-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QJfa6+i35gf2A8KtHLh8MCDYB4nXOjur/k+AALteftrbNX+ZdF7816A3zSO3Z1e+ Kd6hbfBEkHRGsuK7iY2oEg== 0000912057-95-008502.txt : 19951013 0000912057-95-008502.hdr.sgml : 19951013 ACCESSION NUMBER: 0000912057-95-008502 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950901 FILED AS OF DATE: 19951012 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADOBE SYSTEMS INC CENTRAL INDEX KEY: 0000796343 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770019522 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07033 FILM NUMBER: 95580099 BUSINESS ADDRESS: STREET 1: 1585 CHARLESTON RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-1225 BUSINESS PHONE: 4159614400 MAIL ADDRESS: STREET 1: P.O. BOX 7900 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94039-7900 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________ FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 1, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number: 33-6885 ADOBE SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) California 77-0019522 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1585 Charleston Road, Mountain View, California 94043-1225 (Address of principal executive offices) (Zip Code) (415) 961-4400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Shares Outstanding Class September 1, 1995 ----- ----------------- Common stock, no par value 63,819,199 TABLE OF CONTENTS Page No. PART I -- FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 28 Signature 35 Summary of Trademarks 36 EXHIBITS Exhibit 11 Computation of Earnings per Common Share Exhibit 27 Financial Data Schedules 2 PART I -- FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements included under this item are as follows: Sequentially Numbered Financial Statement Description Page - ------------------------------------------------------------------ ------------ - - Condensed Consolidated Statements of Income Quarters Ended September 1, 1995 and August 26, 1994 and Nine Months Ended September 1, 1995 and August 26, 1994 4 - - Condensed Consolidated Balance Sheets September 1, 1995 and November 25, 1994 5 - - Condensed Consolidated Statements of Cash Flows Nine Months Ended September 1, 1995 and August 26, 1994 6 - - Notes to Condensed Consolidated Financial Statements 8 3 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarters Ended Nine Months Ended -------------------------- -------------------------- September 1 August 26 September 1 August 26 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Revenue: Licensing $ 45,091 $ 39,130 $ 136,486 $ 115,713 Application products 111,563 107,507 356,752 316,609 ----------- ----------- ----------- ----------- Total revenue 156,654 146,637 493,238 432,322 Direct costs 25,712 26,162 89,267 80,061 ----------- ----------- ----------- ----------- Gross margin 130,942 120,475 403,971 352,261 ----------- ----------- ----------- ----------- Operating expenses: Software development costs: Research and development 29,155 24,353 82,017 69,537 Amortization of capitalized software development costs 1,929 3,916 7,084 10,689 Sales, marketing and customer support 49,682 52,283 144,970 149,401 General and administrative 11,396 12,928 35,062 39,068 Write-off of acquired in- process research and development -- -- -- 3,045 ----------- ----------- ----------- ----------- Total operating expenses 92,162 93,480 269,133 271,740 ----------- ----------- ----------- ----------- Operating income 38,780 26,995 134,838 80,521 Nonoperating income: Interest, investment and other income 6,754 1,757 19,028 5,625 ----------- ----------- ----------- ----------- Income before income taxes 45,534 28,752 153,866 86,146 Provision for income taxes 16,081 10,691 56,161 31,686 ----------- ----------- ----------- ----------- Net income $ 29,453 $ 18,061 $ 97,705 $ 54,460 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income per share $ .44 $ .29 $ 1.48 $ .88 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Shares used in computing net income per share 67,121 62,566 66,032 61,874 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
September 1 November 25 1995 1994 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 108,817 $ 190,091 Short-term investments 365,469 210,269 Receivables 92,762 96,585 Inventories 6,983 9,619 Other current assets 9,912 7,837 Deferred income taxes 19,675 17,962 ----------- ----------- Total current assets 603,618 532,363 Property and equipment 43,531 39,104 Other assets 91,089 45,561 Deferred income taxes 9,802 8,475 ----------- ----------- $ 748,040 $ 625,503 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade and other payables $ 21,916 $ 30,840 Accrued expenses 73,998 79,000 Accrued restructuring costs 8,701 28,457 Income taxes payable 23,695 23,083 Deferred revenue 8,573 7,352 ----------- ----------- Total current liabilities 136,883 168,732 ----------- ----------- Shareholders' equity: Preferred stock, no par value; 2,000,000 shares authorized; none issued -- -- Common stock, no par value; 200,000,000 shares