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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended March 31, 1996; or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _____.
COMMISSION FILE NO. 0 - 22688
MACROMEDIA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94 - 3155026
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
600 TOWNSEND STREET, SAN FRANCISCO, CALIFORNIA 94103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 252-2000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE
$0.001 PER SHARE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10 - K or any
amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on May 31,
1996 ($42.625) as reported on the Nasdaq National Market, was approximately
$1,323,287,541. Shares of Common Stock held by each officer and director and by
certain persons who owned 5% or more of the Registrant's outstanding Common
Stock on that date have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of Friday, May 31, 1996, Registrant had outstanding 36,583,592 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1996 Annual Meeting of
Stockholders to be held at 1:30 PM, Thursday, July 25, 1996 at 600 Townsend
Street, San Francisco, 94103 are incorporated by reference in Part III.
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MACROMEDIA, INC.
1996 FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 4A. Executive Officers of the Registrant 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stock Holder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 45
PART III
Item 10. Directors and Executive Officers of the Registrant 47
Item 11. Executive Compensation 47
Item 12. Security Ownership of Certain Beneficial Owners and Management 47
Item 13. Certain Relationships and Related Transactions 47
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 48
Signatures 51
Index to Exhibits
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PART I
ITEM 1. BUSINESS
GENERAL
Macromedia, Inc. ("Macromedia" or the "Company") is a supplier of integrated
software tools and services to the graphics, multimedia, and online publishing
communities. The Company develops, markets, and supports an integrated line of
graphics, multimedia, and online publishing software for both Windows and
Macintosh platforms (Windows 3.1, Windows 95, Windows NT, Macintosh, and Power
Macintosh). These authoring and production tools are used to create interactive
multimedia applications and printed materials for business communications, the
arts and entertainment, and education. Using Macromedia's products, developers
can create content for delivery over the full spectrum of digital formats:
print, video, film, the World Wide Web, intranets, CD-ROM, DVD (Digital Video
Disk), Enhanced CD, and interactive television.
The Macromedia Studios, each consisting of a suite of Macromedia products, meet
the needs of individuals involved in the development and delivery of multimedia
and graphics content by providing a complete, integrated set of tools.
Macromedia Studios are based on the Macromedia Open Architecture (MOA) which
lets users leverage their understanding of one application across an entire
product line. The Macromedia Information Exchange (MIX) enables one studio
application to present data to another studio application in the most
appropriate form, thus enhancing ease-of-use and productivity. The Macromedia
User Interface (MUI) delivers a consistent look and feel across all studio
applications and numerous third-party plug-ins. These core technologies provide
a framework for ensuring that the Macromedia Studios are well-integrated,
user-friendly tools for customers and that developers can "Author Once, Publish
Anywhere." These Studios include:
Director(R) Multimedia Studio(TM) - software tools for multimedia and the
Internet
FreeHand(TM) Graphics Studio(TM) - software tools for graphic design
Authorware(R) Interactive Studio(TM) - software authoring tools for interactive
information
Backstage(TM) Internet Studio(TM) - software tools for building Web sites
With Macromedia's Shockwave(TM) technology, existing and new users of the
Company's products are adapting and developing interactive content for use on
World Wide Web sites. Authorware, Director, and FreeHand files can be
translated or "shocked" for use on World Wide Web sites as well as corporate
intranets and other networks. With the acquisition of iband and its family of
visual Web-building environments, Backstage, the Company intends to provide a
complete, cross-platform Internet authoring studio. (The Backstage product line
is currently available for use in Windows. It is expected that as of September
1996, Backstage Designer Plus will be available for the Macintosh OS.)
To support its customers and distribution channels, Macromedia offers many
innovative programs and services through its Source & Center programs,
including:
o Macromedia International User Conference
o Worldwide Developer Program
o Authorized Training Program
o Macromedia Priority Access
o Made with Macromedia certification
o Macromedia Authorized Graphic Imaging Center (MAGIC) program
o Macromedia User Groups
o Online Forums
o Industry resources on the Macromedia Web site: http://www.macromedia.com
o Macromedia Consulting Group
o Xtras(TM) Developer Program
The Company sells its products worldwide through a variety of distribution
channels, including traditional software distributors, educational
distributors, value-added resellers ("VARs"), original equipment manufacturers
("OEMs"), hardware and software superstores, retail dealers, mail order, and
direct sales. The Company also enters into and maintains alliances with other
key players in multimedia, graphic arts, and publishing, as well as related
emerging industries.
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PRODUCTS
The Company's products are used by multimedia, graphic arts, Web, and learning
professionals working on their own or in organizations ranging from large
corporations to small companies, as well as in educational institutions.
MULTIMEDIA PRODUCTS
Authorware is designed for authoring and delivering interactive information and
is targeted to computer-based training specialists and educators, as well as
multimedia professionals. It provides an object-oriented, icon-based authoring
environment with hypertext and media capabilities, data measurement functions,
and media integration controls. Available for use on Windows or Macintosh,
Authorware's easy-to-use authoring environment lets subject matter experts
build applications such as interactive multimedia courseware, kiosks, and
publications, by placing icons on a flowline to combine and control text,
graphics, animation, sound, and video. Its use of icons instead of scripting to
define interactivity and control multimedia elements significantly shortens the
learning curve for non-programmers, increasing productivity and ease of
long-term maintenance. Authorware also automatically records, measures, and
reports student responses and other end user data. Authorware 3.0 is now
designed for use on corporate intranets.
Authorware Interactive Studio allows users to create interactive information
applications. The studio includes: Authorware 3.0, for authoring interactive
information on a variety of platforms, including corporate intranets; and the
Director Multimedia Studio, for complete multimedia application development.
Director is designed for developing interactive multimedia entertainment,
edutainment, and high-impact presentations, and is targeted at design,
graphics, animation, and video professionals who require a wide selection of
creative tools for their multimedia productions. Director 5.0 allows users to
quickly and easily import and integrate media elements such as 2D and 3D
graphics, animation, sound, and digital video from a wide variety of sources to
create stand-alone interactive applications. Director allows development of
multimedia content on Windows 95, Windows NT, Windows 3.1, and Macintosh OS and
delivery on those platforms, as well as on the Internet using Shockwave.
Director Multimedia Studio allows users to create dynamic multimedia. The
Studio includes: Director 5.0, for multimedia and the Internet; SoundEdit(TM)
16plus DECK II(TM) 2.5 (Macintosh), for audio production or Sound Forge XP
(Windows), a general-purpose sound editor purchased through a license agreement
from Sonic Foundry; Extreme 3D(TM), for 3D design and animations; and
Macromedia xRes(TM) 2.0, for high-resolution images.
SoundEdit 16 plus DECK II brings together two audio tools for a complete
digital audio package. SoundEdit 16 is the first software-only recording studio
that lets users create fine-tuned audio for everything from multimedia to music
to the Internet. DECK II features multitrack recording, macro-editing, and
complex audio arrangement capabilities. This software, combined in a single
package, provides a comprehensive audio solution for sound editing and
synchronization from the Macintosh desktop.
WEB DEVELOPMENT PRODUCTS
Backstage Designer Plus allows Windows users to create their own dynamic Web
sites without having to use HTML. Offering a WYSIWYG point-and- click authoring
environment, Backstage Designer is easy to use, and powerful enough for
professional use.
Backstage Internet Studio refers to two full-featured Windows-based packages
for developing mission-critical, Web-based business applications. Backstage
Desktop Studio, an advanced Web design, development, and management package,
combines a WYSIWYG authoring environment with customizable objects, a
project-level management system, and a browser-optimizing object server.
Objects include features such as database connectivity, forms-to-email,
discussion groups, and more. Backstage Enterprise Studio extends the features
and functionality of the Desktop Studio with client/server database
connectivity.
Shockwave is compression standard technology for playing multimedia and
graphics files created with Macromedia tools over the World Wide Web and
corporate intranets. Shockwave applications can be developed in Windows and on
the Macintosh and viewed on either platform, as well.
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GRAPHIC ARTS PRODUCTS
FreeHand is a design and illustration software package that offers a
comprehensive feature set and customizable working environment for graphic
designers, artists, and illustrators. Its open architecture provides access to
a range of third-party Xtras and its support for Adobe Photoshop filters
enables TIFF manipulation without leaving FreeHand. FreeHand's text environment
features text style sheets, copy fitting and column balancing, spelling
checker, hyphenation, tabs, text on a path, inline graphics, and more. Graphic
artists, designers, and illustrators can experiment with 100 levels of undo and
redo. FreeHand also features 500 fonts and 10,000 clip-art images. FreeHand 5.5
is currently available for the Macintosh and Power Macintosh and FreeHand 5.0
is available for use on Windows 95, NT, and 3.1.
The FreeHand Graphics Studio is a complete set of tools for graphic arts and
design. The studio includes: FreeHand, for graphic design, illustration, and
page layout; Extreme 3D, for 3D models, animations, and renderings; Macromedia
xRes, for hi-res image editing and compositing; and Fontographer, for modifying
existing fonts or creating new typefaces. This studio also contains clip art,
photography, 3D models, and fonts.
Extreme 3D features 3D modeling, animation, and rendering. Extreme 3D's
interface conforms to popular illustration, animation, and rendering standards
and offers functionality and integration with Macromedia xRes, FreeHand,
Director, and Authorware. With identical environments and file formats on
Windows and Macintosh, Extreme 3D allows transparent file exchange and supports
built-in distributed rendering across platforms.
Fontographer is software for creating and modifying fonts in Windows and on the
Macintosh. It is designed for graphic artists, type designers, and technical
professionals who want to modify their existing fonts or create new fonts from
scratch. Fontographer offers ease-of-use and precision drawing tools to serve
the type design needs of novices and professionals alike.
Macromedia xRes is cross-platform image editing and design software that lets
users create and edit high-resolution files quickly, without using extra RAM or
hardware. Macromedia xRes features a familiar Adobe Photoshop-style interface,
as well as Photoshop-compatible keyboard shortcuts and imaging conventions.
Other features include multiple undos, artistic brushes and textures, and
floating text objects. Macromedia xRes also supports such Web-ready formats as
GIF89a (interleaved with transparency), Progressive JPEG, and PNG.
PRODUCT DEVELOPMENT
Macromedia is focusing its product development efforts on creating the
Macromedia Studios, a completely integrated line of affordable, high-quality,
easy-to-use software tools for multimedia, graphic arts, and digital video
professionals. Its products are distinguished by five key design strategies:
1) Ease-of-Use -- Macromedia products are designed and documented for
ease-of-use in order to serve the needs of the largest number of
multimedia, graphic arts, and online publishing users. The Company's
products share similar user interface conventions to facilitate
learning multiple products.
2) Integration -- Macromedia offers a family of multimedia and graphic
arts tools that are designed to share data formats and user interface
conventions. This enables our tools to work well together and reduces
the learning curve from one application to the next.
3) Power/Performance -- Macromedia products combine comprehensive feature
sets with high performance to provide the power and efficiency
necessary for creative and business professionals' use.
4) Extensibility -- Macromedia products can be extended by third-party
developers through built-in scripting languages and published
Application Programmer Interfaces.
5) Author Once, Publish Anywhere -- Macromedia software provides the
means for interactive authoring and multimedia production, including
2D graphics, in Windows and on the Macintosh, as
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well as print output and playback of applications on the leading
personal computer, consumer player, online, and interactive television
platforms.
The Company's principal product development efforts include (i) utilizing its
core technology to develop a common graphical user interface across all
products on all platforms, (ii) developing enhanced, fully integrated versions
of its existing authoring and media creation tools, (iii) developing new
versions of its tools for graphic arts, multimedia, online publishing, sound
and video, (iv) integrating 3D technology into its authoring tools to meet the
anticipated future demand for 3D capabilities, (v) adapting its products to
support new operating systems, and (vi) developing players for delivery of
applications to new playback platforms, including the Internet. In addition,
the Company plans to continue developing, and from time to time acquiring,
basic software technologies that it considers critical to building multimedia,
graphic arts, Web development, and digital video software tools and
applications.
The Company believes that its future success will depend on its ability to
enhance its existing products and to develop and introduce new products on a
timely basis. New products and enhancements must keep pace with competitive
offerings, adapt to new hardware platforms and emerging industry standards, and
provide additional functionality. If Macromedia were unable to develop and
introduce such products in a timely manner, this inability would have an
adverse effect on the Company's results of operations. Macromedia currently has
a number of new product development efforts under way, including Authorware
4.0, FreeHand 7.0, and Director 6.0, which are scheduled to be released during
the current fiscal year. Any delay in these new products' availability could
have an adverse impact on the results of operations.
For fiscal 1996, 1995, and 1994, the Company's research and development
expenses were $20.0 million, $12.4 million, and $10.1 million respectively.
MARKETING
Macromedia generates awareness and demand for its products through public
relations activities, advertising, product reviews, and national and local
trade shows. The Company also uses direct mail to introduce and educate
customers about new products and enhancements, and to cross-sell additional
products to current customers. In addition, Macromedia sells its products by
distributing a variety of interactive multimedia demonstration materials and
videos directly to prospective customers, and then follows up through outbound
telemarketing.
