales levels. Increases in advertising and compensation-related expenses
during the first quarter of fiscal 1999 were offset by reductions in
tradeshow and other marketing expenses, thereby keeping overall sales and
marketing expenses essentially flat with the first quarter of the prior year.
Sales and marketing expenses are expected to increase over the next two years
beginning in the second quarter of fiscal 1999 as a result of the
amortization of capitalized costs arising from licensing and distribution
agreements entered into during the first quarter.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased $0.2
million from $8.7 million in the first quarter of fiscal 1998 to $8.5 million
in the first quarter of fiscal 1999, and decreased as a percentage of
revenues from 32% to 26%. Expenses decreased in the first quarter of fiscal
year 1999 primarily due to reduced costs for facilities, offset by increases
in headcount-related costs and technology infrastructure. Expenses decreased
as a percentage of revenues due to higher sales levels.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$0.7 million, from $2.6 million in the first quarter of fiscal 1998 to $3.4
million in the first quarter of fiscal 1999. Expenses increased in the first
quarter of fiscal 1999 primarily due to legal fees associated with the class
action law suits (described below) and increases in headcount and costs
associated with building the infrastructure required to support the growth of
the Company. General and administrative costs remained a constant 10% of
revenues for the first quarter of both fiscal 1999 and 1998.
OTHER INCOME. Other income increased by $0.2 million from $1.1 million for
the first quarter of fiscal 1998 to $1.3 million for the first quarter of
fiscal 1999. The increase was primarily due to higher interest income, which
resulted from an increase in the average short-term investment balance on
hand during the period.
PROVISION/BENEFIT FOR INCOME TAXES. The Company's provision for income taxes
for the first three months of fiscal 1999 was $1.3 million as compared with a
benefit of $0.6 million for the first three months of fiscal 1998. The
effective tax rate for the quarterly provision was 31% during the first
quarter of the fiscal years 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash, cash equivalents and short-term
investments of $94.2 million. For the three months ended June 30, 1998, cash
provided by operating activities of $4.9 million was primarily attributable
to net income for the period and an increase in unearned revenue associated
with licensing agreements, offset by an increase in prepaid marketing costs
plus the net impact of the sales, cash disbursements and cash collection
cycles. Cash used in investment activities of $10.2 million related primarily
to the purchase of $9.3 million in available-for-sale short-term investments.
Cash provided by financing activities of $4.1 million was attributable to
proceeds received from the issuance of common stock upon exercise of stock
options. Collectively, the above activity resulted in a net decrease of $1.1
million from the March 31, 1998 balances of cash and cash equivalents.
Working capital increased by $8.3 million from the March 31, 1998 balance of
$81.8 million, to $90.0 million at June 30, 1998. The Company anticipates
future capital expenditures of approximately $12.0 million for the remainder
of fiscal 1999.
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, 1999. As of June 30, 1998, the Company had no borrowings
outstanding.
9
<PAGE>
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 March 31, 1999.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Except for the historical information contained in this Form 10-Q, the
matters discussed herein are forward-looking statements that involve risks
and uncertainties, including those 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.
INTENSE COMPETITION. 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
Inc. (Adobe), Apple Computer, Inc., Asymetrix Corporation, Corel Corporation
(Corel), MetaCreations Corporation, and Microsoft Corporation (Microsoft). As
the Company competes with larger competitors such as Adobe, Corel and
Microsoft across a broader range of product lines and different platforms,
the Company may face increasing competition from such companies.
FLUCTUATIONS OF OPERATING RESULTS; PRODUCT INTRODUCTION DELAYS. The Company's
quarterly operating results may vary significantly depending on the timing of
new product introductions and enhancements by the Company. A majority of the
Company's revenues is derived from two products: Director and FreeHand. 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 is 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. If the Company does not ship new versions
of its products as planned, sales of existing versions decline, or new
products do not receive market acceptance, the Company's results of
operations in a given quarter could be materially adversely affected as they
were during the fourth quarter of fiscal 1997 when the Company delayed
shipment of a new version of Director to the following quarter.
DEPENDENCE ON DISTRIBUTORS. 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, mail order,
educational distributors, VARs, OEMs, hardware and software superstores,
retail dealers, and direct sales. Domestically, the Company's products are
sold primarily through distributors, VARs, and OEMs. In particular, one
distributor, Ingram Micro, Inc., accounted for 28% of gross revenues in
fiscal 1998 and in the first quarter of fiscal 1999. Internationally, the
Company's products are sold through distributors.
