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UNITED STATES
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 September 30, 2000
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. 000-22688
MACROMEDIA, INC.
(A Delaware Corporation)
I.R.S. Employer Identification No. 94-3155026
600 Townsend Street
San Francisco, California 94103
(415) 252-2000
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 Registrant's classes of
common stock, as of the latest practicable date: $0.001 par value Common Stock;
52,844,151 number of shares outstanding on October 31, 2000.
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MACROMEDIA, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED September 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2000 and March 31, 2000........................... 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended September 30, 2000 and 1999 ......... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended September 30, 2000 and 1999 ................... 5
Notes to Condensed Consolidated Financial Statements ............ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 17
Item 2. Changes in Securities and Use of Proceeds .................... 18
Item 3. Defaults Upon Senior Securities .............................. 18
Item 4. Submission of Matters to a Vote of Security Holders .......... 18
Item 5. Other Information ............................................ 19
Item 6. Exhibits and Reports on Form 8-K ............................. 19
Signatures ........................................................... 22
2
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MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(unaudited)
September 30, March 31,
2000 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 88,532 $ 115,084
Short-term investments ............................. 108,503 71,952
--------- ---------
Total cash, cash equivalents and
short-term investments ........................... 197,035 187,036
Accounts receivable, net ........................... 48,254 41,883
Deferred tax assets, short-term .................... 7,402 7,812
Other current assets ............................... 18,160 14,293
--------- ---------
Total current assets ........................... 270,851 251,024
Land and building, net ............................... 18,536 18,982
Other fixed assets, net .............................. 63,922 41,871
Related party loans .................................. 15,194 9,944
Non-current restricted cash .......................... 4,520 --
Other long-term assets ............................... 29,667 17,538
--------- ---------
Total assets ................................... $ 402,690 $ 339,359
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ 2,149 $ 4,988
Accrued liabilities ................................ 32,268 34,735
Accrued compensation, fringe benefits and payroll
taxes.............................................. 18,663 19,107
Unearned revenue ................................... 9,640 10,044
--------- ---------
Total current liabilities ...................... 62,720 68,874
Other liabilities .................................... 806 321
--------- ---------
Total liabilities .............................. 63,526 69,195
--------- ---------
Minority interest .................................... 16,157 15,888
--------- ---------
Stockholders' equity:
Common stock, par value $0.001 per share; 200,000 shares
authorized; 63,169 and 50,674 shares issued as of
September 30, and March 31, 2000, respectively .... 62 51
Treasury stock at cost; 1,818 shares as of
September 30, and March 31, 2000 .................. (33,649) (33,649)
Additional paid-in capital ......................... 395,216 335,497
Notes receivable from stockholders ................. (7,957) --
Deferred compensation .............................. (29,086) (23,465)
Accumulated other comprehensive income ............. 652 393
Accumulated deficit ................................ (2,231) (24,551)
--------- ---------
Total stockholders' equity ..................... 323,007 254,276
--------- ---------
Total liabilities and stockholders' equity ..... $ 402,690 $ 339,359
========= =========
See accompanying notes to condensed consolidated financial statements.
3
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MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
----------------- -----------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenues ................................. $102,421 $ 59,313 $197,185 $110,545
Cost of revenues ......................... 12,389 5,929 22,500 11,683
-------- -------- -------- --------
Gross profit ........................... 90,032 53,384 174,685 98,862
Operating expenses:
Sales and marketing ................... 39,199 25,596 78,085 48,872
Research and development .............. 29,368 15,337 54,283 28,327
General and administrative ............ 9,755 5,281 18,656 11,091
Acquisition-related expenses .......... 3,100 5,260 4,774 5,260
Non-cash compensation ................. 2,210 402 4,133 650
Amortization of intangibles ........... 608 252 924 509
-------- -------- -------- --------
Total operating expenses ............ 84,240 52,128 160,855 94,709
-------- -------- -------- --------
Operating income .................... 5,792 1,256 13,830 4,153
Other income (expense):
Interest and investment income, net ... 3,560 1,203 6,752 2,388
Foreign exchange gain (loss) .......... 538 (122) 1,492 (68)
Other ................................. (167) (41) (680) 71
-------- -------- -------- --------
Total other income .................. 3,931 1,040 7,564 2,391
Minority interest ........................ 4,687 -- 8,609 --
-------- -------- -------- --------
Income before income taxes .......... 14,410 2,296 30,003 6,544
Provision for income taxes ............... 4,098 2,071 7,684 4,592
-------- -------- -------- --------
Net income .......................... 10,312 225 22,319 1,952
Accretion on mandatorily redeemable
convertible preferred stock ....... -- (1,017) -- (1,181)
-------- -------- -------- --------
Net income (loss) applicable to
common stockholders ............... $ 10,312 $ (792) $ 22,319 $ 771
======== ======== ======== ========
Net income (loss) applicable to common stockholders per share:
Basic................................ $ 0.20 $ (0.02) $ 0.45 $ 0.02
Diluted ............................. $ 0.18 $ (0.02) $ 0.39 $ 0.02
Weighted average common shares outstanding used in calculating
net income (loss) applicable to common stockholders per share:
Basic................................ 50,504 42,853 49,979 42,463
Diluted ............................. 56,751 42,853 56,691 50,539
See accompanying notes to condensed consolidated financial statements.
4
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MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six Months Ended
September 30,
----------------
2000 1999
------- -------
Cash flows from operating activities:
Net income ................................................. $22,319 $ 1,952
Adjustments to reconcile net income
to net cash provided ......................................
Depreciation and amortization ........................... 12,678 7,549
Write off of acquired in-process research and development 3,100 --
Deferred income taxes ................................... (394) (222)
Tax benefit from employee stock plans ................... 6,925 --
Minority interest ....................................... (8,609) --
Non-cash compensation ................................... 160 --
Deferred compensation amortization ...................... 3,972 953
loss on disposal of fixed assets ........................ 161 --
Change in operating assets and liabilities:
Accounts receivable, net ............................. (6,350) (6,701)
Inventory, net ....................................... 29 (524)
Prepaid expenses and other current assets ............ (3,865) 3,051
Other assets ......................................... (3,436) (1,311)
Accounts payable ..................................... (2,839) (1,719)
Accrued liabilities .................................. (3,007) 11,115
Unearned revenue ..................................... (404) 1,094
Other long-term liabilities .......................... 485 148
------- -------
Net cash provided by operating activities ........... 20,925 15,385
Cash flows from investing activities:
Capital expenditures ....................................... (33,423) (14,158)
Purchase of short-term investments ......................... (78,685) (77,915)
Maturities and sales of short-term investments ............. 42,393 67,426
Acquisition of Middlesoft, Inc. ............................ (8,469) --
Loans receivable ........................................... (5,250) 1,673
Purchase of strategic investments .......................... (3,463) --
Deposit of restricted cash ................................. (4,520) --
------- -------
Net cash used in investing activities ............... (91,417) (22,974)
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable
convertible preferred stock ............................... -- 16,457
Proceeds from sale of subsidiary preferred stock ........... 9,384 --
Proceeds from issuance of common stock, net ................ 34,556 13,409
Borrowings on capital lease ................................ -- 1,094
Payments on capital lease .................................. -- (325)
Acquisition of treasury stock .............................. -- (8,204)
------- -------
Net cash provided by financing activities ........... 43,940 22,431
(Decrease) increase in cash and cash equivalents ............ (26,552) 14,842
Inclusion of Andromedia's net cash activity for the excluded
three months ended March 31, 1999 ........................... -- (3,826)
------- -------
Total ........................................................ (26,552) 11,016
Cash and cash equivalents, beginning of period ............... 115,084 29,459
------- -------
Cash and cash equivalents, end of period ..................... $88,532 $40,475
======= =======
See accompanying notes to condensed consolidated financial statements.