To support users of its tools, the Company sponsors innovative programs and
services through its Source & Center programs. One of the more high-profile
events is the Macromedia International User Conference held in San Francisco
each fall. Macromedia also manages the Authorized Developer Program which
certifies third-party developers and refers prospective clients to them. In
addition, the Company provides incentives to third-party developers to use the
"Made with Macromedia" trademark on multimedia applications that have been
authored with the Company's products. In the last year, 670 U.S., 300 European,
and 225 Japanese titles displayed the logo. In return, the title developers
paid no license fees to Macromedia for their distribution of Macromedia's
player software. The Company has also certified more than 80 Authorized
Training Centers worldwide to provide third-party training in the use of its
products and since March 1995, 460 Authorized Graphic Imaging Centers have been
certified to provide the highest level of print service to Macromedia's graphic
arts customers.
The Company views the education market as a strategic opportunity to establish
product and brand preferences early in the careers of future professionals.
There are now 75 New Media Centers resulting from the Company's partnership
with educational institutions committed to developing curricula focused on
multimedia.
A key element of the Company's marketing strategy is to work with industry
leaders to develop the multimedia market and gain broad acceptance of
Macromedia products on all leading platforms. Many such arrangements have been
established by the Company, including:
o Agreements to develop industry-standard multimedia playback technology
(Macromedia Portable Players) for IBM's OS/2 Warp and Microware's OS/9
in addition to Windows and Macintosh operating systems, and for
interactive television set-top boxes from Online Media and Apple
Computer.
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o Shipment of the FreeHand Software Developers Kit, free of charge, to
third-party developers resulting in the development of Metatool Inc.'s
Kai's Power Tools; Vector Effects; Letraset; USA's Envelopes; Azalea
Software, Inc.'s Prepress Xtra and UPCTools; and Bullfrog Software
Engineering's Encompass.
o An agreement with Netscape Communications to bundle Shockwave with
various retail products, allowing users of the Netscape browser to
retrieve and play Macromedia Director animations and applications over
the Internet.
o An agreement with Microsoft to bundle Shockwave technology with the
Internet Explorer 3.0 and Windows 95.
o An agreement with America Online to distribute Macromedia Shockwave
with America Online 3.0.
o Through additional agreements with Sun Microsystems, Silicon Graphics,
Navisoft, CompuServe, and NetManage, Director and Shockwave technology
will be widely available for use on the Internet.
SALES AND DISTRIBUTION
A substantial majority of the Company's revenues is derived from the sale of
its products through a variety of distribution channels, including traditional
software distributors, educational distributors, VARs, OEMs, hardware and
software superstores, retail dealers, mail order, and direct sales. The Company
also enters into and maintains alliances with other key players in multimedia,
graphic arts, and online publishing, as well as related emerging industries.
Domestically, the Company's products are sold primarily through distributors,
VARs, and OEMs. Internationally, the Company's products are sold through
distributors. In fiscal 1996 and 1995 one distributor, Ingram Micro, Inc.,
accounted for 21% and 23%, respectively, of the Company's total revenues; in
fiscal 1994, another distributor, Merisel, Inc., accounted for 10% of the
Company's total revenues. Accordingly, the Company is dependent on the
continued viability and financial stability of these distributors. The
Company's resellers generally offer products of several different companies,
including in some cases products that are competitive with the Company's
products. There can be no assurance that the Company's resellers will continue
to purchase the Company's products or provide them with adequate levels of
support. In addition, the Company believes that certain distributors may be
reducing their inventory in the channel to better manage their internal working
capital, and that this could result in a one-time reduction in orders, as this
adjustment takes effect. The loss of, or a significant reduction in sales
volume to, a significant reseller could have a material adverse effect on the
Company's results of operations.
The Company's sales and distribution channels are targeted at the buying
patterns of the Company's two principal customer types: multimedia and graphic
arts professionals.
Software Distributors -- Macromedia sells and distributes its products
primarily through large national software distributors, such as Ingram Micro,
Inc., Merisel, Inc., MicroAge, and Tech Data Corporation which in turn
distribute the Company's products through large retail chains, mail order,
National corporate resellers and small independent dealers. The Company
supports this channel by referring mail order and retail dealer sales through
distributors. The Company's direct sales staff calls on large distributors and
retailers and assists them in the placement of orders and the management of
inventory of the Company's products. The Company receives monthly inventory and
sales reports from its distributors and major retailers to help monitor sales
through this channel. As is typical in the personal computer software industry,
the Company grants its distributors limited rights under a stock balancing
policy to return unsold inventories of the Company's products in exchange for
new purchases. In addition, the Company provides price protection to its
distributors in certain instances where it reduces the price of its products.
International Distributors -- With over 80 distributors in over 50 countries
around the world, international sales of Macromedia products accounted for 42%
of total revenues during the last fiscal year. In many cases, the distributor
has exclusive distribution rights to certain products or for certain platforms
in its country and, in certain cases, has the responsibility for preparing
"localized" versions of Macromedia's products in the language of the country.
The Company believes that the international markets for its products present a
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strategic opportunity and is committed to increasing its international sales to
50 percent of total sales. The Company continues to actively review its
international distribution arrangements.
Value Added Resellers -- Macromedia sells and distributes the Authorware
Interactive Studio and the Director Multimedia Studio through 170 VARs and
high-end dealers. The VARs are selected by Macromedia based on their knowledge
of the products and applications. During fiscal 1996, the standards for VAR
selection were reviewed and refined, resulting in fewer, more highly qualified
VARs. Many of the VARs have experience selling desktop computer-aided-design
software or desktop video editing systems. They are required to provide service
and training to their customers and to conduct seminars on the use of
Macromedia's products. The Authorware Interactive Studio for Windows and
Macintosh is distributed exclusively through the VAR network. The Director
Multimedia Studio for Windows and Macintosh is distributed through the VAR
network and through dealers on a non-exclusive basis.
Educational Market Distributors -- Macromedia sells its products to educational
institutions primarily through distributors such as Ingram Micro Inc., Douglas
Stewart, and Educational Technology Specialists, Inc. ("Edutech"), which
specialize in selling to the education market, e.g. bookstores, campus
resellers, educational mail order companies, and Macromedia education
value-added resellers (VARs). The Company offers substantial educational
discounts on (i) its individual products to seed the market, (ii) on ten-packs
of products to stimulate adoption by computer and multimedia laboratories, and,
through Edutech, (iii) for on-site licenses under which educational
institutions can obtain institution-wide licenses of a mix of Macromedia
products. Further discounts are available on training classes, materials, and
services. In addition, the Company currently offers Authorware Academic and
expects to offer Director Academic, educational versions of its multimedia
authoring products, at preferred educational pricing through a license
agreement with Prentice-Hall, the largest textbook publisher in higher
education.
OEM Distribution -- Macromedia actively maintains OEM relationships with many
hardware and software vendors that bundle Macromedia products with their own
complementary hardware or software products and pay the Company a per unit
royalty. In the last year alone, 12 new OEM agreements were signed. The Company
believes that OEM sales increase the brand recognition of its products and
expand its customer base. In addition, these OEM relationships give the Company
early access to new multimedia technologies being developed by OEMs and allow
Macromedia to quickly adapt its products for compatibility.
The companies with whom Macromedia has established OEM distribution
arrangements include:
ASCII Corporation
ATI Technology, Inc.
Chang Chung Co.
Creative Labs, Inc.
Darim System
Digital Equipment Corporation
Digital Vision
Eastman Kodak
Fujitsu Computer Products of America
Grass Valley Group, Inc.
High Technology
Intergraph Computer Systems, Inc.
International Thomson Publishing, Inc.
JVC Information Products of America
Korg U.S.A. Inc.
NEC Technologies, Inc.
Orchid Technology
Optibase Ltd.
Play Inc.
Power Computing, Inc.
Reveal Corporation
Roland Corporation US.
Samsung Electronics Company Ltd.
Telex Communications
VideoLogic, Ltd.
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Inside Sales - The Company offers product upgrades and services, including
membership in various authorized programs, directly to qualified third-parties
and end users. Direct sales, by selling to repeat customers in the Company's
installed base of registered users, complements Macromedia's indirect
distribution channel.
Technology Licensing - For certain large customers, the Company enters into
licensing agreements under which the customer has the right to reproduce and
use Macromedia software. For example, the Company has entered into licensing
agreements with Brederbund Software, Compuserve, Inc., Interaxx Television
Network, Inc., NetManage Inc., and Attachmate.
TECHNICAL SERVICES
The Technical Services department offers technical support, training, and
consulting, and is dedicated to increasing customer satisfaction by supporting
customers in their on-going relationship with the Company.
The Company offers product training for Authorware and Director. Its training
classes are led by professional instructors and provide customers with hands-on
learning experiences. Classes are offered in locations throughout the United
States and in various locations both in and outside the United States through
Macromedia's Authorized Training Centers. Training for FreeHand and
Macromedia's 3D graphics products is offered through third-party training
professionals using course materials developed by the Company.
The Company also offers strategic consulting to organizations through the
Macromedia Consulting Group. This group specializes in needs analysis, project
planning, application prototyping, technology assessments, and critical
short-term applications development assistance for developers and publishers.
The Company relies on third parties, as well as its own direct consulting
group, to provide training and consulting for large customers.
Macromedia provides customer support on a complimentary basis for a period of
90 days after the first technical support call from a customer. Thereafter,
the Company offers its customers a technical support plan called Priority
Access that provides the customer with access to a toll- free support line,
priority call queuing, priority response to mail, and facsimile support
inquiries, 24-hour voicemail messaging, and a quarterly mailing that includes
the TechNotes newsletter with product tips and techniques, and the Macromedia
"KnowledgeBase," a database of common technical support questions and answers.
The Company also offers sophisticated Developer Support and per-incident
support.
COMPETITION
Sales of the Company's Director, Freehand, and Authorware products have
generally represented and are expected to continue to represent a substantial
majority of the Company's total revenues. The Company expects that its revenues
will continue for the foreseeable future to be substantially dependent on these
products and that competition for these products will intensify in the future.
A decline in sales of any of these products, as a result of competition,
technological change, or other factors, would have a material adverse effect on
the Company's results of operations. To date, a majority of the Company's
revenues has been derived from its products for the Macintosh. Although sales
of the Company's products for Windows accounted for approximately one-third of
the Company's total revenues in fiscal 1996 and are expected to become an
increasingly important component of the Company's revenues, a 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.
The markets for the Company's products are highly competitive and characterized
by pressure to reduce prices, incorporate new features, and accelerate the
release of new product versions. A number of companies currently offer products
that compete directly or indirectly with one or more of the Company's products.
These companies include Adobe Systems Incorporated, Aimtech Corporation, Apple
Computer Incorporated, Asymetrix Corporation, Autodesk, Incorporated, Corel
Corporation ("Corel"), Microsoft Corporation, and Strata Incorporated. As the
Company competes with larger competitors such as Adobe, Corel, and Microsoft
across a broader range of product lines, the Company may face increasing
competition from such companies.
In addition, the Company's products compete to a certain extent with multimedia
authoring tools developed and used internally by developers of multimedia
applications. The Company's growth will depend in part on its ability to
persuade such potential customers to replace or augment their in-house tools
with the Company's products.
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The Company believes that the principal competitive factors in the graphic
arts, multimedia, and Web publishing tools categories are product features and
quality, price, ease-of-use, brand name recognition, access to distribution
channels, reliability, and quality of support services. The Company believes
that it competes favorably with respect to each of these factors. In the event
that price competition significantly increases, competitive pressures could
cause the Company to reduce the prices of its products, which would result in
reduced profit margins. Prolonged price competition would have an adverse
effect on the Company's operating results and financial condition. A variety of
other potential actions by the Company's competitors, including increased
promotion and accelerated introduction of new or enhanced products, could have
a material adverse effect on the results of operations.
Although the Company believes that its principal products have achieved market
acceptance, there can be no assurance that they will continue to do so.
Furthermore, there is a possibility that new personal and network computer
hardware platforms or new multimedia delivery systems may provide new entrants
with opportunities to make substantial inroads into the graphic arts,
multimedia, or Web publishing tools market segments.
PROPRIETARY RIGHTS AND LICENSES
The Company relies on a combination of copyright, trade secret, and trademark
laws, and employee third-party nondisclosure agreements, to protect its
intellectual property rights and products. The Company distributes its software
under a "shrink-wrap" license agreement and generally does not obtain signed
license agreements from its end users. The Company uses a hardware lock-out
device with respect to certain versions of its software that are sold
internationally but otherwise does not copy-protect its software. It may be
possible for unauthorized third parties to copy the Company's products or to
reverse engineer or obtain and use information that the Company regards as
proprietary. There can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technologies. Policing unauthorized use of the
Company's products is difficult, and while the Company is unable to determine
the extent to which software piracy of its products exists, software piracy can
be expected to be a persistent problem. In addition, the laws of certain
countries in which the Company's products are or may be distributed do not
protect the Company's products and intellectual rights to the same extent as
the laws of the United States. The Company is a member of the Business Software
Alliance ("BSA") and the Software Publishers Association ("SPA") and supports
their efforts to stop the unauthorized distribution of software.
The Company believes that its products, intellectual property, and other
proprietary rights do not infringe on the proprietary rights of third parties.