authorized; 63,819,199 and 61,150,049 shares issued and outstanding as of September 1, 1995, and November 25, 1994, respectively 206,536 142,207 Unrealized gains (losses) on investments 1,656 (1,088) Retained earnings 407,872 319,704 Cumulative foreign currency translation adjustments (4,907) (4,052) ----------- ----------- Total shareholders' equity 611,157 456,771 ----------- ----------- $ 748,040 $ 625,503 ----------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Nine Months Ended -------------------------- September 1 August 26 1995 1994 ----------- ----------- Cash flows from operating activities: Net income $ 97,705 $ 54,460 Adjustments to reconcile net income to net cash provided by operating activities: Stock compensation expense 2,515 752 Depreciation and amortization 37,602 38,159 Deferred income taxes (3,045) (5,129) Provision for losses on accounts receivable 1,255 767 Tax benefit from employee stock plans 21,158 6,018 Write-off of acquired in-process research and development -- 3,045 Changes in operating assets and liabilities: Receivables 1,563 6,803 Inventories 2,560 (1,089) Other current assets (2,752) (7,339) Trade and other payables (8,319) 1,881 Accrued expenses (6,255) 2,342 Accrued restructuring costs (16,362) -- Income taxes payable 633 5,244 Deferred revenue 1,182 (921) ----------- ----------- Net cash provided by operating activities 129,440 104,993 ----------- ----------- Cash flows from investing activities: Purchases of short-term investments (2,330,768) (1,069,633) Maturities and sales of short-term investments 2,178,312 1,032,888 Acquisitions of property and equipment (20,422) (19,406) Capitalization of software development costs -- (10,487) Additions to other assets (68,403) (4,139) Acquisitions, net of cash acquired -- (6,297) ----------- ----------- Net cash used for investing activities (241,281) (77,074) ----------- -----------
(Continued) SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (CONTINUED)
Nine Months Ended -------------------------- September 1 August 26 1995 1994 ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock $ 58,379 $ 29,799 Proceeds from sales of put warrants -- 718 Repurchase of common stock (17,725) (6,737) Payment of dividends (9,532) (6,864) ----------- ----------- Net cash provided by financing activities 31,122 16,916 ----------- ----------- Effect of foreign currency exchange rates on cash and cash equivalents (555) 672 ----------- ----------- Net increase (decrease) in cash and cash equivalents (81,274) 45,507 Adjustment for change in Aldus Corporation fiscal year-end -- (3,554) Cash and cash equivalents at beginning of period 190,091 134,039 ----------- ----------- Cash and cash equivalents at end of period $ 108,817 $ 175,992 ----------- ----------- ----------- ----------- Supplemental disclosures: Cash paid during the period for income taxes $ 34,516 $ 21,463 ----------- ----------- ----------- ----------- Noncash investing and financing activities: Dividends declared but not paid $ 3,197 $ 3,125 ----------- ----------- ----------- ----------- Reclassification of put warrants $ -- $ 6,906 ----------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 7 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited condensed consolidated statements of income, balance sheets and statements of cash flows reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the financial position at September 1, 1995, and the statements of income and cash flows for the interim periods ended September 1, 1995 and August 26, 1994. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of the results of operations, the financial position, and cash flows, in conformity with generally accepted accounting principles. The Company filed audited consolidated financial statements which included all information and footnotes necessary for such a presentation of the results of operations, financial position, and cash flows for the years ended November 25, 1994, November 26, 1993 and November 27, 1992, in the Company's 1994 Annual Report on Form 10-K. The results of operations for the interim period ended September 1, 1995, are not necessarily indicative of the results to be expected for the full year. NET INCOME PER SHARE Net income per share is based upon weighted average common and dilutive common equivalent shares outstanding using the treasury stock method. Dilutive common equivalent shares include stock options and restricted stock. Fully diluted earnings per share for the quarters and nine months ended September 1, 1995 and August 26, 1994 were not materially different from primary earnings per share. 