5
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MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Operations
Macromedia's Software business develops software that creates Web site
layout, graphics and rich media content for Internet users and develops
solutions for analyzing Web traffic and personalizing Web sites. Additionally,
the Company's consumer business, shockwave.com, Inc. (shockwave.com), designs,
develops and markets aggregated content to provide and expand online
entertainment on the Web. Macromedia sells its products through a network of
distributors, value-added resellers (VAR's), its own sales force and Web site,
and to original equipment manufacturers (OEM's) in North America, Europe, Asia
Pacific and Latin America. In addition, Macromedia derives revenues from
advertising on its Web sites, and from software maintenance and technology
licensing agreements. shockwave.com derives revenues from advertising and
sponsorship on its Web site. Macromedia, Inc. and its subsidiaries are
hereinafter collectively referred to as the "Company" or Macromedia.
2. Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements at September 30, 2000 and
March 31, 2000 and for the three and six months ended September 30, 2000 and
1999 are unaudited and reflect all adjustments (consisting only of normal
recurring accruals) that are, in the opinion of management, necessary for a fair
presentation of Macromedia's financial position and operating results for the
interim periods.
In fiscal 2000, Macromedia consummated mergers with Andromedia, Inc. and
ESI Software, Inc., which have been accounted for using the pooling of interests
method, and accordingly, the consolidated financial statements for the prior
periods presented and the accompanying notes have been restated.
These condensed consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all information and notes normally provided in annual financial statements. As a
result, these condensed 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 Macromedia's annual report on Form 10-K for
the fiscal year ended March 31, 2000. The results of operations for the three
and six months ended September 30, 2000 are not necessarily indicative of the
results for the fiscal year ending March 31, 2001 or any other future periods.
3. Acquisitions
On July 10, 2000, the Company acquired Middlesoft, Inc. a software
development company, for approximately $9.0 million. The acquisition was
accounted for under the purchase method. The purchase price of the transaction
was allocated to the acquired assets and liabilities based on their fair values
as of the date of the acquisition. The excess of the consideration paid over the
net assets acquired totaled $8.4 million, of which, $3.1 million was expensed in
the current quarter as acquired in-process research and development and $5.3
million has been recorded as goodwill and other intangible assets which is being
amortized on a straight-line basis over three years. The amounts allocated to
in-process research and development expense were determined through established
valuation techniqures in the high-technology industry and were expensed upon
acquisition because technological feasibility had not been established and no
future alternative uses existed. Research and development costs to bring the
products from the acquired companies to technological feasibility are not
expected to have a material impact on the Company's future results of operations
or financial condition.
6
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4. Investments
The Company holds several strategic equity investments in other companies.
These investments are included in the other long-term assets component of the
condensed consolidated balance sheets. The cost method is used to record these
investments, as the Company holds less than 20% of the voting rights of each of
these investees and does not have the ability to significantly influence the
investees. The Company determines the fair value of the investment based on
current market price, or if the investment is not publicly traded, considers
among other factors, pricing of current financing rounds. As of September 30,
2000, the investment costs approximate their fair values.
5. Earnings Per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) 128, Earnings Per Share. Under the
provisions of SFAS 128, basic net income per share is computed by dividing net
income applicable to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed by dividing net income applicable to common stockholders for
the period by the weighted average number of common shares and potentially
dilutive securities outstanding during the period, to the extent such
potentially dilutive securities are dilutive. Potentially dilutive securities
consist of incremental common shares issuable upon the exercise of stock options
and warrants, restricted stock and upon conversion of Series A and B convertible
preferred stock.
The following table sets forth the reconciliations of the numerator and
denominator used in the computation of basic and diluted net income per share
(in thousands, except per share data):
Three Months Ended Six Months Ended
September 30, September 30,
---------------- ----------------
2000 1999 2000 1999
------- ------- ------- -------
Basic Net Income Per Share Computation
----------------------------------------
Numerator:
Net income ........................... $10,312 $ 225 $22,319 $ 1,952
Accretion of Series C, D and
E mandatorily reedemable convertible
preferred stock ..................... -- (1,017) -- (1,181)
------- ------- ------- -------
Net income (loss) applicable to
common stockholders .............. $10,312 $ (792) $22,319 $ 771
======= ======= ======= =======
Denominator:
Weighted average number of common
shares outstanding .................. 50,504 42,853 49,979 42,463
Basic net income (loss)
applicable to common
stockholders per share ......... $ 0.20 $ (0.02) $ 0.45 $ 0.02
======= ======= ======= =======
Three Months Ended Six Months Ended
September 30, September 30,
---------------- ----------------
2000 1999 2000 1999
------- ------- ------- -------
Diluted Net Income Per Share Computation
----------------------------------------
Numerator:
Net income ........................... $10,312 $ 225 $22,319 $ 1,952
Accretion of Series C, D and
E mandatorily reedemable convertible
preferred stock ..................... -- (1,017) -- (1,181)
------- ------- ------- -------
Net income (loss) applicable to
common stockholders .............. $10,312 $ (792) $22,319 $ 771
======= ======= ======= =======
7
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Denominator:
Weighted average number of common
shares outstanding, basic............. 50,504 42,853 49,979 42,463
Effect of dilutive securities:
Convertible preferred stock and
stock warrants...................... 9 -- 10 976
Stock options and restricted stock... 6,238 -- 6,702 7,100
------- ------- ------- -------
Weighted average number of common shares
outstanding, diluted................... 56,751 42,853 56,691 50,539
======= ======= ======= =======
Diluted net income (loss) applicable to
common stockholders per share.......... $ 0.18 $ (0.02) $ 0.39 $ 0.02
======= ======= ======= =======
The table below presents potentially dilutive securities that are excluded
from the diluted net income per share calculation because their effects would be
antidilutive (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ---------------
2000 1999 2000 1999
------- ------- ------- -------
Preferred stock............... -- 2,390 -- 2,344
Stock options................. 117 109 62 60
------- ------- ------- -------
Total ................... 117 2,499 62 2,404
======= ======= ======= =======
6. Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, which establishes the
standards for the reporting of comprehensive income and its components, requires
unrealized gains and losses on the Company's available-for-sale securities to be
included in other comprehensive income. The only component of the Company's
Other Comprehensive Income is unrealized gains on securities classified as
available-for-sale. The following table sets forth the calculation of
comprehensive income, net of tax (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- ------- -------
Net income.............................. $ 10,312 $ 225 $ 22,319 $ 1,952
Unrealized gains on securities......... 257 122 259 405
-------- -------- ------- -------
Comprehensive income................... $ 10,569 $ 347 $ 22,578 $ 2,357
======== ======= ======== ========
7. Minority Interest
At September 30, 2000 the Company had an approximate ownership of 57% in
shockwave.com. Minority interest represents the preferred and common
stockholders' proportionate share of the equity of shockwave.com. The results of
our majority ownership in shockwave.com are included in Macromedia's
consolidated financial statements. The non-controlling interest of $16.2 million
is reflected in Minority interest in the Consolidated Balance Sheets and the
loss attributable to the non-controlling interest in shockwave.com for the three
and six months ended September 30, 2000 was $4.7 million and $8.6 million.