From time to time, however, the Company has received communications from third
parties asserting that features or content of certain of its products may
infringe intellectual property rights of such parties. To date, no such claim
has resulted in litigation or in the payment of any claims, and the Company
believes that the impact of any such known claims will be immaterial. However,
as the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that its
software increasingly will become the subject of claims that such software
infringes the rights of others. There can be no assurance that third parties
will not assert infringement claims against the Company in the future or that
any such assertion will result in costly litigation or require the Company to
obtain a license to intellectual property rights of third parties. There can be
no assurance that such licenses will be available on reasonable terms or at
all. The Company licenses certain software products from other companies to
create suites of multimedia products. There can be no assurance that upon the
expiration of these licenses, such licenses will be available on reasonable
terms or at all, or that similar products could be obtained to substitute into
the suites.
MANUFACTURING AND SHIPPING
The Company is dependent on a sole source, Stream, International ("Stream"),
for the manufacture and shipment of its finished products. The manufacture of
the Company's products consists of duplicating diskettes, pressing CD-ROMs,
printing manuals, and packaging and assembling finished products all of which
are in accordance with the Company's specifications and forecasts. The Company
currently
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performs quality assurance testing at its own facilities. Stream operates
multiple facilities that are capable of serving the Company's needs, and the
Company believes any alternative sources could not be implemented without undue
delay. To date, the Company has not experienced any material difficulties or
delays in the manufacture or assembly of its products or material returns due
to product defects.
EMPLOYEES
As of March 31, 1996, the Company had 396 full-time employees, including 45 in
North American sales, 26 in international sales, 77 in marketing, 191 in
development, quality assurance, and documentation, and 57 in finance and
administration. The employees and the Company are not parties to any collective
bargaining agreements, and the Company believes that its relations with its
employees are good.
ITEM 2. PROPERTIES
The Company's primary facility consists of approximately 95,489 square feet
located in a multi-story building in San Francisco, California. This space
houses a majority of the Company's United States operations. The facility is
leased pursuant to an agreement that expires August 31, 2005. Macromedia has
two options to renew for successive five-year terms at 95 percent of the then
current fair market value of the space. The Company also holds a right of first
refusal to certain space in a building located adjacent to the space it now
occupies. In addition, the Company currently leases 29,665 square feet in San
Mateo, California, and approximately 20,000 square feet in Richardson, Texas.
In March 1996, the Company entered into an agreement with a third party to
purchase a parcel of land in Redwood City, California, for $6,960,000. The
Company believes its facilities are adequate for current and near-term needs
and that additional space is available to provide for anticipated growth during
the life of the leases. The Company also leases space in Berkshire, England,
for its European operations and in Tokyo, Japan, for its Japanese operations.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party
or of which any of its property is the subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the Company's
current executive officers as of May 31, 1996:
Name Age Position
- ---- --- --------
John C. Colligan 41 Chairman, President, Chief Executive Officer, and Director
Richard B. Wood 47 Vice President of Operations, Chief Financial Officer, and Secretary
Norman Meyrowitz 36 Senior Vice President of Engineering
Philip Schiller 36 Vice President of Product Management
Susan Gordon Bird 36 Vice President of Worldwide Sales
Miles C. Walsh 44 Vice President of Corporate Marketing and Customer Support
Jim Funk 38 Vice President of Corporate Development
James Von Ehr 45 Vice President of Product Development/JAVA and Director
Kevin Crowder 41 Vice President of Product Integration and Director
Samantha Seals-Mason 28 Vice President of Digital Arts Products
Steve Kusmer 39 Vice President of Multimedia Products
Mr. Colligan has been Chairman of the Company since February 1996 and a
director since March 1992. He has also been President of the Company since
December 1992 and Chief Executive Officer since January 1993. He was Chief
Operating Officer of the Company from March 1992 to December 1992. Mr. Colligan
was President, Chief Executive Officer and a director of Authorware from
December 1988 until its merger into the Company in March 1992. Prior to joining
Authorware, Mr. Colligan was employed by Apple Computer, Inc. in a variety of
positions from May 1983 until December 1988, most recently as Director of
Marketing and Sales for Higher Education. Mr. Colligan holds a Bachelor of
Science degree in international economics from Georgetown University and a
Master of Business Administration from Stanford University. Mr. Colligan is a
director of S3 Corporation and c/net.
Mr. Wood has been Vice President of Operations since June 1990 and has been
Chief Financial Officer and Secretary of the Company since March 1992. He was
Vice President of Finance and Operations, Chief Financial Officer, and Secretary
of MacroMind and its successor from July 1990 until the formation of the Company
in March 1992. From January 1990 to March 1990, Mr. Wood was employed by Altos
Computer Systems, Inc., a manufacturer of personal computers, as Chief Financial
Officer, and from September 1986 to December 1989, Mr. Wood was employed by
PIXAR, a graphics and imaging computer company, as Chief Financial Officer. Mr.
Wood holds a Bachelor of Science degree in business and economics and a Master
of Business Administration degree from the University of California, Berkeley
and is a Certified Public Accountant in the State of California.
Mr. Meyrowitz has been Senior Vice President of Engineering since February 1996
and manages Macromedia's engineering, quality assurance, and documentation
efforts for the Director Multimedia Studio, the FreeHand Graphics Studio, the
Backstage Internet Studio, the Authorware Interactive Studio, SoundEdit 16,
Deck II, xRes, Video, and Extreme 3D products, as well as cross-product
integration and engineering operations. From October 1994 to February 1996, he
was Vice President of Product Development, San Francisco, and from October 1993
to October 1994, he was Director of Strategic Technology. From May 1991 to
October 1993, he served as Director of System/User Software at GO Corporation.
From October 1981 to May 1991, he served various positions at Brown University;
in his last position, he was Co-Director of the university's Institute for
Research in Information and Scholarship (IRIS) where he managed and was the
principal architect of IRIS's Intermedia system. Mr. Meyrowitz graduated from
Brown in 1981 with a Bachelor of Science degree in computer science. He is a
member of the ACM and the IEEE Computer Society.
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Mr. Schiller has been Vice President of Product Management since April 1996. He
joined Macromedia as the Director of Product Management in December 1995. He is
responsible for product management for all Macromedia products. Mr. Schiller
was the Director of Marketing at FirePower Systems, Inc. of Menlo Park, CA. At
Apple Computer in Marlborough, MA and Cupertino, CA Mr. Schiller held a
variety of marketing positions over a six year period. His positions included
responsibilities in field marketing, channel marketing, multimedia marketing,
and product marketing. Mr. Schiller has also held marketing and programming
positions at Nolan, Norton & Company and Massachusetts General Hospital. He
graduated with a Bachelor of Science degree in biology from Boston College in
1982.
Ms. Gordon Bird has been Vice President of Worldwide Sales since January 1994.
She joined the Company as Vice President of North American Sales in April 1993.
From January 1989 to April 1993, Ms. Bird held various positions in sales at
Frame Technology, a desktop publishing company, most recently as Vice President
and General Manager of North American Sales and Operations. From June 1984 to
January 1989, she was National Sales Manager for Government, Education and
Major Resellers at Ashton-Tate, a database software company. Ms. Bird holds a
Bachelor of Science degree in education from Frostburg State University.
Mr. Walsh has been Vice President of Corporate Marketing and Customer Support
since June 1994. From July 1993 to May 1994, he held the position of Vice
President of Marketing for MiniStor Peripherals International Ltd., a PCMCIA
disk drive company. From June 1991 to April 1993, Mr. Walsh held the position
of Vice President at Conner Peripherals, Inc., a disk drive company. From April
1990 to May 1991, he held the position of Vice President of Marketing at
Evernet Systems, Inc., a Systems Integrator (acquired by Control Data). Prior
to Evernet, Mr. Walsh was the President of 2X Corporation, a direct mail and
catalog consulting company for the distribution channel. Mr. Walsh has a
Bachelor of Arts degree in history from Vanderbilt University.
Mr. Funk has been the Vice President of Corporate Development for Macromedia
since February 1996. Prior to joining Macromedia in February 1994, he was the
Manager of Market Development for the Personal Interactive Electronics Division
of Apple Computer. During his employment with Apple Computer starting in 1986,
he held several marketing management positions within the Apple U.S.A division,
focusing primarily on the company's higher education markets. He has also held
product marketing positions at Interactive Software of Mountain View,
California and Digital Research of Monterey, California. He holds a Bachelor of
Arts in Economics and an MBA from Stanford University.
Mr. Von Ehr has been a director and a Vice President of the Company since
January 1995. Mr. Von Ehr was Chairman of the Board, President, and Chief
Executive Officer of Altsys from December 1984, when he co-founded Altsys, until
January 1995. Prior to founding Altsys, Mr. Von Ehr was employed by Texas
Instruments, Incorporated from 1973, where he was Senior Member, Technical Staff
and Manager of Integrated Circuit Layout Graphics. Mr. Von Ehr holds a Bachelor
of Science degree in computer science from Michigan State University and a
Master of Science degree in computer science from the University of Texas at
Dallas.
Mr. Crowder has been a director of the Company since January 1995 and has been
the Vice President of Product Integration since July 1995. He was Vice
President, Macromedia Studios from January 1995 to July 1995. Mr. Crowder was
Vice President, Secretary, and a director of Altsys from December 1984, when he
co-founded Altsys, until January 1995. Prior to founding Altsys, Mr. Crowder
was employed by Texas Instruments, Incorporated from 1973, where he was a
Member of the Group Technical Staff in the Semiconductor Design Automation
Department. Mr. Crowder holds a Bachelor of Science degree in computer Science
from Texas A & M University and a Master of Science degree in mathematical
sciences from the University of Texas at Dallas.
Ms. Seals-Mason has been the Vice President of Digital Arts Products since
February 1996. From June 1995 to February 1996 she acted as Director of
FreeHand Engineering. Ms. Seals-Mason began her professional career at Altsys
Corporation in 1989, as one of the main engineers on FreeHand 3. She later
became Engineering Manager for FreeHand 4.0, and at the time of Macromedia's
acquisition of Altsys in January 1995, she managed the shipping of FreeHand
5.0. Ms. Seals-Mason graduated from the University of Kentucky with a Bachelor
of Science degree in mathematical sciences in 1989.
Mr. Kusmer rejoined the Company in May 1995 as Vice President of Multimedia
Products. From September 1992 to April 1995, Mr. Kusmer was Vice President of
Engineering of Aha! Software Corporation. From June 1991 to March 1992, he was
Vice President of Engineering of Authorware and from April 1992 to July 1992,
he was the Company's Vice President of Authorware Products following the
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merger of Authorware into the Company in March 1992. From June 1987 to May
1991, Mr. Kusmer was Section Manager of Software Publishing Corporation. Mr.
Kusmer holds a Bachelor of Science degree in electrical engineering from
Cornell University.
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the Nasdaq Market under the
symbol MACR. The following table sets forth, for the periods indicated, the
high and low closing prices for the Company's common stock as reported by
Nasdaq. Prices have been retroactively adjusted to reflect the 2-for-1 stock
split that occurred on October 16, 1995.
Fiscal 1996 High Low
4th Quarter 53.00 32.75
3rd Quarter 62.50 24.375
2nd Quarter 30.50 21.44
1st Quarter 21.75 15.38
Fiscal 1995 High Low
4th Quarter 18.75 10.94
3rd Quarter 13.63 7.44
2nd Quarter 8.63 4.00
1st Quarter 7.63 4.03
The Company has not paid cash dividends and has no present plans to do
so. There were 423 stockholders of record as of April 30, 1996, excluding
stockholders whose stock is held in nominee or street name by brokers.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FIVE-YEAR FINANCIAL DATA
(in thousands, except per share data)
YEARS ENDED MARCH 31,
1996 1995 1994 1993 1992
-------- ------- ------- ------ -------
STATEMENT OF OPERATIONS DATA:
Total revenues . . . . . . . . $116,691 $55,892 $37,542 $31,462 $29,339
Total cost of revenues . . . . 19,600 9,618 6,478 6,411 6,529
Operating expenses . . . . . . 69,411 39,057 27,236 24,431 34,179
Operating income (loss) . . . 27,680 7,217 3,828 620 (11,369)
Net income (loss). . . . . . . 23,002 6,538 3,475 241 (11,378)
Net income per share . . . . . $ 0.59 $ 0.19 $ 0.12 $ 0.01 $ --
Shares used in computing
net income per share . . . . 39,044 34,414 30,018 25,146 --
All income per share amounts reflect a two-for-one stock split which became
effective October 16, 1995.
BALANCE SHEET DATA:
Cash, cash equivalents, and
short-term investments . . . $116,662 $33,981 $27,172 $ 1,290 $ 1,608
Working capital . . . . . . . 119,060 33,273 28,217 827 66
Total assets . . . . . . . . . 155,122 52,430 38,503 12,270 15,073
Long-term liabilities . . . . 55 136 225 118 78
Total stockholders' equity . . 133,181 39,681 31,860 4,205 3,824
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
THE COMPANY completed three separate acquisitions in fiscal 1996, each of which
was accounted for as a pooling of interests. To effect the combinations,
Macromedia exchanged a total of 1,502,001 shares of its common stock and stock
options for all the common stock and stock options of the three separate
companies (see Note 2 of Notes to Consolidated Financial Statements).