8 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) NOTE 2. MERGER WITH ALDUS CORPORATION On August 31, 1994, the Company issued approximately 14.2 million shares of its common stock in exchange for all of the common stock of Aldus Corporation ("Aldus"). This business combination has been accounted for as a pooling of interests, and accordingly, the condensed consolidated financial statements for the periods prior to the merger have been restated to include the results of operations, the financial position and cash flows of Aldus. Prior to the combination, Aldus' fiscal year ended on December 31. In recording the business combination, Aldus' financial statements for the interim periods ended August 26, 1994 were combined with the Company's for the same periods. Aldus' financial statements for the year ended December 31, 1993 were combined with the Company's for the year ended November 26, 1993. Revenue and net income for Aldus for the month ended December 31, 1993 were $26.1 million and $4.4 million, respectively. Net income, the foreign currency translation adjustment, the issuance of common stock and the net increase in cash and cash equivalents were adjusted to eliminate the effect of including Aldus' results of operations, financial position and cash flows for the month ended December 31, 1993 in the interim periods ended August 26, 1994 and the year ended November 26, 1993. 9 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) NOTE 3. RECEIVABLES Receivables consisted of the following:
September 1 November 25 1995 1994 ----------- ----------- Trade receivables $ 57,427 $ 69,628 Royalty receivables 30,671 26,800 Interest and other receivables 7,732 3,410 ----------- ----------- 95,830 99,838 Less allowance for doubtful accounts 3,068 3,253 ----------- ----------- $ 92,762 $ 96,585 ----------- ----------- ----------- -----------
NOTE 4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
September 1 November 25 1995 1994 ----------- ----------- Land $ 782 $ 782 Building 4,549 4,615 Equipment 99,497 88,285 Furniture and fixtures 16,198 15,487 Leasehold improvements 7,425 4,146 ----------- ----------- 128,451 113,315 Less accumulated depreciation and amortization 84,920 74,211 ----------- ----------- $ 43,531 $ 39,104 ----------- ----------- ----------- -----------
10 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) NOTE 5. OTHER ASSETS Other assets consisted of the following:
September 1 November 25 1995 1994 ----------- ----------- Licensing agreements $ 16,130 $ 15,565 Goodwill 22,034 22,034 Purchased technology 35,626 325 Software development costs 27,199 27,199 Miscellaneous other assets 47,315 16,123 ----------- ----------- 148,304 81,246 Less accumulated amortization 57,215 35,685 ----------- ----------- $ 91,089 $ 45,561 ----------- ----------- ----------- -----------
Unamortized software development costs were $2.7 million and $9.1 million at September 1, 1995 and November 25, 1994, respectively. Amortization of software development costs was $1.9 million and $3.9 million for the quarters ended September 1, 1995 and August 26, 1994, respectively, and $7.1 million and $10.7 million for the nine months ended September 1, 1995 and August 26, 1994, respectively. NOTE 6. ACCRUED EXPENSES Accrued expenses consisted of the following:
September 1 November 25 1995 1994 ----------- ----------- Royalties $ 5,808 $ 10,824 Accrued compensation and benefits 14,673 17,039 Sales and marketing allowances 20,426 19,445 Miscellaneous accrued expenses 33,091 31,692 ----------- ----------- $ 73,998 $ 79,000 ----------- ----------- ----------- -----------
11 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) NOTE 7. ACCRUED RESTRUCTURING COSTS On August 31, 1994, the Company merged with Aldus, described in "Note 2 -- Merger with Aldus Corporation," and initiated a plan to combine the operations of the two companies. On this date, the Company recorded a $72.2 million charge to operating expenses related to the merger transaction and restructuring costs. Merger transaction costs consist principally of transaction fees for investment bankers, attorneys, accountants, financial printing and other related charges. Restructuring costs include the elimination of redundant information systems and equipment, severance and outplacement of terminated employees, the write-off of certain assets related to product lines to be divested or eliminated, and cancellation of certain contractual agreements. Activity in accrued restructuring costs is as follows:
Nine Months Ended September 1, 1995 Accrued as of ---------------------------- Accrued as of November 25 Cash September 1 1994 Write-offs Payments 1995 ------------- ------------- ------------- ------------- Merger transaction costs $ 5,863 $ 168 $ 5,695 $ -- Restructuring costs: Severance and outplacement 11,548 -- 8,109 3,439 Impaired assets and cancellation of facility leases 11,046 3,226 2,558 5,262 ------------- ------------- ------------- ------------- $ 28,457 $ 3,394 $ 16,362 $ 8,701 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The nature, timing and extent of restructuring costs follows: SEVERANCE AND OUTPLACEMENT As a result of the merger, certain technical support, customer service, distribution and administrative functions were combined and reduced. Restructuring included severance and outplacement charges related to approximately 500 terminated employees. Affected employees had received notification of their termination by September 9, 1994. 