Should the Company's ownership of shockwave.com fall below 50%, potential
deconsolidation may occur, at which time the Company would account for its
proportionate ownership share of shockwave.com's results of operations using the
equity method of accounting.
8. 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
due to the utilization of research and experimentation tax credits, and foreign
operating results, which are taxed at rates lower than the U.S. statutory rate.
The effective rate used for the three and six months ended September 30, 2000 on
operations was 28% and 26%, respectively.
8
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9. Segments of an Enterprise and Related Information
Macromedia has two operating segments: Software and shockwave.com. The
Software segment develops software that creates Web site layout, graphics and
rich media content for Internet users and develops solutions for analyzing Web
traffic and personalizing Web sites. shockwave.com designs, develops and markets
aggregated content to provide online entertainment on the Web. The Company
evaluates operating segment performance based on net revenues and total
operating expenses of the segment. The operating segments' accounting policies
are the same as those described in the summary of significant accounting
policies in the Company's annual report on Form 10-K for the year ended March
31, 2000. The Company had intersegment transactions of $840,000 and $1.8 million
for the three and six months ended September 30, 2000, respectively, which
represent royalty revenues paid by shockwave.com. These revenues are eliminated
in the Company's consolidation process. The Company did not have any material
intersegment transactions for the three or six months ended September 30, 1999.
At September 30, 1999 the Company did not allocate assets to shockwave.com and
currently considers it impracticable to do so. Information about reported
segment income or loss for the three and six months ended September 30, 2000 and
1999 is as follows (in thousands):
shockwave-
Three Months Ended September 30, 2000 Software .com Total
-------------------------------------- ---------- ---------- ----------
Revenues.............................. $ 98,049 $ 4,372 $ 102,421
Cost of revenues...................... 11,947 442 12,389
---------- ---------- ----------
Gross profit........................ 86,102 3,930 90,032
---------- ---------- ----------
Direct operating expenses............. 65,841 12,481 78,322
Acquisition related expenses and
certain non-cash charges............ 3,818 2,100 5,918
---------- ---------- ----------
Total operating income (loss)...... $ 16,443 $ (10,651) $ 5,792
========== ========== ==========
Total assets.......................... $ 356,666 $ 46,024 $ 402,690
========== ========== ==========
shockwave-
Three Months Ended September 30, 1999 Software .com Total
------------------------------------- ---------- ---------- ----------
Revenues............................. $ 57,821 $ 1,492 $ 59,313
Cost of revenues..................... 5,662 267 5,929
---------- ---------- ----------
Gross profit....................... 52,159 1,225 53,384
---------- ---------- ----------
Direct operating expenses............ 41,007 5,207 46,214
Acquisition-related expenses and
certain non-cash charges........... 5,914 -- 5,914
---------- ---------- ----------
Total operating income (loss)..... $ 5,238 $ (3,982) $ 1,256
========== ========== ==========
Total assets...................... $ 234,792 $ -- $ 234,79
========== ========== ==========
shockwave-
Six Months Ended September 30, 2000 Software .com Total
------------------------------------- ---------- ---------- ----------
Revenues.............................. $ 188,362 $ 8,823 $ 197,185
Cost of revenues...................... 21,417 1,083 22,500
---------- ---------- ----------
Gross profit........................ 166,945 7,740 174,685
---------- ---------- ----------
Direct operating expenses............. 126,536 24,488 151,024
Acquisition-related expenses and
certain non-cash charges............ 5,942 3,889 9,831
---------- ---------- ----------
Total operating income (loss)...... $ 34,467 $ (20,637) $ 13,830
========== ========== ==========
shockwave-
Six Months Ended September 30, 1999 Software .com Total
------------------------------------- ---------- ---------- ----------
Revenues.............................. $ 107,912 $ 2,633 $ 110,545
Cost of revenues...................... 11,054 629 11,683
---------- ---------- ----------
Gross profit........................ 96,858 2,004 98,862
---------- ---------- ----------
Direct operating expenses............. 79,473 8,817 88,290
Acquisition related expenses and
certain non-cash charges............ 6,419 -- 6,419
---------- ---------- ----------
Total operating income (loss)...... $ 10,966 $ (6,813) $ 4,153
========== ========== ==========
9
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A reconciliation of the totals reported for the combined operating segments
to the applicable line items in the consolidated financial statements for the
three and six months ended September 30, 2000 and 1999 is as follows (in
thousands):
Three months ended Six months ended
September 30, September 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
Total operating income from operating
from segments $ 5,792 $ 1,256 $13,830 $ 4,153
Other income ........................ 3,931 1,040 7,564 2,391
Minority interest ................... 4,687 -- 8,609 --
------- ------- ------- -------
Income before taxes ................. $14,410 $ 2,296 $30,003 $ 6,544
======= ======= ======= =======
10
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MACROMEDIA, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In addition to historical information, this Quarterly Report on Form 10-Q
contains forward-looking statements such as statements of our expectations,
plans, objectives and beliefs. These forward-looking statements are subject to
material risks and uncertainties discussed in this Form 10-Q, including those
set forth under Risk Factors That May Affect Future Results of Operations. As a
result, our actual results could differ materially from those described in the
forward-looking statements.