DEPENDENCE ON MACINTOSH PLATFORM. In the past, a majority of the Company's
revenues was derived from its products for the Macintosh. Macintosh revenues
accounted for 51% of product revenues for the first quarter of fiscal 1999,
compared to 44% of revenues for all of fiscal 1998. Although the relative
percentage of Macintosh platform revenues will vary from quarter to quarter
based on product release schedules, the Company remains heavily dependent on
the sale of products for the Macintosh platform. 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.
10
<PAGE>
RISKS OF INTERNATIONAL OPERATIONS. For the first quarter of fiscal 1999, the
Company derived approximately 43% of its revenues from international sales,
compared with 48% for all of fiscal 1998. The Company expects that
international sales will continue to generate a significant percentage of its
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; foreign currency risk; and other
factors beyond the control of the Company.
In addition, the Company's results may be adversely affected by worldwide
economic events beyond the control of the Company, such as those presently
occurring in Asia. Approximately 16% of revenues in the first quarter of
fiscal 1999 and 20% of revenues in fiscal 1998 were derived from the Asia
Pacific region, including Japan. During fiscal 1998, the Company experienced
a decline in revenue growth rates in Asia Pacific in part due to the economic
crises that occurred throughout this region. There can be no assurances that
these economies will recover in the near term or that the Company's results
or growth rates in this geographic region will return to previous levels even
if the recovery occurs.
The Company enters into foreign exchange forward contracts to reduce economic
exposure associated with sales and asset balances denominated in various
European currencies and Japanese Yen. As of June 30, 1998, the notional
principal of forward contracts outstanding amounted to $6.1 million. These
contracts are of a short-term duration and the fair value of such contracts
equals the market value as of June 30, 1998. There can be no assurance that
such contracts will adequately hedge the Company's exposure to currency
fluctuations.
VOLATILITY OF STOCK. 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.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Year 2000 issue
creates risk for the Company from unforeseen problems in its own computer
systems and from third parties, including customers, vendors, and
manufacturers, with whom the Company deals on financial transactions
worldwide. Failures of the Company's and/or third parties' computer systems
could have a material impact on the Company's ability to conduct its business.
Although the Company does not believe there are any material operational
issues or costs associated with preparing its internal systems for the year
2000, there can be no assurance that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by
undetected errors or defects in the technology used in its internal systems.
The Company is assessing the impact to its operations of addressing the Year
2000 issues.
The Company believes that its software will handle Year 2000 compliance
correctly assuming that the operating systems upon which they run have been
updated to comply. Macromedia's software products obtain date information,
such as creation dates and modification dates, directly from the computer's
operating system. Both Microsoft and Apple have stated that their operating
systems will continue to operate properly into the twenty-first century.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 31, 1997, a complaint entitled Rosen et al. V. Macromedia, Inc., et
al., (Case No. 988526) was filed in the Superior Court for San Francisco,
California. The complaint alleges that Macromedia and five of its former or
current officers and directors engaged in securities fraud in violation of
California Corporations Code Sections 25400 and 25500 by seeking to inflate
the value of Macromedia stock by issuing statements that were allegedly false
or misleading (or omitted material facts necessary to make any statements
made not false or misleading) regarding the Company's financial results and
prospects. Plaintiffs seek to represent a class of all persons who purchased
Macromedia common stock from April 18, 1996 through January 9, 1997. Four
similar complaints by persons seeking to represent the same class of
purchasers subsequently have been filed in San Francisco Superior Court, and
consolidated for pre-trial purposes with Rosen. Defendants filed demurrers
to the complaint and other motions which were argued on December 19, 1997 and
January 5, 1998. Before the demurrers could be heard, one defendant, Richard
Wood, died in an automobile accident. The Court sustained in part and
overruled in part the demurrers by order dated March 6, 1998. Claims against
Susan Bird were dismissed with leave to amend and the Court overruled the
demurrers as to Macromedia, John Colligan, James Von Ehr, II, and Kevin
Crowder. The Plaintiffs did not file an amended complaint, and defendants
have answered. Discovery is now proceeding. By agreement of the parties,
the rulings apply to the other state court actions, and separate answers to
the remaining complaints need not be filed.