A reclassification has been made to include co-op advertising in
revenues and in sales and marketing expenses for all periods presented, in
accordance with the implementation of accounting pronouncement Statement of
Position (SOP) 93-7. For fiscal years 1996, 1995, and 1994, the increases were
$6,914,000, $2,194,000, and $0, respectively. There was no effect on net
income.
o o o
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
TOTAL REVENUES (IN THOUSANDS)
1996 1995 % change
-------- ------- --------
Product revenue . . . . $112,577 $53,528 110%
Service revenue . . . . 4,114 2,364 74%
Total revenues . . . . $116,691 $55,892 109%
-------- -------
THE COMPANY derives revenues primarily from software sales to domestic and
international distributors, VARs, OEMs, corporate accounts, and registered
users. Revenues are also derived from training and consulting services and
from contracts to provide maintenance to customers. The company's principal
products from which it derives substantially all of its revenues are:
Authorware, Director, Extreme 3D, Fontographer, FreeHand, xRes, SoundEdit16,
DECK II, and Backstage.
The growth in product revenue reflects ongoing strength across
Macromedia's principal products, which grew 113% resulting from strong market
growth and the continuing development of the Company's customer base, indirect
sales channels, and strategic partnerships. Service revenue increased by 74%
as a result of the Company's strategy to focus on high value-added consulting
and to offer additional service and support options.
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COST OF REVENUES (IN THOUSANDS)
1996 1995 % change
------- ------ --------
Cost of product revenue . . . . . . . . . $17,295 $8,125 113%
Cost of service revenue . . . . . . . . . 2,305 1,493 54%
------- ------ --------
Total cost of revenues . . . . . . . . . . $19,600 $9,618 104%
------- ------ --------
Percentage of total revenues . . . . . . . 17% 17%
Cost of product revenue includes cost of goods sold, royalties, amortization of
acquired technology, localization costs, and reserves for inventory
obsolescence. Cost of product revenue remained constant as a percentage of
total revenues as the increase in cost attributable to bringing localization
in-house was offset by cost reduction programs.
Cost of service revenue includes consulting and technical support
personnel and related costs including travel and lodging associated with
providing services. These costs decreased as a percent of service revenue due
to an increased number of consulting projects and increased student to teacher
class ratios.
OPERATING EXPENSES (IN THOUSANDS)
1996 1995 % change
------- ------ --------
Sales and marketing . . . . . . . . . . . $41,387 $20,181 105%
Percentage of total revenues . . . . . . 35% 36%
------- -------
Research and development . . . . . . . . $20,033 $12,360 62%
Percentage of total revenues . . . . . . 17% 22%
General and administrative . . . . . . . $ 5,466 $ 3,491 57%
Percentage of total revenues . . . . . . 5% 6%
------- -------
Merger, relocation, and reorganization . $ 2,525 $ 3,025 (17%)
Percentage of total revenues . . . . . . 2% 5%
Sales and marketing expenses increased in fiscal 1996, but declined as a
percentage of total revenues. The increase was due primarily to marketing and
promotional efforts associated with new product releases, management's
commitment to fund discretionary marketing, and an increase in cooperative
advertising. In addition, higher revenue also led to increases in certain
variable selling expenses.
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Research and development expenses increased in fiscal 1996, but
declined as a percentage of total revenues. The increase was due primarily to
additional headcount as a result of the increase of products under
development. The Company released ten major products in fiscal 1996 compared to
five in fiscal 1995.
General and administrative expenses increased in fiscal 1996, but
declined as a percentage of total revenues. The increase was due to additional
headcount and costs associated with building the infrastructure required to
support the growth of the Company.
Following the three acquisitions of Fauve Software, Inc. ("Fauve"), OSC,
Inc. ("OSC"), and iband, Inc. ("iband"), the Company recorded merger costs in
1996 which included transaction fees for financial and legal advisers and
relocation and reorganization expenses, which included approximately $1.4
million relating to the issue of 40,000 shares of the Company's common stock
for payment to certain entities and individuals to settle certain iband
obligations.
OTHER INCOME (EXPENSE) (IN THOUSANDS)
1996 1995 % change
------ ---- --------
Total other income, net . . . . . . . $4,101 $376 991%
Percentage of total revenues . . . . 4% 1% --
Other income increased in fiscal 1996 due primarily to higher interest income
from higher cash balances that were generated from the Company's secondary
offering of common stock and normal operations.
PROVISIONS FOR INCOME TAXES (IN THOUSANDS)
1996 1995 % change
------ ------ --------
Provision for income taxes . . . . . $8,779 $1,055 732%
Percentage of total revenues . . . . 8% 2% --
After using available net operating loss carryforwards, the Company's effective
tax rate for fiscal 1996 was 28%, compared to 14% in 1995. Tax expense for the
year was reduced by $4,555 as a result of a reduction in the valuation allowance
for deferred tax assets. As of March 31, 1996, the balance in the valuation
account is $3,612.
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NET INCOME (IN THOUSANDS)
1996 1995 % change
------- ------ --------
Net income . . . . . . . . . . . . . $23,002 $6,538 252%
Percentage of total revenues . . . . 20% 12% --
The increase in net income was due primarily to higher revenues.
o o o
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO 1994
TOTAL REVENUES (IN THOUSANDS)
1995 1994 % change
------- ------- --------
Product revenue . . . . . . . . . . . $53,528 $35,970 49%
Service revenue . . . . . . . . . . . 2,364 1,572 50%
------- -------
Total revenues . . . . . . . . . . . $55,892 $37,542 49%
======= =======
THE GROWTH in product revenues reflected ongoing strength across Macromedia's
principal products, which grew 82% resulting from strong customer demand, new
product introductions, the Company's acquisition strategy, and the continuing
development of the Company's indirect sales channels and strategic
partnerships. Service revenues increased by 50% as a result of the Company's
strategy to focus on value-added consulting and to offer additional service and
support options.
COSTS OF REVENUES (IN THOUSANDS)
1995 1994 % change
------ ------ --------
Cost of product revenue . . . . . . . $8,125 $5,601 45%
Cost of service revenue . . . . . . . 1,493 877 70%
------ ------ --------
Total cost of revenues . . . . . . . $9,618 $6,478 48%
====== ======
Percentage of total revenues . . . . 17% 17%
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Cost of product revenue includes cost of goods sold, royalties, amortization of
acquired technology, localization costs, and reserves for inventory
obsolescence. The increase was attributable primarily to the cost of bringing
localization in-house.
Cost of service revenue includes consulting and technical support
personnel and related costs including travel and lodging associated with
providing services. These costs increased due to increased consulting projects
and training offered.
Operating Expenses (in thousands)
1995 1994 % change
------- ------ --------
Sales and marketing . . . . . . . . . . . $20,181 $14,587 38%
Percentage of total revenues . . . . . . 36% 39%
------- -------
Research and development . . . . . . . . $12,360 $10,106 22%
Percentage of total revenues . . . . . . 22% 27%
------- -------
General and administrative . . . . . . . $ 3,491 $ 3,009 16%
Percentage of total revenues . . . . . . 6% 8%
------- -------
Merger, relocation, and reorganization . $ 3,025 $ (476) 736%
Percentage of total revenues . . . . . . 5% (1%)
Sales and marketing expenses increased in fiscal 1995, but declined as a
percentage of total revenues. The increase was due primarily to marketing and
promotional efforts associated with new product releases, the additional
staffing required to support these efforts, and the higher payroll and related
expenses as a result of the increased headcount due to the merger with Altsys
Corporation ("Altsys"). In addition, higher revenues also led to increases in
certain variable selling expenses.
Research and development expenses increased in fiscal 1995, but
declined as a percentage of total revenues. The increase was due primarily to
additional headcount as a result of the merger with Altsys. The Company
released five major products in fiscal 1995 compared to seven in fiscal 1994.
General and administrative expenses increased in fiscal 1995, but
declined as a percentage of total revenues. The increase was due to additional
headcount and costs associated with installing the systems required to support
the operations of a larger company.
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Following the merger with Altsys, the Company recorded merger costs in
1995 that included consultants' fees and professional fees for investment
bankers, attorneys, accountants, and financial printers. The Company incurred
costs in purchasing from Adobe Systems Incorporated ("Adobe") certain inventory
of the FreeHand product, the write-off of certain assets, personnel severance
costs, the cancellation and continuation of contractual obligations, and other
integration costs incident to the merger.
Other Income (Expense) (in thousands)
1995 1994 % change
---- ---- --------
Total other income (expense), net. . . . . . . $376 $(61) 716%
Percentage of total revenues . . . . . . . . . 1% --
Other income increased in fiscal 1995 due primarily to the increase in interest
income from investments and higher cash balances.
Provision for Income Taxes (in thousands)
1995 1994 % change
---- ---- --------
Provision for income taxes . . . . . . . . . . $1,055 $292 261%
Percentage of total revenues . . . . . . . . . 2% 1%
After using available net operating loss carryforwards, the Company's effective
tax rate for fiscal 1995 was 14%, compared to 8% in 1994.
Net Income (in thousands)
1995 1994 % change
---- ---- --------
Net income . . . . . . . . . . . . . . . . . . $5,538 $3,475 88%
Percentage of total revenues . . . . . . . . . 12% 9%
The increase in net income was due primarily to higher revenues.
* * *
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LIQUIDITY AND CAPITAL RESOURCES
FOR THE YEAR ended March 31, 1996, cash, cash equivalents, and short-term
investments increased by $82,631,000. Approximately $55,846,000 was from the
completion of the Company's secondary public offering, another $4,479,000 was
from the exercise of common stock options and warrants, and the balance was
primarily from operations and other activities. Cash provided by operating
activities was $33,166,000, an increase of $21,859,000 over the prior year.
The increase was primarily due to the increase in net income of $16,464,000 as
well as the tax benefit from employee stock plans of $8,827,000.
The Company's working capital increased by $85,787,000 from March 31,
1995 to $119,060,000 at March 31, 1996.
In addition to cash, cash equivalents, and short-term investments, the
Company has $15,000,000 available under an unsecured revolving line of credit.
The line of credit bears interest at the bank's prime rate and expires on July
15, 1997. As of March 31, 1996, the Company had no borrowings outstanding.
Of the $2,525,000 in merger-related expenses, $1,628,000 related to
noncash expenditure while $897,000 related to expected cash expenditure. As of
March 31, 1996, substantially all of the cash-related expenditure had been paid.
During the twelve-month period ended March 31, 1996, the Company spent
$9,537,000 on capital equipment, primarily for management information systems
and engineering equipment, and facilities expansion. The Company anticipates
spending $9,400,000 through the end of fiscal 1997.
In March 1996, the Company entered into an agreement with a third party
to purchase a parcel of land in Redwood City, California, for $6,960,000. As of
March 31, 1996, the Company made an initial deposit of approximately $350,000.
The balance, including related fees, was paid in full in May 1996.
Management believes that existing cash, cash equivalents, and short-term
investments, available bank borrowings and cash generated from operations will
be sufficient to meet the Company's cash and investment requirements through at
least fiscal 1997.
o o o
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Except for the historical information contained in this Form 10-K, the matters
discussed herein are forward looking statements. These statements concern
matters that involve risks and uncertainties, including but not limited to those
set forth below, that could cause actual results to differ materially from those
projected in the forward looking statements. In any event, the matters set
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forth below, as well as the matters set forth under "Business -- Sales and
Distribution," "-- Competition," "-- Proprietary Rights," and "-- Manufacturing
and Shipping" should be carefully considered when evaluating the Company's
business and prospects.
Macromedia has grown in substantial part from combinations with other
companies. In January 1995, Macromedia acquired Altsys, which developed the
FreeHand graphic design and illustration product whose revenues prior to that
date consisted primarily of royalties from Aldus Corporation, which had marketed
FreeHand until January 1995, and revenues from Fontographer. In August 1995,
the Company acquired Fauve, a developer of image editing software. In December
1995, the Company acquired OSC, a developer of digital audio production
software. In March 1996, the Company acquired iband, a developer of Internet
Web site development tools. There can be no assurance that sales of the
Company's existing products will either continue at historical rates or
increase, or that new products introduced by the Company, whether developed
internally or acquired, will achieve market acceptance. The Company's
historical rates of growth should not be taken as indicative of growth rates
that can be expected in the future.
The Company's quarterly operating results may vary significantly
depending on the timing of new product introductions and enhancements by the
Company. The Company's quarterly results of operations also may vary
significantly depending on the timing of product introductions by competitors,
changes in pricing, execution of technology licensing agreements, and the volume
and timing of orders received during the quarter, which are difficult to
forecast. The future operating results of the Company may fluctuate as a result
of these and other factors, including the Company's ability to continue to
develop innovative products, its product and customer mix, and the level of
competition. The Company's results of operations may also be affected by
seasonal trends. A significant portion of the Company's operating expenses are
relatively fixed, and planned expenditures are based primarily on sales
forecasts. As a result, if revenues do not meet the Company's forecasts,
operating results may be materially adversely affected. Although the Company
has been profitable each quarter since the quarter ended September 30, 1992,
there can be no assurance that the Company will be able to sustain profitability
in the future.
The markets for the Company's products are highly competitive and
characterized by pressure to reduce prices, incorporate new features, and
accelerate the release of new product versions. A number of companies currently
offer products that compete directly or indirectly with one or more of the
Company's products. These companies include Adobe, Aimtech Corporation, Apple
Computer, Inc., Asymetrix Corporation, Autodesk, Inc., Corel Corporation
("Corel"), Microsoft Corporation ("Microsoft"), and Strata Incorporated. As the
Company competes with larger competitors such as Adobe, Corel, and Microsoft
across a broader range of product lines, the Company may face increasing
competition from such companies.