12 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) NOTE 7. ACCRUED RESTRUCTURING COSTS (CONTINUED) IMPAIRED ASSETS AND CANCELLATION OF FACILITY LEASES The Company plans to consolidate duplicate offices in Europe, Japan, Canada and the United States. Lease payments resulting from the planned closure of these facilities are expected to continue through the lease term or negotiated early termination date, if applicable. NOTE 8. ADOBE PHOTOSHOP-TM- TECHNOLOGY On March 31, 1995, the Company entered into an agreement with the developers of the technology underlying its Adobe Photoshop product under which the Company made a lump sum payment to the developers of $34.5 million in lieu of all future royalty obligations in connection with the technology. This transaction has been recorded on the balance sheet in other assets as part of purchased technology. The purchase is being amortized over 36 months. Prior to this agreement, the Company paid the developers a royalty for each copy of Adobe Photoshop sold by the Company. NOTE 9. ANNOUNCED ACQUISITION OF FRAME TECHNOLOGY CORPORATION On June 22, 1995, the Company and Frame Technology Corporation ("Frame") announced a definitive agreement under which the Company will acquire Frame through an exchange of common stock of the two companies. Frame, a California corporation established in 1986, provides document creation, management and distribution software for individuals and workgroups. 13 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) NOTE 9. ANNOUNCED ACQUISITION OF FRAME TECHNOLOGY CORPORATION (CONTINUED) Under the agreement, which has been approved by the Board of Directors of both companies, the Company will exchange .52 shares of its common stock for each share of Frame common stock. The acquisition is intended to qualify as a tax- free reorganization and a pooling of interests for accounting purposes. This transaction is subject to conditions customary for acquisitions of publicly-held companies, including approval by Frame's shareholders at a Special Meeting of Shareholders on October 26, 1995. The Securities and Exchange Commission has approved the transaction and the applicable waiting period under the Hart-Scott- Rodino Antitrust Improvements Act of 1976 expired with no action taken by the Federal Trade Commission. Assuming that shareholder approval is obtained, the Company expects the acquisition to be effective upon the filing of Articles of Merger with the Secretary of the State of California, which will occur following the receipt of shareholder approval. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION (PRESENTED IN MILLIONS, EXCEPT PER SHARE AMOUNTS) SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO. RESULTS OF OPERATIONS OVERVIEW Adobe develops, markets and supports computer software products and technologies that enable users to create, display, print and communicate electronic documents. The Company licenses its technology to major computer, printing and publishing suppliers, and markets a line of application software and typeface products for authoring visually rich documents. The Company has subsidiaries in Europe and the Pacific Rim serving a worldwide network of dealers and distributors. In August 1994, the Company merged with Aldus Corporation ("Aldus"). Aldus began operations in 1984 and created computer software solutions that help people throughout the world effectively communicate information and ideas. Aldus focused on three lines of business: applications for the professional print publishing, graphics and prepress markets; applications for the general consumer market; and applications for the interactive publishing market. To effect the combination, approximately 14.2 million shares of Adobe's common stock were issued in exchange for all of the outstanding common stock of Aldus. The merger was accounted for by the pooling of interests method, and accordingly, all interim financial information prior to the merger has been restated to combine the results of the Company and Aldus. In connection with the merger with Aldus, the Company has sought to reduce combined expenses by the elimination of duplicate or unnecessary facilities, employees, marketing programs and other expenses. The Company believes that the major impact of such reductions occurred in the fourth quarter of 1994 but experienced some additional impact in the first nine months of 1995. (See Note 7 - -- Accrued Restructuring Costs.) 15 REVENUE
1995 1994 Change ---------- ---------- ---------- Third quarter period: TOTAL REVENUE $156.7 $146.6 7% Nine month period: TOTAL REVENUE $493.2 $432.3 14%
Revenue growth for the third quarter and nine month periods was due to increases in both licensing activity and shipments of application products. The divestiture of FreeHand effective January 1, 1995, and the discontinuance of PhotoStyler in late 1994, as further discussed below, partially offset the revenue increase. Product unit volume (as opposed to price) growth was the principal factor in the Company's revenue growth in application products revenue.