Results of Operations
Overview
Macromedia has two operating segments: Software and shockwave.com. The
Software segment develops software and server technologies that create Web site
layout, graphics and rich media content for Internet users and develops
solutions for analyzing Web traffic and personalizing Web sites. shockwave.com
designs, develops and markets aggregated content to provide online entertainment
on the Web. We evaluate operating segment performance based on net revenues and
total operating expenses of the segment. The operating segments' accounting
policies are the same as those described in the summary of accounting policies
in the annual report on Form 10-K for the year ended March 31, 2000. For the
three months ended September 30, 2000, the Software business' operating income
before acquisition related charges and certain non-cash charges approximates
$20.3 million, or 21% of revenues, whereas shockwave.com's operating losses
approximates $8.6 million or 196% of revenues.
The following table sets forth certain financial data as a percentage of
revenues for the three months ended September 30, 2000 and 1999:
Consolidated Software shockwave.com
------------- ------------- -------------
2000 1999 2000 1999 2000 1999
----- ----- ----- ----- ----- -----
Revenues ........................ 100% 100% 100% 100% 100% 100%
Cost of revenues ................ 12 10 12 10 10 18
----- ----- ----- ----- ----- -----
Gross profit ........... 88 90 88 90 90 82
----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing ........ 38 43 36 40 88 162
Research and development ... 29 26 23 22 157 187
General and administrative . 10 9 8 9 41 --
Acquisition-related expenses 3 9 3 9 -- --
Non-cash compensation ...... 2 1 -- 1 47 --
Amortization of intangibles 1 -- 1 -- 1 --
----- ----- ----- ----- ----- -----
Total operating expenses 82 88 71 81 334 349
----- ----- ----- ----- ----- -----
Operating income ................ 6 2 17 9 (244) (267)
----- ----- ----- ----- ----- -----
Other income, net ............... 4 2 4 2 7 --
Minority interest ............... 5 -- -- -- 107 --
----- ----- ----- ----- ----- -----
Income before income taxes ...... 14 4 20 11 (129) (267)
Provision for income taxes ...... 4 3 4 4 -- --
----- ----- ----- ----- ----- -----
Net income (loss) ..... 10 -- 16 7 (129) (267)
===== ===== ===== ===== ===== =====
Revenues. We sell our products through a network of distributors,
value-added resellers (VAR's), our own sales force and Web site, and to
original equipment manufacturers (OEM's) in North America, Europe, Asia Pacific
and Latin America. In addition, we derive revenues from advertising and
sponsorships on our Web sites, and from software maintenance and technology
licensing agreements.
Consolidated revenues have increased $43.1 million or 73% for the three
months ended September 30, 2000 compared to the three months ended September 30,
1999. Revenues generated by the Software segment have grown by $40.2 million, to
$98.0 million for the current quarter from $57.8 million in the second quarter
of fiscal year 2000. The majority of the increase is attributable to an increase
in sales of the Flash, Dreamweaver, Dreamweaver
11
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UltraDev and Fireworks products. Included in our consolidated revenue is
$4.4 million and $1.5 million of shockwave.com revenues for the three months
ended September 30, 2000 and 1999, respectively. The increase in shockwave.com
revenues is due to an increase in advertising and sponsorship revenue resulting
from a higher volume of advertising traffic and new revenue streams, mainly
sponsorship revenues. For the six months ended September 30, 2000 compared to
September 30, 1999, consolidated revenues increased $86.6 million or 78%
primarily due to increased in sales from the Dreamweaver, Flash, Dreamweaver
UltraDev and Fireworks products.
North American revenues have increased $25.1 million to $62.0 million in
the second quarter of fiscal year 2001 from $36.9 million in the second quarter
of fiscal year 2000. International revenues increased $18.0 million to $40.4
million when comparing the same time periods. (See Risk Factors That May Affect
Future Results of Operations - Risks of International Operations for additional
information.) The following table summarizes revenue by geography (in millions,
except percentages):
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 % change 2000 1999 % change
-------- -------- -------- -------- -------- --------
North America.........$ 62.0 $ 36.9 68% $ 116.8 $ 67.3 74%
% of total revenues.. 61% 62% 59% 61%
International....... $ 40.4 $ 22.4 80% $ 80.4 $ 43.2 86%
% of total revenues 39% 38% 41% 39%
-------- -------- -------- -------- -------- --------
Total revenues.... $ 102.4 $ 59.3 73% $ 197.2 $ 110.5 78%
======== ======== ======== ======== ======== ========
Gross profit. Gross profit on a consolidated basis was $90.0 million for
the second quarter of fiscal year 2001, up 69% from the prior year, primarily
due to increased revenues from our Software segment Gross profit as a percentage
of revenue for the Software segment for the three months ended September 30,
2000 declined slightly to 88% compared to a gross profit percentage of 90% for
the three months ended September 30, 1999. The slight decline is primarily due
to increased consulting and training costs. Gross profit as a percentage of
revenues for shockwave.com was 90% for the three months ended September 30, 2000
compared to 82% for the same three months in fiscal year 2000. The increase in
the shockwave.com gross profit is primarily due to a shift in distribution for
our advertising costs from indirect sales in fiscal year 2000 to direct sales by
our in-house sales force for the current fiscal year. When comparing the six
months ended September 30, 2000 to September 30, 1999, gross profit on a
consolidated basis increased $75.8 million or 77% to $174.7 million, consistent
with revenue growth.
Sales and marketing. Sales and marketing expenses on a consolidated basis
have increased by $13.6 million to $39.2 million. The Software segment's sales
and marketing expenses increased by $12.2 million to $35.3 million and
shockwave.com's increased by $1.4 million to $3.9 million from the three months
ended September 30, 1999. The increase from the second quarter of fiscal year
2000 for the Software segment is primarily due to expenses related to headcount
growth, facilities charges due to the need for increased physical space to
accommodate the headcount growth, information technology infrastructure costs,
and business taxes based on increased headcount. The increase in shockwave.com's
sales and marketing expenses is a result of the Direct Mail e-mail program
initiated in fiscal year 2001, increased headcount and growth of information
technology infrastructure costs. For the six months ended September 30, 2000,
consolidated sales and marketing expenses increased $29.2 million to $78.1
million primarily due to costs associated with headcount growth and increased
facilities and information technology infrastructure costs.
Research and development. Research and development expenses on a
consolidated basis have increased $14.0 million from $15.3 million in the second
quarter of fiscal year 2000 to $29.4 million in the second quarter of fiscal
year 2001. Research and development expenses for the Software segment have
increased $10.0 million during this time frame to $22.5 million. The increase is
attributable to headcount growth, increased information technology
infrastructure costs, increases in facilities charges to accommodate the
headcount growth, and license fees associated with purchased technology.