22
25
The developing multimedia market, Internet, and online services, and the
personal computer industry in general are characterized by rapidly changing
technology, resulting in short product life cycles and rapid price declines. The
Company must continuously update its existing products to keep them current with
changing technology and must develop new products to take advantage of new
technologies that could render the Company's existing products obsolete. The
Company's future prospects are highly dependent on its ability to increase
functionality of existing products in a timely manner and to develop new
products that address new technologies and achieve market acceptance. New
products and enhancements must keep pace with competitive offerings, adapt to
new platforms and emerging industry standards, and provide additional
functionality. There can be no assurance that the Company will be successful in
these efforts.
The Company has in the past experienced delays in the development of new
products and enhancement of existing products, and such delays may occur in the
future. If the Company were unable, due to resource constraints or technological
or other reasons, to develop and introduce such products in a timely manner,
this inability could have a material adverse effect on the Company's results of
operations.
For the twelve months ended March 31, 1996, the Company derived
approximately 42% of its total revenues from international sales. The Company
expects that international sales will continue to generate a significant
percentage of its total revenues, and the Company is seeking to increase
international sales to approximately half of its total revenues. The Company
relies on distributors for sales of its products in foreign countries and,
accordingly, is dependent on their ability to promote and support the Company's
products, and in some cases, to translate them into foreign languages.
International business is subject to a number of special risks, including
foreign government regulation; general geopolitical risks such as political and
economic instability, hostilities with neighboring countries and changes in
diplomatic and trade relationships; more prevalent software piracy; unexpected
changes in, or imposition of, regulatory requirements, tariffs, import and
export restrictions and other barriers and restrictions; longer payment cycles,
greater difficulty in accounts receivable collection, potentially adverse tax
consequences, the burdens of complying with a variety of foreign laws; and other
factors beyond the control of the Company. The revenues generated through
international sales are denominated in U.S. dollars, but the expenses are
denominated in the local currency in the countries in which the Company has
offices. As a result, the Company's operating results are subject to
fluctuations in foreign currency exchange rates. This impact to date has been
immaterial, and the Company has not had to engage in hedging activities to
protect it from foreign currency fluctuations.
* * *
23
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MACROMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995 (in thousands, except share data)
1996 1995
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 28,829 $ 10,230
Short-term investments . . . . . . . . . . . . . . . . . . . 87,833 23,751
Accounts receivable, less allowance for returns and doubtful
accounts of $4,377 and $1,487, respectively. . . . . . . . 14,601 8,040
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 1,508 1,601
Prepaid expenses and other current assets. . . . . . . . . . 8,115 2,264
Total current assets . . . . . . . . . . . . . . . . . . 140,946 45,886
Property and equipment, net. . . . . . . . . . . . . . . . . . 12,219 5,809
Other long-term assets . . . . . . . . . . . . . . . . . . . . 1,957 735
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . $155,122 $ 52,430
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 11,364 $ 6,007
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . 8,956 3,492
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . 1,235 2,767
Other current liabilities. . . . . . . . . . . . . . . . . . 331 347
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . 21,886 12,613
Other long-term liabilities. . . . . . . . . . . . . . . . . . 55 136
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . $ 21,941 $ 12,749
======== ========
Stockholders' equity:
Common stock, par value $0.001 per share; 80,000,000
shares authorized; 36,413,211 and 31,00,608 shares
issued and outstanding, respectively . . . . . . . . . . . 36 16
Additional paid-in capital . . . . . . . . . . . . . . . . . 129,591 58,266
Deferred compensation. . . . . . . . . . . . . . . . . . . . (415) --
Retained earnings (accumulated deficit). . . . . . . . . . . 3,969 (18,601)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . 133,181 39,681
-------- --------
Total liabilities and stockholders' equity . . . . . . . $155,122 $ 52,430
======== ========
See accompanying notes to consolidated financial statements.
24
27
MACROMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31, 1996, 1995, and 1994 (in thousands, except per share data)
1996 1995 1994
-------- ------- -------
Revenues:
Product revenue.............................. $112,577 $53,528 $35,970
Service revenue.............................. 4,114 2,364 1,572
-------- ------- -------
Total revenues........................... 116,691 55,892 37,542
-------- ------- -------
Cost of revenues:
Cost of product revenue...................... 17,295 8,125 5,601
Cost of service revenue...................... 2,305 1,493 877
-------- ------- -------
Total cost of revenues................... 19,600 9,618 6,478
-------- ------- -------
Gross profit............................. 97,091 46,274 31,064
Operating expenses:
Sales and marketing.......................... 41,387 20,181 14,597
Research and development..................... 20,033 12,360 10,106
General and administrative................... 5,466 3,491 3,009
Merger, relocation, and reorganization....... 2,525 3,025 (476)
-------- ------- -------
Total operating expenses................. 69,411 39,057 27,236
Operating income......................... 27,680 7,217 3,828
Other income (expense):
Interest and investment income, net.......... 4,307 1,135 196
Interest expense............................. (3) (6) (60)
Reserve on related party note receivable..... -- (507) (130)
Other........................................ (203) (246) (67)
-------- ------- -------
Total other income (expense)............. 4,101 376 (61)
-------- ------- -------
Income before taxes...................... 31,781 7,593 3,767
Provision for income taxes..................... 8,779 1,055 292
-------- ------- -------
Net income............................... $ 23.002 $ 6,538 $ 3,475
-------- ------- -------
Net income per share........................... $ 0.59 $ 0.19 $ 0.12
-------- ------- -------
Weighted average common shares outstanding..... 39,044 34,414 30,018
-------- ------- -------
See accompanying notes to consolidated financial statements.
25
28
MACROMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 31, 1996, 1995, and 1994 (in thousands, except share data)
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ ---------- ------ ---------
Balances as of March 31, 1993 ........................ 3,738,022 $4 16,564,808 $8 $ 31,092
Issuanc of common stock, net of offering
costs of $1,059 .................................. -- -- 4,375,000 2 23,354
Exercise of stock options .......................... -- -- 806,492 1 389
Conversion of preferred stock to common stock ...... (3,738,022) (4) 7,476,044 4 --
Repurchase of common stock ......................... -- -- (98,438) -- (125)
Dividends .......................................... -- -- -- -- --
Note receivable repayment .......................... -- -- -- -- --
Exercise of common stock warrants .................. -- -- 335,190 -- 670
Foreign currency translation adjustment ............ -- -- -- -- --
Net income ......................................... -- -- -- -- --
--------- --- ---------- --- --------
Balances as of March 31, 1994 ........................ -- -- 29,459,096 15 55,380
Exercise of stock options .......................... -- -- 1,398,302 1 1,037
Repurchase of common stock ......................... -- -- (31,500) -- (40)
Common stock issued under Employee Stock
Purchase Plan .................................... -- -- 83,640 -- 387
Tax benefit from employee stock plans .............. -- -- -- -- 526
Common stock issued under stock
appreciation rights .............................. -- -- 91,070 -- 976
Adjustment for change in Altsys Corporation
fiscal year-end .................................. -- -- -- -- --
Note receivable repayment .......................... -- -- -- -- --
Foreign currency translation adjustment ............ -- -- -- -- --
Net income ......................................... -- -- -- -- --
--------- --- ---------- --- --------
Balances as of March 31, 1995 ........................ -- -- 31,000,608 16 58,266
Exercise of stock options .......................... -- -- 1,461,806 1 3,467
Exercise of warrants ............................... -- -- 11,680 -- --
Common stock issued under Employee Stock
Purchase Plan .................................... -- -- 61,732 -- 1,011
Tax benefit from employee stock plans .............. -- -- -- -- 8,827
Sale of common stock in secondary offering
net of issuance costs of $435,000 ................ -- -- 2,442,676 2 55,844
Two-for-one common stock split ..................... -- -- -- 15 (15)
Adjustment for effect of poolings on
prior periods .................................... -- -- 1,434,709 2 1,776
Deferred compensation - iband ...................... -- -- -- -- 415
Net income ......................................... -- -- -- -- --
--------- --- ---------- --- --------
Balances as of March 31, 1996 ........................ -- $-- 36,413,211 $36 $129,591
========= === ========== === ========
See accompanying notes to consolidated financial statements.
Chart continued on page 27
26
29
(Caption>
NOTES RETAINED FOREIGN
RECEIVABLE EARNINGS CURRENCY TOTAL
DEFERRED (FROM (ACCUMULATED TRANSLATION STOCKHOLDERS'
COMPENSATION STOCKHOLDERS DEFICIT ADJUSTMENTS EQUITY
------------ ------------ ----------- ------------ ------------
Balances as of March 31, 1993 ........................ $ -- $(115) $(26,708) $ (76) $ 4,205
Issuanc of common stock, net of offering
costs of $1,059 .................................. -- -- -- -- 23,356
Exercise of stock options .......................... -- -- -- -- 390
Conversion of preferred stock to common stock ...... -- -- -- -- --
Repurchase of common stock ......................... -- -- -- -- (125)
Dividends .......................................... -- -- (4) -- (4)
Note receivable repayment .......................... -- 26 -- -- 26
Exercise of common stock warrants .................. -- -- -- -- 670
Foreign currency translation adjustment ............ -- -- -- (133) (133)
Net income ......................................... -- -- 3,475 -- 3,475
----- ----- -------- ----- --------
Balances as of March 31, 1994 ........................ -- (89) (23,237) (209) 31,860
Exercise of stock options .......................... -- -- -- -- 1,038
Repurchase of common stock ......................... -- -- -- -- (40)
Common stock issued under Employee Stock
Purchase Plan .................................... -- -- -- -- 387
Tax benefit from employee stock plans .............. -- -- -- -- 526
Common stock issued under stock
appreciation rights .............................. -- -- -- -- 976
Adjustment for change in Altsys Corporation
fiscal year-end .................................. -- -- (1,902) -- (1,902)
Note receivable repayment .......................... -- 89 -- -- 89
Foreign currency translation adjustment ............ -- -- -- 209 209
Net income ......................................... -- -- 6,538 -- 6,538
----- ----- -------- ----- --------
Balances as of March 31, 1995 ........................ -- -- (18,601) -- 39,681
Exercise of stock options .......................... -- -- -- -- 3,468
Exercise of warrants ............................... -- -- -- -- --
Common stock issued under Employee Stock
Purchase Plan .................................... -- -- -- -- 1,011
Tax benefit from employee stock plans .............. -- -- -- -- 8,827
Sale of common stock in secondary offering
net of issuance costs of $435,000 ................ -- -- -- -- 55,846
Two-for-one common stock split ..................... -- -- -- -- --
Adjustment for effect of poolings on
prior periods .................................... -- -- (432) -- 1,346
Deferred compensation - iband ...................... (415) -- -- -- --
Net income ......................................... -- -- 23,002 -- 23,002
----- ----- -------- ----- --------
Balances as of March 31, 1996 ........................ $(415) $ -- $ 3,969 $ -- $133,181
===== ===== ======== ===== ========
See accompanying notes to consolidated financial statements.
27
30
MACROMEDIA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1996, 1995, and 1994 (in thousands, except share data)
1996 1995 1994
---------- --------- --------
Cash flows from operating activities:
Net income .................................................. $ 23,002 $ 6,538 $ 3,475
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 4,013 2,110 1,311
Tax benefit from employee stock plans .................. 8,827 526 --
Provision for merger-related cost ...................... 1,628 386 --
Reserve on related party note receivable ............... -- (507) (130)
Compensation expense on stock appreciation
rights ............................................... -- 976 --
Deferred income taxes .................................. (4,675) -- --
Changes in operating assets and liabilities,
net of effect of mergers:
Accounts receivable, net ............................. (6,561) (1,764) (371)
Inventory ............................................ 33 (1,139) 269
Prepaid expenses and other current assets ............ (2,011) (1,539) (37)
Accounts payable ..................................... 5,357 3,042 380
Accrued liabilities .................................. 5,464 1,805 234
Unearned revenue ..................................... (1,532) 1,433 (151)
Other current liabilities ............................ (298) (471) (661)
Other long-term liabilities .......................... (81) (89) (41)
--------- -------- --------
Net cash provided by operating activities .......... 33,166 11,307 4,278
Cash flows from investing activities:
Acquisition of property and equipment ....................... (9,537) (4,266) (1,410)
Purchase of short-term investments .......................... (248,741) (28,855) (17,690)
Maturities and sales of short-term investments .............. 184,659 16,857 --
Other long-term assets ...................................... (1,273) (13) (66)
--------- -------- --------
Net cash used in investing activities .............. (74,892) (10,277) (19,166)
--------- -------- --------
Chart continued on page 29
28
31
MACROMEDIA, INC. AND SUBSIDIARIES
1996 1995 1994
------- ------- -------
Cash flows from financing activities:
Proceeds from notes payable................. $ -- $ -- $ 85
Repayments of notes payable................. -- -- (1,139)
Proceeds from secondary offering,
net of issuance costs..................... 55,846 -- --
Proceeds from issuance of common
stock and warrants........................ 4,479 1,425 1,061
Proceeds from initial public
offering, net of offering costs........... -- -- 23,356
Repayments of notes receivable
from stockholders......................... -- 89 26
Repurchase of common stock.................. -- (40) (125)
Other....................................... -- -- (52)
Net cash provided by
financing activities.......... 60,325 1,474 23,212
Foreign currency translation.................. -- 209 (133)
------- ------- -------
Increase in cash and cash equivalents......... 18,599 2,713 8,191
Cash and cash equivalents, beginning
of year..................................... 10,230 9,419 1,228
Adjustments for change in Altsys
Corporation fiscal year-end................. -- (1,902) --
------- ------- -------
Cash and cash equivalents, end of year........ $28,829 $10,230 $ 9,419
======= ======= =======
Supplemental disclosure of cash flow
information:
Interest paid............................... $ 3 $ 22 $ 80
------- ------- -------
Income taxes paid........................... $ 920 $ 449 $ 309
------- ------- -------
Supplemental noncash investing and
financing activities:
Common stock issued in exchange for
stock appreciation rights............... $ -- $ 976 $ --
------- ------- -------
All convertible preferred stock was exchanged for 7,476,044 shares of common
stock upon the Company's initial public offering during the year ended
March 31, 1994.