1995 1994 Change ---------- ---------- ---------- Third quarter period: PRODUCT GROUP REVENUE -- LICENSING $45.1 $39.1 15% Percentage of total revenue 28.8% 26.7% Nine month period: PRODUCT GROUP REVENUE -- LICENSING $136.5 $115.7 18% Percentage of total revenue 27.7% 26.8%
Licensing revenue is derived from shipments by original equipment manufacturers ("OEM") of products containing the Adobe-TM- PostScript-TM- interpreter and the Display PostScript-TM- system. Such products include printers in both Roman and Japanese languages, imagesetters and workstations. Licensing revenue is also derived from shipments of products containing the Configurable PostScript Interpreter ("CPSI") by OEM customers. CPSI is a fully functional PostScript interpreter that resides on the host computer system rather than in a dedicated controller integrated into an output device. The configuration flexibility of CPSI allows OEMs and software developers to create and market a variety of PostScript products independently of controller hardware development. The number of units shipped by OEMs continued to grow on a quarterly basis. Royalty per unit is generally calculated as a percentage of the end user list price of a printer, although there are some components of licensing revenue based on a flat dollar amount per unit which typically do not change with list price changes. Some OEMs continued to reduce list prices on their lower-end printers, which resulted in lower royalties per unit on such printers. However, in the third quarter and first nine months of 1995, this trend was offset by increased demand for CPSI and color capability, as well as increased penetration into the Japanese market, all of which have higher royalties per unit. 16 The Company has seen year-to-year increases in the number of OEM customers from which it is receiving licensing revenue, demonstrating continued acceptance of PostScript software, as well as reflecting a diversification of the Company's customer base across Macintosh, IBM PC and compatibles, and multiple platform markets.
1995 1994 Change ---------- ---------- ---------- Third quarter period: PRODUCT GROUP REVENUE -- APPLICATION PRODUCTS $111.6 $107.5 4% Percentage of total revenue 71.2% 73.3% Nine month period: PRODUCT GROUP REVENUE -- APPLICATION PRODUCTS $356.8 $316.6 13% Percentage of total revenue 72.3% 73.2%
Application products revenue is derived from shipments of application software programs through retail and distribution channels; however, the information products are becoming more widely distributed through VARs and systems integrators. During the third quarter and first nine months of 1995, application products revenue grew primarily due to increased demand for Adobe Photoshop-TM-, the Company's image editing product. In the first quarter of 1995, the Company released Adobe Premiere-TM- 4.0 for the Windows platform, as well as Japanese versions of several of its products, including Adobe Premiere 4.0 and Adobe Persuasion-TM- 3.0 for the Macintosh, and Adobe Photoshop 3.0 for the Windows platform. Continued demand for these releases as well as for versions of Adobe Photoshop and Adobe Premiere for the Macintosh platform released in the second half of fiscal 1994 all contributed to the increased revenue from application products. The third quarter and first nine months of 1994 include revenue from FreeHand, which was divested effective January 1, 1995, and PhotoStyler, which was discontinued in late 1994. These two products aggregated revenue of $14.3 million and $44.7 million in the third quarter and first nine months of 1994, respectively. Application products revenue for the third quarter of 1995 was lower than expected because of significantly lower than normal European revenues. While European sales for the third quarter are generally less than in other quarters, the decrease in 1995 was greater than usual and was reflected across all product lines, all platforms and all European regions. In addition, the Company released Adobe PageMaker-TM- 6.0 for the Macintosh late in the third quarter. Adobe PageMaker shipped for less than two weeks in the quarter, which was also a contributing factor to the lower than expected revenues. 17 DIRECT COSTS
1995 1994 Change ---------- ---------- ---------- Third quarter period: DIRECT COSTS $25.7 $26.2 -2% Percentage of total revenue 16.4% 17.8% Nine month period: DIRECT COSTS $89.3 $80.1 11% Percentage of total revenue 18.1% 18.5%