On September 25, 1997, a complaint entitled City Nominees v. Macromedia, Inc.
et al., (Case No. C-97-3521-SC) was filed in the United States District Court
for the Northern District of California. The complaint alleges that
Macromedia and five of its former or current officers and directors engaged
in securities fraud in violation of Sections 10 and 20(a) of the Securities
and Exchange Act of 1934 by seeking to inflate the value of Macromedia stock
by issuing statements that were allegedly false or misleading (or omitted
material facts necessary to make any statements made not false or misleading)
regarding the Company's financial results and prospects. Plaintiffs seek to
represent a class of all persons who purchased Macromedia common stock from
April 18, 1996 through January 9, 1997. Three similar complaints by persons
seeking to represent the same class of purchasers subsequently have been
filed in United States District Court for the Northern District of
California. All of these cases have been consolidated. Lead plaintiffs and
lead counsel have been appointed under the provisions of the Private
Securities Law Reform Act by the District Court pursuant to an Order of
January 23, 1998. A consolidated complaint was filed on February 13, 1998.
Defendants promptly moved to dismiss, which motion was granted by order filed
May 18, 1998, on the grounds that plaintiffs' claims were barred by the
applicable statute of limitations. Plaintiffs have filed a notice of appeal
of the dismissal. Discovery has been stayed by operation of statute and local
rule.
All complaints seek damages in unspecified amounts, as well as other forms of
relief. The Company believes the complaints are without merit and intends to
vigorously defend the actions.
12
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 30, 1998, the Company held its annual meeting of stockholders. The
stockholders passed the following proposals by the votes indicated.
<TABLE>
<CAPTION>
Matter Votes For Withheld
------ ---------- --------
<S> <C> <C>
1. Election of Directors
Stewart Alsop 34,920,514 488,095
Robert K. Burgess 34,923,060 485,549
John (Ian) Giffen 34,926,296 482,313
Mark D. Kvamme 34,923,616 484,993
Donald L. Lucas 34,899,503 509,106
James R. Von Ehr, II 34,926,028 482,581
William B. Welty 34,881,580 527,029
<CAPTION>
Votes Votes Broker
Matter Votes For Against Abstained Non Votes
------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C>
2. Amendment of the 1992 Equity Incentive
plan to increase the number of shares
reserved for issuance thereunder by
1,500,000 shares from 11,800,000
shares to 13,300,000 shares 23,597,670 11,616,821 194,118 0
3. Amendment of the 1993 Directors Stock
Option Plan to increase the number of
shares reserved for issuance thereunder
by 400,000 shares from 300,000 shares
to 700,000 shares 25,696,929 9,528,085 183,595 0
4. Amendment to the award formula for non-
employee directors in the 1993 Directors
Stock Option Plan 25,817,384 9,462,157 129,068 0
5. Ratify selection of KPMG Peat Marwick
LLP as independent auditors for the
Company for the current fiscal year. 35,262,072 55,731 90,806 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
Exhibit
Number Exhibit Title
- ------- -------------
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, 1998.
13
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
MACROMEDIA, INC.
(Registrant)
Date: August 12, 1998 /s/ Robert K. Burgess
----------------------------------------------
Robert K. Burgess
President and Chief Executive Officer
Date: August 12, 1998 /s/ Elizabeth A. Nelson
----------------------------------------------
Elizabeth A. Nelson
Chief Financial Officer, Senior Vice President
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,873
<SECURITIES> 85,361
<RECEIVABLES> 17,424
<ALLOWANCES> 7,790
<INVENTORY> 762
<CURRENT-ASSETS> 124,370
<PP&E> 58,799
<DEPRECIATION> 22,112
<TOTAL-ASSETS> 170,435
<CURRENT-LIABILITIES> 34,325
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 135,539
<TOTAL-LIABILITY-AND-EQUITY> 170,435
<SALES> 32,335
<TOTAL-REVENUES> 32,335
<CGS> 3,119
<TOTAL-COSTS> 26,209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,289
<INCOME-TAX> 1,330
<INCOME-CONTINUING> 2,959
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,959
<EPS-PRIMARY> $.08
<EPS-DILUTED> $.07
</TABLE>