See accompanying notes to consolidated financial statements.
29
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MACROMEDIA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 31, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
MACROMEDIA, INC. (the Company) is a supplier of software tools and services to
the multi-media, graphic arts, Web publishing, and video communities. The
Company develops, markets, and supports an integrated line of multimedia and
digital arts software for Windows, Macintosh, and the World Wide Web. These
tools are used to create interactive multimedia applications and printed
materials for communication, education, and entertainment.
The Company sells its products worldwide through a variety of
distribution channels, including original equipment manufacturers (OEMs),
traditional software distributors, educational distributors, value-added
resellers (VARs), hardware and software superstores, retail dealers, mail
order, and direct sales.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries: Macromedia Europe Limited, located in
England, and Macromedia Japan KK, located in Japan, and the Company's
international branches.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Foreign Currency Translation
In fiscal 1995, the Company changed its functional currency from the local
currency to the U.S. dollar. Translation gains or losses are reflected in net
income.
Prior to the change in fiscal 1995, local currencies were the
functional currency and assets and liabilities denominated in foreign
currencies were translated to U.S. dollars at the exchange rate on the balance
sheet date. Revenues, costs, and expenses were translated at average rates of
exchange prevailing during the year. Translation adjustments resulting from
this process are shown separately in stockholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported accounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ materially from those estimates.
30
33
MACROMEDIA, INC. AND SUBSIDIARIES
Concentration of Credit Risks
The Company derived approximately 77% of its 1996 revenues from the sale of
three products: Director, FreeHand, and Authorware. The Company expects that
its revenues will continue for the foreseeable future to be substantially
dependent on these products and that competition for those products will
intensify in the future. A decline in sales of any of these products, as a
result of competition, technological change, or other factors, would have a
material adverse effect on the Company's results of operations.
Financial instruments that potentially subject to Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base and
their dispersion across different industries and geographic areas. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral on sales.
Cash Equivalents and Short-term Investments
Cash equivalents consist of certificates of deposit and money market funds with
stated effective maturities of three months or less at the time of purchase.
Cash equivalents and all of the Company's short-term investments are classified
as "available-for-sale" under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115. The securities are carried at fair value
which approximates cost.
The amortized cost of available-for-sale debt securities are adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in net investment income. Realized gains and losses,
and declines in value judged to be other than temporary on available-for-sale
securities are included in net investment income. The cost of securities sold
is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest and
investment income, net.
Inventory
Inventory consists primarily of software media, hardware product components,
manuals, and related packaging materials. Inventory is recorded at the lower of
cost or market, determined on a first-in, first-out basis.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of equipment,
furniture, and fixtures is provided over estimated useful lives ranging from
five to ten years using the straight-line method.
31
34
MACROMEDIA, INC. AND SUBSIDIARIES
Leasehold improvements are amortized over the lesser of the lease term or the
estimated useful life of the related assets, generally five to nine years.
Revenue Recognition
Revenue from product sales is recognized upon shipment. Revenue from software
maintenance contracts is recognized on a straight-line basis over the term of
the contract, generally one year. Revenue from consulting, training, and other
services is generally recognized on the percentage of completion method.
The Company has entered into agreements whereby it licenses products to
OEMs or provides customers the right to multiple copies. These agreements
generally provide for nonrefundable fixed fees which are recognized at delivery
of the product master or the first copy. Per copy royalties in excess of the
fixed minimum amounts and refundable license fees are recognized as earned and
are no longer refundable.
The Company maintains an allowance for potential credit losses and an
allowance for anticipated returns on products sold to distributors and direct
customers.
In the years ended March 31, 1996 and 1995, one customer accounted for
21% and 23%, respectively, of consolidated revenue. Accounts receivable
relating to this customer were $3,934,000 as of March 31, 1996. In the year
ended March 31, 1994, another customer accounted for 10% of consolidated
revenues.
Software Development Costs
SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed," governs accounting for software development costs. This
statement provides for capitalization of certain software development costs
once technological feasibility is established. The cost so capitalized is then
amortized on a straight-line basis over the estimated product life, or on the
ratio of current revenue to total projected product revenues, whichever is
greater. No such costs have ever been capitalized.
Advertising Costs
The Company adopted SOP 93-7, "Reporting on Advertising Costs," in fiscal year
1996. As the Company has historically expensed advertising costs as incurred,
the adoption of SOP 93-7 did not have a material impact on the accompanying
consolidated financial statements.
In accordance with SOP 93-7, a reclassification has been made to
include co-op advertising in revenues and in sales and marketing expenses for
all periods presented. The increases in these balances as a result of this
reclassification amounted to $6,914,000, $2,194,000, and $0 in fiscal 1996,
1995, and 1994, respectively.
32
35
MACROMEDIA, INC. AND SUBSIDIARIES
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109
requires the use of the asset and liability method of accounting for income
taxes.
Net Income Per Share
Net income per common and common equivalent share is computed using the weighted
average number of common shares outstanding, and common equivalent shares from
the exercise of stock options using the treasury stock method.
Future Adoption of New Accounting Standard
The Financial Accounting Standards Board recently issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans,
including employee stock purchase plans and stock option plans. The Company
will adopt SFAs No. 123 effective April 1, 1996. Management plans to remain on
APB No. 25, "Accounting for Stock Issued to Employees," for purposes of
measurement of compensation expense. Therefore, adoption of SFAS No. 123 will
not have a material effect on the Company's consolidated results of operations.
Reclassification
Certain fiscal 1995 and 1994 amounts have been reclassified to conform to the
fiscal 1996 presentation.
* * *
2 BUSINESS COMBINATIONS
1996 Poolings of Interests
The company completed three separate acquisitions in fiscal 1996, as described
below, which were properly accounted for as poolings of interests. The impact
of the poolings on all periods prior to fiscal 1996 is immaterial both in the
aggregate, as well as individually, and, therefore, results for those periods
have not been restated. The accounts and operations of all three of the
acquired companies are included in the Company's consolidated financial
statements subsequent to their acquisition.
Fauve
On August 30, 1995, the Company issued 580,000 shares of its common stock in
exchange for all of the common stock of Fauve Software, Inc., the developer of
xRes, a full-featured image editing and composition application for Macintosh
and Windows, and Matisse, a full-color painting program for
33
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MACROMEDIA, INC. AND SUBSIDIARIES
Windows. The 1996 merger expenses of $400,000 associated with this acquisition
consisted principally of transaction fees for financial and legal advisers, and
relocation and reorganization expenses.
OSC
On December 2, 1995, the Company acquired the business and operations of OSC
pursuant to the exchange of all of the outstanding shares of OSC for 62,001
shares of the Company's common stock. OSC is the developer of DECK II, software
for professional quality multi-track music and sound production. The 1996
merger expenses of $225,000 related to this acquisition consisted principally
of transaction fees for financial and legal advisers, and relocation and
reorganization expenses.
iband
Effective March 14, 1996, the Company merged with iband, a developer of a
family of tools used to build dynamic Web sites on the Internet. The
transaction was accounted for as a pooling of interests; the Company exchanged
860,000 shares of common stock and stock options for all outstanding shares and
stock options of iband.
The 1996 merger expenses of $1,900,000 relating to costs incurred in
connection with the merger of the Company and iband, included transaction fees
for financial and legal advisers and relocation and reorganization expenses,
including approximately $1,400,000 relating to the issuance of an additional
40,000 shares of the Company's common stock for payment to certain entities and
individuals to settle certain iband obligations.
Merger with Altsys Corporation
On January 19, 1995, the Company issued approximately 4.3 million shares of its
common stock in exchange for all of the common stock of Altsys Corporation
(Altsys), a corporation that designs font editing and graphics design software
programs for business use. Upon consummation of the merger, the Company issued
approximately 45,000 shares of common stock in exchange for previously
outstanding Altsys stock appreciation rights. In addition, the Company assumed
Altsys stock options to purchase approximately 83,000 shares of the Company's
common stock subsequent to the merger (see Note 8).
The merger has been accounted for as a pooling of interests, and,
accordingly, the consolidated financial statements for periods prior to the
combination have been restated to include the results of operations, financial
position, and cash flows of Altsys.
34
37
MACROMEDIA, INC. AND SUBSIDIARIES
Information concerning common stock, employee stock option plans, and per
share data has been restated on an equivalent stock basis. Prior to the
combination, Altsys' fiscal year ended on December 31. In recording the
business combination, Altsys' financial statements for the nine months ended
September 30, 1994 and the three months ended March 31, 1995, have been
combined with the Company's consolidated financial statements for the year
ended March 31, 1995. Altsys' financial statements for the year ended December
31, 1993 have been combined with the Company's consolidated financial
statements for the year ended March 31, 1994.
The retained earnings charge for Altsys' quarter ended December 31, 1994,
to conform year-ends included a charge of approximately $1.4 million for
compensation expense related to the stock appreciation rights and is summarized
below (in thousands):
Revenue........................................... $ 1,409
Expenses.......................................... $(3,311)
Net income........................................ $(1,902)
The results of operations for the separate enterprises and the combined amounts
presented in the accompanying consolidated statements of income are summarized
below (in thousands):
Nine-month
period ended Year ended
December 31, March 31,
1994 1994
------------ ----------
Revenue:
Macromedia, Inc. ............ $29,622 $30,132
Altsys Corporation........... 5,272 7,410
------------ ----------
Combined........................ $34,894 $37,542
============ ==========
Net income:
Macromedia, Inc. ............ $ 4,702 $ 3,120
Altsys Corporation........... 36 355
------------ ----------
Combined........................ $ 4,738 $ 3,485
============ ==========
There were no significant transactions between the Company and Altsys prior to
the combination, which required elimination, and no adjustments were required
to conform to accounting policies.
35
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MACROMEDIA, INC. AND SUBSIDIARIES
The 1995 merger expense of $3,025,000 relates to costs incurred in
connection with the merger of the Company and Altsys. These costs consisted
principally of a finder's fee, transaction fees for advisers, financial
printing and other related charges, and the cancellation of a contractual
agreement.
* * *
3. CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
CASH EQUIVALENTS and short-term investments amounted to $16,545,000 and
$87,833,000, respectively, as of March 31, 1996. As of March 31, 1995, cash
equivalents and short-term investments were $2,541,000 and $23,751,000,
respectively. Cash equivalents and short-term investments have been classified
as available-for-sale securities and as of March 31, 1996 and 1995 consisted of
the following (in thousands):
1996 1995
-------- --------
Corporate notes .............................. $ 7,553 $ 8,212
Corporate bonds .............................. 31,738 7,905
Commercial paper ............................. 38,942 3,951
United States government debt securities ..... 8,028 3,683
Money market funds ........................... 5,502 1,541
Certificate of deposit ....................... 12,615 1,000
-------- -------
$104,378 $26,292
======== =======
Available-for-sale securities as of March 31, 1996 consisted of the following,
by contractual maturity (in thousands):
Due in one year or less.................................... $ 92,654
Due in one to three years.................................. 11,724
--------
$104,378
========
* * *
36
39
MACROMEDIA, INC. AND SUBSIDIARIES
4. PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT as of March 31, 1996 and 1995 consisted of the following
(in thousands):
1996 1995
------- -------
Computer equipment .............................. $13,163 $ 7,410
Officer equipment and furniture ................. 6,074 2,904
Leasehold improvements .......................... 1,237 623
20,474 10,937
Less accumulated depreciation and amortization .. 8,255 5,128
------- -------
Net fixed assets ................................ $12,219 $ 5,809
======= =======
Depreciation and amortization expense for the years ended March 31, 1996, 1995,
and 1994, was $2,993,000, $1,603,000, and $1,127,000, respectively.
* * *
5. ACCRUED LIABILITIES
ACCRUED LIABILITIES as of March 31, 1996 and 1995 consisted of the following
(in thousands):
1996 1995
------ ------
Accrued compensation ............................ $ 747 $ 504
Accrued fringe benefits ......................... 921 653
Accrued marketing development funds ............. 2,408 1,468
Income taxes payable ............................ 3,468 21
Other accrued expenses .......................... 1,412 846
------ ------
Total ......................................... $8,956 $3,492
====== ======
* * *
6. LINE OF CREDIT
THE COMPANY has a $15,000,000 unsecured line of credit with a bank at the
bank's prime rate which expires on July 15, 1997. Certain financial covenants
under the agreement become effective when borrowings commence. As of March 31,
1996, no borrowings had been made on this line of credit.