Similarly, shockwave.com's research and development expenses have increased to
$6.9 million for the three months ended September 30, 2000, representing a $4.1
million increase from the second quarter of fiscal 2000. Research and
development expenses for the shockwave.com segment have increased in absolute
dollars largely due to headcount growth and the resulting increases in
compensation and benefits and information technology infrastructure costs, as
well as increased costs for the development of entertainment content. On a
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consolidated basis, research and development expenses have increased $26.0
million to $54.3 million compared to the six months ended September 30, 2000 to
the six months ended September 30, 1999.
General and administrative. General and administrative expenses on a
consolidated basis have increased in absolute dollars by $4.5 million, from $5.3
million for the second quarter of fiscal 2000 to $9.8 million for the second
quarter of fiscal year 2001. General and administrative expenses for the
Software segment have increased $2.7 million to $8.0 million when comparing the
quarter ended September 30, 2000 to the quarter ended September 30, 1999. The
increase is due primarily to headcount growth, increased charges for facilities
and information technology and increased legal charges. shockwave.com incurred
$1.8 million in general and administrative expenses in the second quarter of
fiscal year 2001 resulting from the segment performing administrative functions
that it did not perform in fiscal year 2000. Comparing consolidated results for
the six months ended September 30, 2000 to the same time frame for fiscal year
2000, general and administrative expenses increased $7.6 million to $18.7
million.
Acquisition-related expenses. During the three months ended September 30,
2000 we purchased all of the outstanding stock of Middlesoft, Inc. for
approximately $9.0 million. Of this amount, $3.1 million was determined to be
in-process research and development for certain intellectual property. This
intellectual property is being utilized in the research and development of
specific products and we have determined that the technology does not have any
alternative future uses. As a result, the amount paid for the technology was
expensed as acquisition-related expenses in the quarter ended September 30,
2000. For the three months ended September 30, 1999, we recorded $5.3 million in
acquisition related expenses, primarily related to our fiscal year 2000
acquisitions of technology rights and the acquisition of ESI Software, Inc.
Comparing the six months ended September 30, 2000 to September 30, 1999,
acquisition-related expenses decreased by $486,000 to $4.8 million.
Non-cash compensation. We recorded non-cash compensation charges of $2.2
million for the three months ended September 30, 2000, a $1.8 million increase
from the same period in the prior year. The increase is primarily due to the
issuance of shockwave.com warrants and the continued amortization of the
deferred compensation associated with previously granted shockwave.com options.
shockwave.com issued options to employees that had, for accounting purposes, an
exercise price less than the fair value of the underlying common stock at the
date of grant. Additionally, shockwave.com issued warrants in connection with
certain content development agreements entered into with non-employees. We will
continue to incur expenses associated with the amortization of deferred
compensation from the granting of options.
Amortization of intangibles. Amortization of intangible assets increased
$356,000 and $415,000 when comparing the three and six months ended September
30, 2000 to the same period in 1999. Amortization of intangible assets consists
primarily of goodwill and other intangibles resulting from purchase
transactions, as well as trademarks.
Other income. Other income on a consolidated basis has increased $2.9
million to $3.9 million when comparing the second quarter of fiscal year 2001 to
the same period in fiscal year 2000. Other income has increased primarily due to
interest and investment income recorded in fiscal year 2001. Other income for
both periods include investment gains and interest income and gains or losses on
foreign exchange contracts.
Provision for income taxes. The provision for income taxes for the second
quarter of fiscal year 2001 increased $2.0 million when compared to the second
fiscal quarter of 2000. The effective tax rate on operations for the current
quarter's provision is 28%. The decrease in the effective tax rate for the
current quarter reflects the impact of the ESI, Software Inc. acquisition on the
tax rate for the second quarter of fiscal year 2000, utilization of research and
experimentation tax credits and foreign operating results that were taxed at
rates lower than the U.S. statutory rate for the second quarter of fiscal year
2001.
Liquidity and Capital Resources
At September 30, 2000, we had cash, cash equivalents and short-term
investments of $197.0 million. For the six months ended September 30, 2000, cash
provided by operating activities of $20.9 million was primarily attributable to
net income. This was partially offset by a minority interest in shockwave.com,
and an increase in working capital. Cash used in investing activities of $91.4
million was used primarily for the net increase in our short-term investments,
infrastructure growth, for the acquisition of Middlesoft, Inc., and for the
issuance of related party loans
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for the exercise of shockwave.com stock options. Cash provided by financing
activities of $43.9 million is primarily from the exercise of common stock
options and issuance of shockwave.com preferred stock. Collectively, the above
activity contributed to a net increase of $10.0 million from the March 31, 2000
cash, cash equivalents and short-term investments balances. Working capital
increased by $26.0 million from the March 31, 2000 balance of $182.2 million, to
$208.1 million at September 30, 2000. During the first six months of fiscal year
2001, we made investments in property and equipment of $33.4 million. We
anticipate future capital expenditures of approximately $25.0 million for the
remainder of fiscal year 2001.
We have non-current cash of approximately $4.5 million that is restricted
as to its use. The restrictions on these funds concern security deposits on a
lease of real property. These funds cannot be withdrawn without the written
consent of the landlord or until such time that the amount of security deposit
is reduced pursuant to the terms of the lease.
We believe that existing cash, cash equivalents and investments, together
with cash generated from operations, will be sufficient to meet our operating
requirements through at least September 30, 2001.
Recent Accounting Pronouncements
SFAS 133. In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes accounting and reporting standards for
derivative financial instruments and hedging activities and requires Macromedia
to recognize all derivatives as either assets or liabilities on the balance
sheet and measure them at fair value. Gains and losses resulting from changes in
the fair value of these instruments would be accounted for depending on the use
of the derivative and whether it is designated and qualifies as an effective
hedge under hedge accounting rules. In June 1999 the FASB issued SFAS 137, which
defers the implementation of SFAS 133 and is effective for all quarters of
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
138, which amends SFAS 133 with regards to specific hedging risks,
foreign-currency-denominated assets and liabilities, and intercompany
derivatives. Macromedia has not completed an assessment of the impact, if any,
of SFAS 133 on the consolidated results of operations and financial position,
but does not expect the adoption of SFAS 133 to have a material effect on its
consolidated financial statements.
SAB 101. In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. In June 2000, the SEC issued SAB No. 101B to defer the effective
date of implementation of SAB No. 101 until the fourth quarter of fiscal 2000.
Macromedia does not expect the adoption of SAB 101 to have a material effect on
its financial position or results of operations.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Except for the historical information contained in this Quarterly Report,
the matters discussed herein are forward-looking statements that involve risks
and uncertainties, including those detailed below, and from time to time in our
other reports filed with the Securities and Exchange Commission. The actual
results that we achieve may differ materially from any forward-looking
statements due to such risks and uncertainties.
Intense Competition -- The markets for our products are highly competitive
and characterized by pressure to reduce prices, incorporate new features, and
accelerate the release of new product versions and enhanced services. A number
of companies currently offer products and services that compete directly or
indirectly with one or more of our products. With respect to our Software
business, competitors include, among others, Adobe Systems, Inc., Corel
Corporation, Accrue Software, Inc. and Net Perceptions, Inc. As we compete with
larger competitors such as Adobe across a broader range of product lines and
different platforms, we may face increasing competition from such companies. In
addition, shockwave.com competes with a number of other Internet community,
gaming and entertainment sites, including Disney.com, Gamesville.com, AOL.com,
and Yahoo.com. Many of these businesses are much larger than shockwave.com, and
have more resources devoted to these business efforts. It is anticipated that
shockwave.com will face competition from these and other Web sites for both
consumers and for advertising and other future revenue sources on which the
future success of the shockwave.com is dependent.
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Rapidly Changing Technology -- The developing digital media, Internet and
online services markets, and the personal computer industry are characterized by
rapidly changing technology, resulting in short product life cycles and rapid
price declines. We must continuously update our existing products, services and
content to keep them current with changing technology and consumer tastes and
must develop new products, services and content to take advantage of new
technologies and consumer preferences that could render our existing products
obsolete. Our future prospects are highly dependent on our ability to increase
functionality of existing products and services in a timely manner and to
develop new products and services 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 we will be successful
in these efforts.
The success of our Software and shockwave.com businesses is especially
dependent upon the existence and future growth of the Internet as a business,
entertainment and communications platform. Many critical issues concerning the
commercial use of the Internet , such as security, remain unresolved and may
affect the growth of Internet use, together with the software standards employed
in such markets. A decline in the growth of the Internet or any inability by us
to adapt to changes in the Internet or the technology used for operation of the
Internet could have a material adverse effect on our results of operations.
Fluctuations of Operating Results; Product Introduction Delays -- Our
quarterly operating results may vary significantly depending on the timing of
new product introductions and enhancements. A substantial portion of our revenue
is derived from the introduction of new products or enhancements to existing
products. We have in the past experienced delays in the development of new
products and enhancement of existing products, and such delays may occur in the
future. In addition, we have limited experience with the eBusiness software
products market. If we are unable, due to resource constraints or technological
or other reasons, to develop and introduce products in a timely manner, this
inability could have a material adverse effect on our results of operations. If
we do not ship new versions of our products as planned, or if new products do
not receive market acceptance, our results of operations could be materially
adversely affected.
Our results of operations also may vary significantly depending on the
impact of any of the following: the timing of product and service introductions
by competitors, changes in pricing, execution and volume of technology licensing
agreements, the volume and timing of orders received during the quarter for
software products, expenses related to the expansion of shockwave.com, and
finally, any acquisitions of other companies or technologies. Our future
operating results may fluctuate as a result of these and other factors,
including our ability to continue to develop or acquire innovative products and
services, our product, service, and customer mix, and the level of competition.
Our results of operations may also be affected by seasonal trends. A significant
portion of our operating expenses is relatively fixed, and planned expenditures
are based primarily on sales forecasts. As a result, if revenues do not meet our
forecasts, operating results may be materially adversely affected. There can be
no assurance that sales of our existing products will either continue at
historical rates or increase, or that new products introduced by us, whether
developed internally or acquired, will achieve market acceptance. Our historical
rates of growth should not be taken as being indicative of growth rates that can
be expected in the future.
Unproven Business Model -- The shockwave.com business model depends upon
the ability to leverage shockwave.com's existing and future Web traffic and
consumer audience to grow revenues and in the future, generate multiple revenue
streams. The potential profitability of this business model is unproven, and to
be successful, we must, among other things, develop and market content that
achieves broad market acceptance by the user community, Internet advertisers and
commerce vendors. There can be no assurance that the shockwave.com business will
be able to effectively implement this business model, and even if the
implementation is successful, there can be no assurance that the business model
will prove to be able to generate and sustain revenue growth or generate
significant profits, if any. Furthermore, for the foreseeable future, we
anticipate that the shockwave.com business will require significant
expenditures, particularly related to sales and marketing and brand promotion,
and that such expenditures may or may not result in revenue growth. In addition
to the foregoing, the shockwave.com business will depend in part on success in
building strategic alliances with other Internet and media companies in order to
be able to grow the user base and to provide compelling content to attract and
maintain the user base. There can be no assurances that such alliances can be
created or maintained over an extended period of time.
Dependence on Distributors -- A substantial majority of our revenue is
derived from the sale of our software products through a variety of distribution
channels, including traditional software distributors, mail order,
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educational distributors, VARs, OEMs, hardware and software superstores,
retail dealers, and our direct sales force and Website. Domestically, our
products are sold primarily through distributors, VARs, and OEMs. In particular,
one distributor accounted for 28% and 30% of revenues for the three months
ending September 30, 2000 and 1999. In addition, we believe that certain
distributors are reducing their inventory in the channel and returning unsold
products to better manage their inventories. Distributors are increasingly
seeking to return unsold product, particularly when a new version or upgrade of
a product has superseded such products. If our distributors seek to return
increasing amounts of products, such returns could have a material adverse
effect on our revenues and results of operations. The loss of, or a significant
reduction in sales volume to, a significant reseller could have a material
adverse effect on our results of operations.
Risks of International Operations -- For the three months ended September
30, 2000 we derived approximately 39% of our revenues from international sales.
For the six months ended September 30, 2000, we derived approximately 41% of our
revenues from international sales. We expect that international sales will
continue to represent a significant percentage of our revenues. We rely
primarily on distributors for sales of our software products in foreign
countries and, accordingly, are dependent on their ability to promote and
support our software 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 our control.
Additionally, we are uncertain whether the recent weaknesses experienced in the
economies in Japan, Asia Pacific, and Latin America will continue in the
foreseeable future due to possible currency devaluation and liquidity problems
in these regions.
We enter 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 September 30, 2000, the notional
principal of forward contracts outstanding amounted to $42.4 million. There can
be no assurance that such contracts will adequately hedge our exposure to
currency fluctuations.
Euro Currency -- On January 1, 1999, eleven of the fifteen member countries
of the European Union adopted the Euro as the common legal currency and
established fixed rates of conversion between their existing sovereign
currencies and the Euro. The Euro trades on currency exchanges and is available
for non-cash transactions. A three-year transition period is underway during
which transactions can be made in the existing sovereign currencies. The
conversion to the Euro has alleviated currency exchange risk between the member
counties.