* * *
37
40
MACROMEDIA, INC. AND SUBSIDIARIES
7. INCOME TAXES
THE COMPONENTS of the provision for income taxes for the years ended March 31,
1996, 1995, and 1994 are as follows (in thousands):
1996 1995 1994
------- ------ ----
Current:
Federal............................ $ 3,519 $ 199 $201
State.............................. 765 100 41
Foreign............................ 343 230 50
------- ------ ----
Total current................ 4,627 529 292
Deferred:
Federal............................ (3,197) -- --
State.............................. (1,478) -- --
======= ====== ====
Total deferred............... (4,675) -- --
Add charge in lieu of taxes
attributable to employee stock
plans.............................. 8,827 526 --
Total........................ $ 8,779 $1,055 $292
======= ====== ====
The provision for income taxes differs from the expected tax expense amount
computed by applying the statutory federal income tax rate of 35% to income
before income taxes for the year ended March 31, 1996, and 34% for the years
ended March 31, 1995 and 1994, as a result of the following (in thousands):
1996 1995 1994
------- ------ -------
Computed tax at statutory rate....... $11,123 $ 2,582 $ 1,280
State taxes.......................... 497 485 41
Foreign Taxes........................ -- 230 50
Pre-acquisition taxes of Altsys...... -- 184 (49)
Nondeductible acquisition costs...... 768 -- --
Change in beginning of year
valuation allowance on deferred
tax assets......................... (4,555) (2,582) (1,124)
Alternative minimum tax.............. -- 156 94
Other................................ 946 -- --
------- ------- -------
Total........................ $ 8,779 $ 1,055 $ 292
======= ======= =======
38
41
MACROMEDIA, INC. AND SUBSIDIARIES
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets as of March 31, 1996 and 1995, is presented as
follows (in thousands):
1996 1995
------ -------
Reserves, accruals, and other....................... $4,027 $ 2,100
Net operating loss carryforward (federal)........... 1,392 5,780
Net operating loss carryforward (state)............. -- 167
Credit for increasing research activities........... 2,180 2,150
Other credits....................................... 688 355
------ -------
Total deferred tax assets........................ 8,287 10,552
Less valuation allowance............................ 3,612 10,552
------ -------
Net deferred tax assets.......................... $4,675 $ --
====== =======
As of March 31, 1996, the Company has available federal net operating loss
carryforwards of approximately $4,000,000. The Company also has unused research
credit carryforwards of approximately $1,600,000 and $600,000 for federal and
California purposes, respectively. If not utilized, net operating loss
carryforwards and the credit carryforwards will expire in fiscal years 2004
through 2011.
Approximately $3,300,000 of the valuation allowance for deferred tax
assets is attributable to employee stock plans, the benefit from which will be
allocated to paid-in capital rather than current earnings when subsequently
recognized. The Company's ability to utilize the loss carryforwards and the
research credit carryforwards are subject to certain limitations pursuant to
the ownership change rules of Internal Revenue Code, Section 382.
* * *
8. STOCKHOLDERS' EQUITY
Stock Split
EFFECTIVE OCTOBER 16, 1995, the Company completed a 2-for-1 stock split of its
common stock which was effected in the form of a stock dividend. In this
report, all per share amounts and number of shares have been retroactively
restated to reflect the stock split.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of convertible preferred
stock with a par value of $0.001 per share.
39
42
MACROMEDIA, INC. AND SUBSIDIARIES
Stock Warrants
The following summarizes stock warrant activity for the years ended
March 31, 1996, 1995 and 1994:
Number Exercise price
of shares per share
--------- --------------
Warrants outstanding as of March 31, 1993................. 407,220 $1.08-12.50
Exercised.............................................. (335,190) 1.08- 5.00
Canceled............................................... (54,530) 2.24-12.50
-------- -----------
Warrants outstanding as of March 31, 1994................. 17,500 5.74
Exercised.............................................. -- --
Canceled............................................... -- --
-------- -----------
Warrants outstanding as of March 31, 1995................. 17,500 5.74
Exercised.............................................. (11,680) 5.74
Canceled............................................... (5,820) 5.74
Warrants outstanding as of March 31, 1996................. -- --
-------- -----------
Stock Option Plans/Stock Appreciation Rights
As of March 31, 1996, there are stock options outstanding in connection with
the following stock option plans:
(i) MacroMind 1989 Incentive and Nonstatutory Stock Option Plans
(ii) Paracomp 1989 Stock Option Plan
(iii) Authorware 1988 Stock Option Plan
(iv) 1992 Equity Incentive Plan (EIP)
(v) 1993 Employee Stock Purchase Plan
(vi) 1993 Directors Stock Option Plan
The options outstanding under the plans indicated at (i) through (iii) (Prior
Plans) above were assumed as a result of the Company being the successor
company resulting from merger activities.
The EIP provides for the grant of incentive and nonqualified stock
options, restricted stock, and stock bonuses. The total number of shares
reserved pursuant to the EIP as of March 31, 1996, was 7,200,000 shares. Any
shares issuable upon exercise of options granted pursuant to the Prior Plans
that expire or become unexercisable for any reason without having been
exercised in full shall no longer be available for distribution under the Prior
Plans, but shall be available for distribution under the EIP.
The 1993 Employee Stock Purchase Plan and the 1993 Directors Stock
Option Plan have reserved 400,000 and 300,000 shares of common stock,
respectively, for issuance under those plans.
40
43
MACROMEDIA, INC. AND SUBSIDIARIES
In connection with the Altsys and iband acquisitions, all of the outstanding
options to purchase Altsys and iband common stock were converted into options
to purchase the Company's common stock. All of the Company's options converted
from Altsys options were exercised as of March 31, 1995.
Options granted normally vest over four years from the date of grant.
The options expire 10 years from the date of grant and are normally canceled
three months after an employee's termination.
Incentive options are granted at a price equal to the lowest fair
market value during the month of grant, as determined by the Board of
Directors. Nonqualified options must be granted at a price not less than 85% of
fair market value on the date of grant, as determined by the Board of
Directors.
The following summarizes activity in the stock option plans for the
years ended March 31, 1996, 1995 and 1994:
Number Exercise price
of shares per share
---------- ---------------
Options outstanding as of March 31, 1993 ........... 4,301,092 $0.20- 1.44
Granted .......................................... 1,935,212 0.75- 9.63
Exercised ........................................ (806,492) 0.20- 3.50
Canceled ......................................... (549,884) 0.20- 9.50
---------- -----------
Options outstanding as of March 31, 1994 ........... 4,879,928 0.20- 9.63
Granted .......................................... 3,330,794 4.75-16.50
Exercised ........................................ (1,398,302) 0.20-10.94
Canceled ......................................... (1,067,256) 0.22-10.94
---------- -----------
Options outstanding as of March 31, 1995 ........... 5,745,164 0.20-16.50
Granted .......................................... 2,426,215 0.31-41.31
Exercised ........................................ (1,461,806) 0.20-36.88
Canceled ......................................... (346,547) 0.34-40.00
Options outstanding as of March 31, 1996 ........... 6,363,026 0.20-41.31
---------- -----------
As of March 31, 1996, options to purchase 1,869,848 shares of common stock were
exercisable under the plans.
The Company has recorded deferred compensation of $415,000 for the
difference between the grant price and the deemed fair value of the common
stock underlying the options issued in connection with the iband acquisition in
March 1996. This amount is to be amortized over the vesting period of the
individual options, generally four years.
* * *
41
44
MACROMEDIA, INC. AND SUBSIDIARIES
9. COMMITMENTS AND CONTINGENCIES
Royalties
THE COMPANY has entered into agreements with third parties that provide for
royalty payments based on a per unit wholesale price of certain products.
Leases
The Company leases office space and certain equipment under operating leases,
certain of which contain renewal and purchase options.
Future minimum payments under operating leases with an initial term of
more than one year are summarized as follows (in thousands):
1997.................................. $ 2,041
1998.................................. 2,034
1999.................................. 2,085
2000.................................. 2,060
2001.................................. 1,705
Thereafter............................ 1,279
-------
Total minimum lease payments..... $11,204
=======
Rent expense was $1,774,000, $1,131,000, and $961,000 for the years ended March
31, 1996, 1995, and 1994, respectively.
Litigation
The Company is also subject to various legal matters that arise in the normal
course of business. In the opinion of management, any liability resulting from
the disposition of such matters would not have a material adverse effect on the
financial position of the Company.
* * *
10. EMPLOYEE BENEFITS
THE COMPANY maintains a profit sharing salary deferral 401(k) defined
contribution benefit plan that covers all employees who have attained 21 years
of age and completed at least 1,000 hours of service. This plan allows
employees to defer up to 15% of their pretax salary in certain investments at
the discretion of the employee. Employer contributions are made at the
discretion of the Company's Board of Directors. Employer contributions made to
the plan during the years ended March 31, 1996, 1995, and 1994, were $291,000,
$0, and $150,000, respectively.
42
45
MACROMEDIA, INC. AND SUBSIDIARIES
11. LAND ACQUISITION AGREEMENT
IN MARCH 1996, the Company entered into an Agreement of Purchase and Sale (the
Agreement) with a third party to purchase a parcel of land in Redwood City,
California, for $6,960,000. As of March 31, 1996, the Company had made an
initial deposit of approximately $350,000 in connection with the Agreement. The
Company intends to construct a building on this land parcel that will be
occupied by certain of its research and development employees. Construction
of the building is expected to begin in June 1996.
* * *
12. INFORMATION BY GEOGRAPHIC AREA
THE COMPANY'S OPERATIONS outside the United States consist of sales offices of
wholly owned subsidiaries in Japan, the United Kingdom, and a branch in
Australia. Domestic operations are responsible for the design and development
of all products, as well as shipping to meet worldwide customer commitments.
The foreign sales offices receive a commission on export sales within the
territory. Accordingly, for financial statement purposes, it is not meaningful
to segregate operating profit (loss) for the foreign sales offices. The
distribution of net revenues and identifiable assets by geographic areas for
the years ended March 31, 1996, 1995, and 1994, follows (in thousands):
1996 1997 1998
---- ---- ----
Net revenues:
United States........................... $ 67,560 $37,367 $28,739
Europe.................................. 28,089 8,696 3,212
Pacific Rim............................. 21,042 9,829 5,591
-------- ------- -------
Total net revenues.................. $116,691 $55,892 $37,542
======== ======= =======
Identifiable assets:
United States........................... $154,166 $54,900 $39,479
Europe.................................. 470 278 141
Pacific Rim............................. 1,479 228 36
Eliminations............................ (993) (2,976) (1,153)
-------- ------- -------
Total assets........................ $155,122 $52,430 $38,503
======== ======= =======
* * *
43
46
Quarterly Results of Operations
(unaudited)
SUMMARIZED QUARTERLY FINANCIAL INFORMATION for fiscal years 1996 and 1995 is as
follows (in thousands, except per share data):
Quarter Ended Fiscal
-------------------------------------------------- Year
Fiscal Year June 30 September 30 December 31 March 31 Totals
- ----------- ------- ------------ ----------- -------- --------
1996:
Total revenues ..................... $23,857 $27,301 $30,926 $34,607 $116,691
Gross profit ....................... 19,632 22,626 25,651 29,182 97,091
Operating income ................... 5,231 6,725 8,800 6,924 27,680
Net income ......................... 4,423 5,417 7,152 6,010 23,002
Net income per share(a) ............ 0.13 0.15 0.18 0.15 0.59
1995:
Total revenues ..................... $10,339 $12,245 $12,310 $20,998 $ 55,892
Gross profit ....................... 8,614 10,213 10,199 17,248 46,274
Operating income ................... 1,256 2,202 2,024 1,735 7,217
Net income ......................... 1,019 1,884 1,835 1,800 6,538
Net income per share(a) ............ 0.03 0.06 0.05 0.05 0.19
- ----------
(a) See Note 1 of notes to consolidated financial statements for an explanation
of the determination of the number of shares used in computing net income
per share.
44
47
Independent Auditors' Report
The Board of Directors
Macromedia, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Macromedia, Inc.
and subsidiaries as of March 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended March 31, 1996. In connection with our audits of
the consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits. We did not audit the financial statements of Altsys Corporation, a
company acquired by Macromedia, Inc. in a business combination accounted for as
a pooling of interests as described in Note 2 to the consolidated financial
statements, which statements reflect total revenues constituting 9 percent and
20 percent in fiscal 1995 and 1994, respectively, of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Altsys Corporation, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Macromedia, Inc. and subsidiaries
as of March 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the years in the three-year period ended March 31, 1996,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Palo Alto, California
April 16, 1996
45
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not Applicable.
46
49
PART III
Certain information required by Part III is omitted from this Report since the
Company plans to file with the Securities and Exchange Commission the
definitive proxy statement for its 1996 Annual Meeting of Stockholders (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the section in the Company's Proxy Statement
entitled "Proposal No. 1 - Election of Directors."
The information concerning the Company's executive officers required by this
Item is incorporated by reference herein to Part I, Item 4A, entitled
"Executives Officers of the Registrant." on page 10 of this Report.