There can be no assurance that all issues related to the Euro conversion
have been identified, and we may be at risk if any of our principal suppliers
are unable to deal with the impact of the Euro conversion. To date, none of our
international suppliers have expressed an intention to invoice in Euros.
Risk Associated with Acquisitions -- We have grown in part because of
business combinations with other companies and we may make further acquisitions
in the future. Acquisitions involve significant risks including difficulties in
the assimilation of the operations, services, technologies and corporate culture
of the acquired companies, diversion of management's attention from other
business concerns, overvaluation of the acquired companies and the acceptance of
the acquired companies' products and services by our customers. In addition,
future acquisitions would likely result in the incurrence of dilution, if stock
is issued, or debt and contingent liabilities and an increase in amortization
expenses related to goodwill and other intangible assets, which could have a
material adverse effect on our financial condition, results of operations and
liquidity. For all these reasons, any future acquisitions or failure to
effectively integrate acquired companies could result in a material adverse
effect on our results of operations.
Management of Growth -- Both our Software business and shockwave.com
business have experienced and may continue to experience rapid growth, which has
placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. Our workforce has grown more than 70% over
the past year. We expect that the number of our employees will continue to
increase for the foreseeable future. We anticipate that we will need to
implement a variety of new and upgraded operational and financial systems,
procedures and controls, including the ongoing improvement of our accounting and
other internal management systems. We also will need to
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continue to expand, train, manage, retain and motivate our workforce. All
of these endeavors will require substantial management effort and resources. In
the future, we anticipate that we will need to continue the expansion of our
facilities or relocate some or all of our employees or operations from time to
time to support our growth. These relocations could result in temporary
disruptions of our operations or a diversion of management's attention and
resources. If we are unable to effectively manage expanding operations, our
business, financial condition and results of operations could be materially and
adversely affected.
Volatility of Stock -- Our future earnings and stock price may be subject
to significant volatility. 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 our common stock in any given period.
Additionally, we 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 our common stock. Finally, we participate in a highly dynamic
industry. In addition to factors specific to us, changes in analysts' earnings
estimates for us or our industry and factors affecting the corporate
environment, our industry, or the securities markets in general will often
result in significant volatility of our common stock price.
Intellectual Property Rights -- We rely on a combination of patents,
copyrights, trade secrets, and trademark laws, as well as employee and
third-party nondisclosure agreements, to protect our intellectual property
rights and products. Policing unauthorized use of products and fully protecting
our proprietary rights are difficult, and we cannot guarantee that the steps we
have taken to protect our proprietary rights will be adequate. In addition,
effective copyright, trademark, trade secret and patent protection may not be
available in every country in which our products are distributed.
Furthermore, we are currently, and may in the future, be involved in legal
disputes relating to the validity or alleged infringement of our, or of a third
party's, intellectual property rights. Intellectual property litigation is
typically extremely costly and can be disruptive to our business operations by
diverting the attention and energies of our management and key technical
personnel. In addition, any adverse decisions could subject us to significant
liabilities, require us to seek licenses from others, prevent us from
manufacturing or licensing certain of our products, or cause severe disruptions
to our operations or the markets in which we compete, any one of which could
dramatically impact our business and results of operations.
Macromedia Ventures Investments -- Through Macromedia Ventures, we invest a
substantial amount of capital and time on finding, funding, and helping to
develop certain privately held companies, many of which can be considered in the
start-up or development stages. These investments are inherently risky as the
market for the technologies or products they have under development are
typically in the early stages and may never materialize. Therefore, we could
lose our entire investment, or a substantial portion thereof, in one or more of
these companies.
Generally Accepted Accounting Principles - We prepare our financial
statements in conformity with generally accepted accounting principles (GAAP).
GAAP are subject to interpretation by the American Institute of Certified Public
Accountants, the Securities and Exchange Commission, and various bodies formed
to interpret and create appropriate accounting policies. A change in these
policies can have a significant effect on our reported results, and may affect
the reporting of transactions completed prior to the announcement of a change.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Please refer to our market risk disclosures set forth in our 2000 Annual
Report filed on Form 10-K for a more detailed discussion of quantitative and
qualitative disclosures about market risk. Our market risk exposure has not
changed significantly since the time we included the disclosures in our 2000
Annual Report on Form 10-K.
PART II. OTHER INFORMATION
Item 1. Legal Matters
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
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or misleading (or omitted material facts necessary to make any statements
made not false or misleading) regarding the Company's financial results and
prospects. Four similar complaints by persons seeking to represent the same
class of purchasers subsequently have been filed in San Francisco Superior
Court, and have been consolidated for pre-trial purposes with Rosen. Defendants
filed demurrers to the complaint and other motions, which were argued on
December 9, 1997 and January 5, 1998. Before the demurrers could be heard, one
defendant, Richard Wood, died in an automobile accident. In March 1998, the
Court sustained the demurrers as to claims against Susan Bird and overruled the
demurrers as to Macromedia, John Colligan, James Von Ehr, II, and Kevin Crowder.
In May 1999, the Court granted plaintiffs' motion for certification of a class
of all persons who purchased Macromedia common stock from April 18, 1996 through
January 9, 1997. Trial has been set for September 10, 2001.
The consolidated complaint seeks damages in unspecified amounts, as well as
other forms of relief. We believe the complaint is without merit and intend to
vigorously defend the action.
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. A consolidated complaint was filed in February 1998. Defendants
moved to dismiss that complaint on the grounds that plaintiffs' claims were
barred by the applicable statute of limitations. In May 1998, the United States
District Court for the Northern District of California granted defendants'
motion to dismiss with prejudice, and entered judgment in favor of defendants.
Plaintiffs have appealed to the United States Court of Appeals for the Ninth
Circuit, which reversed on April 21, 2000 and remanded the action to the
District Court for further proceedings. On July 7, 2000, the District Court
granted the plaintiff's motion to voluntarily dismiss the action without
prejudice.
On August 10, 2000, a complaint entitled Adobe Systems, Inc. v. Macromedia,
Inc. (Case No. 00-743-JJF) was filed in the United States District Court for the
District of Delaware and on September 18, 2000, Adobe filed a first amended
complaint in the same action. In the first amended complaint, Adobe alleges
infringement of U.S. Patent No. 5,546,528 by tabbed palette features of certain
Macromedia products and infringement of U.S. Patent No. 6,084,597 by image
rendering features of Macromedia Dreamweaver and Macromedia Flash products. On
September 27, 2000, Macromedia answered the first amended complaint by denying
the allegations and filing counterclaims against Adobe for infringement of three
Macromedia patents. In particular, Macromedia alleges infringement of U.S.
Patent No. 5,467,443 by changing blended elements and automatic re-blending of
elements features of Adobe Illustrator product and U.S. Patents Nos. 5,151,998
and 5,204,969 by visually displaying and editing sound waveforms features of
Adobe Premiere product. On October 17, 2000, Adobe filed its answer denying the
allegations in Macromedia's counterclaims. Each party is seeking to enforce its
patents and to receive monetary damages for infringement of its patents.
Further, each party is seeking a court declaration that it is not infringing the
other party's patents and an award of attorneys fees.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The following proposals were submitted to a vote of, and adopted by,
stockholders at the 2000 Annual Meeting of Stockholders on August 11, 2000:
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1. Stockholders approved the proposal to elect six (6) directors for
one-year terms. The vote tabulation for individual directors is as follows:
Director Votes For Votes Withheld
--------------------------- ---------- --------------
Robert K. Burgess.......... 43,413,616 166,064
John (Ian) Giffen.......... 42,946,020 633,660
Mark D. Kvamme............. 43,403,805 175,875
Donald L. Lucas............ 43,409,454 170,226
Alan Ramadan 43,413,400 166,280
William B. Welty........... 43,413,246 166,434
2. Stockholders adopted the proposal to amend Macromedia's Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 80,000,000 shares to 200,000,000 shares by a vote of
38,854,573 for and 4,670,498 against with 54,609 abstentions and no broker
non-votes.
3. Stockholders adopted the proposal to amend Macromedia's 1992 Equity
Incentive Plan to increase the number of shares of Common Stock reserved for
issuance from 15,400,000 shares to 17,600,000 shares by a vote of 27,278,872 for
and 16,219,517 against with 81,291 abstentions and no broker non-votes.
4. Stockholders adopted the proposal to amend Macromedia's 1993 Employee
Stock Purchase Plan to increase the number of shares of Common Stock reserved
for issuance from 800,000 shares to 1,150,000 shares by a vote of 42,099,629 for
and 1,400,503 against with 79,548 abstentions and no broker non-votes.
5. Stockholders adopted the proposal to ratify the selection of KPMG LLP as
Macromedia's independent auditors to perform the audit of Macromedia's financial
statements for fiscal 2001 by a vote of 43,521,967 shares for and 13,181 shares
against with 44,532 abstentions and no broker non-votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE
2.01 Amended and Restated Agreement and Plan of Reorganization by and among
Registrant, ESI Software, Inc. and Dynamo Acquisition Corp. dated July
8, 1999 as amended August 30, 1999. (a)
2.02 Amended and Restated Agreement and Plan of Reorganization by and among
Registrant, Andromedia, Inc. and Peak Acquisition Corp. dated October
6, 1999 as amended November 23, 1999. (b)
3.01 Registrant's Amended and Restated Certificate of Incorporation. (c)
3.02 Certificate of Amendment of Registrant's Amended and Restated
Certificate of Incorporation. (d)
3.03 Certificate of Amendment of Registrant's Amended and Restated
Certificate of Incorporation. (*)
3.04 Registrant's Bylaws. (e)
3.05 Amendment to Registrant's Bylaws effective October 15, 1993. (e)
10.01 1992 Equity Incentive Plan and related documents, as amended to date.
(p)
10.02 1993 Directors Stock Option Plan and related documents, as amended
to date. (f)
10.03 Non-Plan Form Agreements. (j)
10.04 Registrant's Form of Non-Plan Stock Option Grant. (l)
10.05 ESI Software, Inc. 1996 Equity Incentive Plan. (l)
10.06 Registrant's 1999 Stock Option Plan. (p)
10.07 Andromedia, Inc. 1996 Stock Option Plan. (m)
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10.08 Andromedia, Inc. 1997 Stock Option Plan. (m)
10.09 Andromedia, Inc. 1999 Stock Option Plan. (m)
10.10 Middlesoft, Inc. 1999 Stock Option Plan. (p)
10.11 Form of Indemnification Agreement entered into by Registrant with
its directors and executive officers. (e)
10.12Twelfth Amendment to Lease Agreement by and between Registrant and
Toda Development, Inc. dated November 26, 1996 and Thirteenth
Amendment to Lease Agreement by and between Registrant and Toda
Development, Inc. dated February 25, 1997 and Fourteenth Amendment to
Lease Agreement by and between Regi9strant and Toda Development, Inc.
dated February 25, 1997. (g)
10.13 Employment Agreement between the Registrant and Robert K. Burgess
dated August 25, 1996. (h)
10.14 Loan Agreement between Registrant and Brian and Sharon Allum, dated
July 15, 1997. (i)
10.15 Loan Agreement between Registrant and Steven A. and Nancy M. Elop,
dated April 24, 1998. (k)
10.16 Lease Agreement by and between Registrant and Zoro LLC, dated April
15, 1999. (n)
10.17 First Amendment to Lease agreement by and between Registrant and Zoro
LLC, dated July 1, 1999. (n)
10.18 Lease Agreement by and between Registrant and Oelsner Commercial
Properties, dated February 28, 2000. (n)
10.19 Employment Agreement between the Registrant and Brian Allum dated
July 22, 1997. (n)
10.20 Built-to-suit lease, dated April 20, 2000 between the Registrant,
Kaufman Family Partnership, Ronald H.Kaufman and Barbara Kaufman. (o)
27.01 Financial Data Schedule. (*)
(a) Incorporated by reference to the Registrant's Current Report on Form
8-K/A filed on October 26, 1999.
(b) Incorporated by reference to the Registrant's Current Report on Form
8-K/A filed February 14, 2000.
(c) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (Registration Statement No. 33-89092).
(d) Incorporated by reference to the Registrant's Amendment No. 1 to
Registration Statement on Form 8-A filed on October 5, 1995.
(e) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Registration Statement No. 33-70624).
(f) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 filed on September 24, 1998 (Registration Statement No.
333-64141).
(g) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1997.
(h) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1996.
(i) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997.
(j) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 filed on October 31, 1997 (Registration Statement No.
333-39285).
(k) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998.
(l) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 filed on October 18, 1999 (Registration Statement No.
333-89247).
(m) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 filed on December 07, 1999 (Registration Statement No.
333-92233).
(n) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 2000.
(o) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2000.
20
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(p) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 filed on August 17, 2000 (Registration Statement No.
333-44016).
(*) Filed herewith.
(b) Reports on Form 8-K:
None.
21
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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.
Date: November 13, 2000 By: /s/ Elizabeth A. Nelson
-----------------------------
Elizabeth A. Nelson
Executive Vice President and
Chief Financial Officer, and Secretary
(Principal Accounting Officer and
Duly Authorized Officer)
22
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