The information concerning compliance with Section 16 of the Securities
Exchange Act of 1934 is incorporated by reference to the section in the
Company's proxy statement entitled "Compliance under Section 16(a) of the
Securities Exchange Act of 1934."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
sections in the Company's Proxy Statement entitled "Executive Compensation,"
"Compensation of Directors," "Employment Agreements," and "Compensation
Committee Interlocks and Insider Participation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section in the Company's Proxy Statement entitled "Security Ownership of
Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section in the Company's Proxy Statement entitled "Certain Transactions."
47
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following Consolidated Financial Statements
of Macromedia, Inc. are incorporated by reference from Part II, Item 8
of this 10K:
Page
----
Consolidated Balance Sheets - March 31, 1996 and 1995 24
Consolidated Statements of Income - Fiscal Years Ended March 31, 1996, 1995, and 1994 25
Consolidated Statements of Stockholders' Equity - Three Year Period Ended March 31, 1996 26
Consolidated Statements of Cash Flows - Fiscal Years Ended March 31, 1996, 1995, and 1994 28
Notes to Consolidated Financial Statements 30
Report of KPMG Peat Marwick LLP 45
2. Financial Statement Schedule. The following financial statement
schedules of Macromedia, Inc. for the fiscal years ended March 31, 1996,
1995 and 1994 is filed as part of this Report and should be read in
conjunction with the Consolidated Financial Statements of Macromedia,
Inc.
Schedule Page
-------- ----
II Valuation and Qualifying Accounts 52
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes
thereto.
3. Exhibits
Exhibit
Number Exhibit Title
-------- -------------
2.01 Agreement and Plan of Reorganization by and among the
Registrant, Authorware, Inc. and MacroMind/Paracomp, Inc.,
dated as of February 28, 1992, and certain exhibits thereto.
(Incorporated herein by reference to exhibit 2.01 to the
Registrant's registration statement on Form S-1 (File number
33-70624) declared effective by the Commission on December 10,
1993 (The "Form S-1")).
2.02 Agreement and Plan of Reorganization among MacroMind, Inc.,
Paracomp, Inc. and Certain Shareholders of Paracomp, Inc.
dated August 21, 1991, as amended October 11, 1991 and certain
exhibits thereto. (Incorporated herein by reference to exhibit
2.02 to the Form S-1).
2.03 Agreement and Plan of Reorganization dated October 26, 1994
between the Registrant and Altsys Corporation. (Incorporated
herein by reference to exhibit 2.03 to the Registrant's
registration statement on Form S-4 (File number 33-87264)
declared effective by the Commission on December 14, 1994 (The
"Altsys S-4")).
2.04 Agreement of Merger and Articles of Merger dated January 20,
1995 entered into by the Registrant and Altsys Corporation.
(Incorporated herein by reference to exhibit 2.04 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1994 (the "December 31, 1994 10-Q")).
2.05 Agreement and Plan of Reorganization dated as of August 30,
1995, by and between Macromedia and Fauve and related
documents. (Incorporated herein by reference to exhibit 2.01
to the Registrant's Current Report on Form 8-K dated August
31, 1995 (the "Fauve 8-K")).
2.06 Agreement of Merger dated as of August 30, 1995, by and
between Macromedia and Fauve. (Incorporated herein by
reference to exhibit 2.02 to the Fauve 8-K.)
3.01 Registrant's Certificate of Incorporation, as amended.
(Incorporated herein by reference to exhibit 4.01 to the
Registrant's registration statement on Form S-8 (File number
33-89092) declared effective by the Commission on February 3,
1995 (The "February 1995 S-8")).
48
51
3.02 Certificate of Amendment of Registrant's Amended and Restated
Certificate of Incorporation. (Incorporated herein by
reference to exhibit 3.02 to the Registrant's Amendment No. 1
to registration statement on Form 8-A filed on October 5, 1995
(the "First 8-A Amendment")).
3.03 Registrant's Bylaws. (Incorporated herein by reference to
exhibit 3.02 to the Form S-1).
3.04 Amendment to Registrant's Bylaws effective October 15, 1993.
(Incorporated herein by reference to exhibit 3.03 to the Form
S- 1).
4.01 Investor Rights Agreement, dated as of March 31, 1992, as
amended April 1, 1992, between the Registrant and various
investors. (Incorporated herein by reference to exhibit 4.01
to the Form S-1).
4.02 Amendment to the Investor Rights Agreement affective January
20, 1995. (Incorporated herein by reference to exhibit 4.02 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996 (the "March 31,1995 10-K")).
4.03 Amendment Number Three to Investor Rights Agreement effective
July 12, 1995. (Incorporated herein by reference to exhibit
4.03 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 (the "June 30, 1995 10-Q")).
4.04 Amendment Number Four to Investor Rights Agreement effective
August 31, 1995. (Incorporated herein by reference to exhibit
4.04 to the First 8-A Amendment.)
4.05 Amendment No. Five to the Registration Rights Agreement
(Incorporated herein by reference to exhibit 4.06 to Form S-3
(File number 333-644), declared effective February 8, 1996).
4.06 Amendment Number Six to Investor Rights Agreement, effective
March 14, 1996.
10.01* 1989 Paracomp Stock Option Plan. (Incorporated herein by
reference to exhibit 10.01 to the Form S-1).
10.02* 1989 MacroMind Incentive Stock Option Plan and 1989
Nonstatutory Stock Option Plan as amended March 1992.
(Incorporated herein by reference to exhibit 10.02 to the Form
S-1).
10.03* 1988 Authorware Stock Option Plan as amended and restated
February 1992. (Incorporated herein by reference to exhibit
10.03 to the Form S-1).
10.04* 1992 Equity Incentive Plan and related documents, as amended
to date.
10.05* 1993 Directors Stock Option Plan and related documents, as
amended to date. (Incorporated herein by reference to exhibit
10.05 to the June 30, 1995 10-Q).
10.06* 1993 Employee Stock Purchase Plan.
10.07* Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
(Incorporated herein by reference to exhibit 10.08 to the Form
S-1).
10.08* Employment Agreement between the Registrant and John C.
Colligan dated December 9, 1988. (Incorporated herein by
reference to exhibit 10.09 to the Form S-1).
10.09* Employment and Noncompetition Agreement with Kevin F. Crowder.
(Incorporated herein by reference to exhibit 10.12 to the
December 31, 1994 10-Q).
10.10* Employment and Noncompetition Agreement with James R. Von Ehr
II. (Incorporated herein by reference to exhibit 10.13 to the
December 31, 1994 10-Q).
10.11 Escrow Agreement among the Registrant and James R. Von Ehr II,
Gayla J. Von Ehr and Kevin F. Crowder. (Incorporated herein by
reference to exhibit 10.11 to the December 31, 1994 10-Q).
10.12 Lease Agreement by and between Registrant and Toda
Development, Inc. dated June 27, 1991 as amended.
(Incorporated herein by reference to exhibit 10.07 to the Form
S-1).
10.13 Third amendment to Lease Agreement by and between Registrant
and Toda Development, Inc. dated November 7, 1994 and fourth
amendment to Lease Agreement by and between Registrant and
Toda Development, Inc. dated April 6, 1995. (Incorporated
herein by reference to exhibit 10.14 to the March 31, 1995
10-K).
10.14 Fifth Amendment to lease Agreement by and between Registrant
and Toda Development, Inc. dated August 31, 1995 and sixth
amendment to lease Agreement by and between Registrant and
Toda Development, Inc. dated October 31, 1995. (Incorporated
herein by reference to exhibit 10.18 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
10.15 Seventh Amendment to Lease Agreement by and between Registrant
and Toda Development, Inc. dated December 15, 1995 and Eight
Amendment to Lease Agreement by and between Registrant and Toda
Development, Inc. dated January 25, 1996 and Ninth Amendment to
Lease Agreement by and between Registrant and Toda Development,
Inc. dated February 21, 1996 and Tenth Amendment to Lease
Agreement by and between Registrant and Toda Development, Inc.
dated April 30, 1996 and Eleventh Amendment to
52
Lease Agreement by and between Registrant and Toda Development,
Inc. dated June 13, 1996.
10.16 Termination and License Agreement by and between Altsys
Corporation and Aldus Corporation, dated October 24, 1994
(Incorporated herein by reference to exhibit 10.11 to the
Altsys S-4).
10.17 Letter Agreement between the Registrant and Michael Solomon
(Incorporated herein by reference to exhibit 10.12 to the
Altsys S-4).
10.18 Line of Credit Agreement by and between Registrant and
Imperial Bank dated August 2, 1995. (Incorporated herein by
reference to exhibit 10.17 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995).
10.19** Distribution Agreement by and between the Registrant and
Ingram Micro, Inc. dated March 28, 1996.
11.01 Statement regarding computation of per share earnings.
21.01 List of Registrant's subsidiaries.
23.01 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.02 Consent of Arthur Andersen LLP, Independent Auditors.
24.01 Power of Attorney (see page 51 of this Form 10-K).
27.01 Financial Data Schedule.
______________________
* Represents a management contract or compensatory plan or arrangement
** Confidential treatment has been requested with respect to certain portions
of this agreement. Such portions have been redacted and marked with a double
asterisk. The non-redacted version of this agreement has been sent to the
Securities and Exchange Commission pursuant to an application for
confidential treatment.
(b) Reports on Form 8-K: In March 1996, the Company filed a report on Form 8-K
dated March 14, 1996, related to its acquisition of iband, Inc. pursuant
to Item 5 under Form 8-K. No financial statements were required to be
filed with the Form 8-K.
With the exception of the information incorporated by reference to the Proxy
Statement in Items 10, 11, 12 and 13 of Part III, the Proxy Statement is not
deemed to be filed as part of this Report.
50
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ John C. Colligan
----------------------------------
John C. Colligan
President, Chief Executive Officer
Dated: June 26, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John C. Colligan and Richard B. Wood, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and dates indicated.
Signature Title Date
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ John C. Colligan Chairman of the Board of Directors, June 26, 1996
- --------------------------- President, and Chief Executive Officer
John C. Colligan
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Richard B. Wood Vice President of Operations, June 26, 1996
- --------------------------- Chief Financial Officer, and Secretary
Richard B. Wood
DIRECTORS:
/s/ L. John Doerr Director June 26, 1996
- ---------------------------
L. John Doerr
/s/ C. Richard Kramlich Director June 26, 1996
- ---------------------------
C. Richard Kramlich
/s/ John C. Laing Director June 26, 1996
- ---------------------------
John C. Laing
/s/ Donald L. Lucas Director June 26, 1996
- ---------------------------
Donald L. Lucas
/s/ William B. Welty Director June 26, 1996
- ---------------------------
William B. Welty
/s/ James R. Von Ehr II Director June 26, 1996
- ---------------------------
James R. Von Ehr II
/s/ Kevin F. Crowder Director June 26, 1996
- ---------------------------
Kevin F. Crowder
51
54
Macromedia, Inc.
Schedule II
Valuation and Qualifying Accounts
For the years ended March 31, 1996, 1995 and 1994
(in thousands)
Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions of Period
- ------------------------------- ---------- ---------- ---------- ---------
Allowance for Doubtful Accounts
Year Ended March 31, 1996 $ 399 $ 740 $ 204 $ 935
------ ------ ------ ------
Year Ended March 31, 1995 $ 321 $ 243 $ 165 $ 399
------ ------ ------ ------
Year Ended March 31, 1994 $ 274 $ 528 $ 481 $ 321
------ ------ ------ ------
Allowance for Returns
Year Ended March 31, 1996 $1,088 $8,923 $6,569 $3,442
------ ------ ------ ------
Year Ended March 31, 1995 $ 639 $3,791 $3,342 $1,088
------ ------ ------ ------
Year Ended March 31, 1994 $ 170 $1,963 $1,494 $ 639
------ ------ ------ ------
52
55
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
4.06 Amendment Number Six to Investor Rights Agreement 54
10.04* 1992 Equity Incentive Plan and related documents, as amended to date 59
10.06* 1993 Employee Stock Purchase Plan 72
10.15 Seventh Amendment to Lease Agreement by and between Registrant and Toda
Development, Inc. dated December 15, 1995 and Eight Amendment to Lease
Agreement by and between Registrant and Toda Development, Inc. dated
January 25, 1996 and Ninth Amendment to Lease Agreement by and between
Registrant and Toda Development, Inc. dated February 21, 1996 and Tenth
Amendment to Lease Agreement by and between Registrant and Toda
Development, Inc. dated April 30, 1996 and Eleventh Amendment to Lease
Agreement by and between Registrant and Toda Development, Inc. dated
June 13, 1996 78
10.19**Distribution Agreement by and between the Registrant and
Ingram Micro, Inc. 97
11.01 Statement regarding computation of per share earnings 110
21.01 List of Registrant's subsidiaries 111
23.01 Consent of KPMG Peat Marwick LLP, Independent Auditors 112
23.02 Consent of Arthur Andersen LLP, Independent Auditors 113
27.01 Financial Data Schedule 114
- ------------------
*Represents a management contract or compensatory plan or arrangement
**Confidential treatment has been requested with respect to certain portions of
this agreement. Such portions have been redacted and marked with a double
asterisk. The non-redacted version of this agreement has been sent to the
Securities and Exchange Commission pursuant to an application for confidential
treatment.
53