Direct costs include royalties; amortization of acquired technologies; and direct product, packaging and shipping costs. During 1994, direct costs also included amortization of typeface production costs, which totaled $1.6 million and $4.0 million in the third quarter and first nine months of 1994, respectively. Gross margins are affected by the mix of licensing revenue versus application products revenue, as well as the product mix within application products. In the third quarter and first nine months of 1995, direct costs decreased as a percentage of total revenue due to the greater proportion of licensing revenue which typically has higher gross margins than application products revenue. In addition, the purchase relating to Adobe Photoshop, as further discussed below, resulted in lower direct costs for that product as a percentage of its revenue. On March 31, 1995, the Company entered into an agreement with the developers of the technology underlying its Adobe Photoshop product under which the Company made a lump sum payment to the developers of $34.5 million in lieu of all future royalty obligations in connection with the technology. This transaction has been recorded on the balance sheet in other assets as part of purchased technology. The purchase is being amortized over 36 months. Prior to this agreement, the Company paid the developers a royalty for each copy of Adobe Photoshop sold by the Company. To date, the amortization expense related to the purchase has been less than the per-copy royalty expense which would otherwise have been incurred. The Company also delivers its type library on its Type On Call-TM- CD-ROM media, and end users wishing to license typeface designs call the Company with a credit card number to receive the unlocking code for the desired typeface. This method of delivery also contributes to reduced direct costs. Other applications are also available through the Company's distributors on CD-ROM. 18 OPERATING EXPENSES
1995 1994 Change ---------- ---------- ---------- Third quarter period: SOFTWARE DEVELOPMENT COSTS -- RESEARCH AND DEVELOPMENT $29.2 $24.4 20% Percentage of total revenue 18.6% 16.6% Nine month period: SOFTWARE DEVELOPMENT COSTS -- RESEARCH AND DEVELOPMENT $82.0 $69.5 18% Percentage of total revenue 16.6% 16.1%
Research and development expenses consist principally of salaries and benefits for software developers, contracted development efforts, related facilities costs, and expenses associated with computer equipment used in software development. Research and development expense has increased in absolute dollars as the Company invested in new technologies, new product development and the infrastructure to support such activities. The increase reflects the expansion of the Company's engineering staff and related costs required to support its continued emphasis on developing new products and enhancing existing products. Many of these engineers are working with OEM customers to design and implement PostScript Level 2 devices. The Company continues to work with many of its OEM customers in a co-development program. This allows customers to be more self- sufficient in new device development by taking on more of the implementation task themselves rather than relying so heavily on the Company's engineers. While this mitigates certain costs, the Company continues to make significant investments in development of its PostScript and application software products. The Company believes that continued investments in research and development are necessary to remain competitive in the marketplace, and are directly related to continued, timely development of new and enhanced products. The Company intends to continue recruiting and hiring experienced software developers, but expects that research and development expenditures for all of 1995 will approximate current year-to-date spending levels as a percentage of revenue. 19
1995 1994 Change ---------- ---------- ---------- Third quarter period: SOFTWARE DEVELOPMENT COSTS -- AMORTIZATION OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS $1.9 $3.9 -51% Percentage of total revenue 1.2% 2.7% Nine month period: SOFTWARE DEVELOPMENT COSTS -- AMORTIZATION OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS $7.1 $10.7 -34% Percentage of total revenue 1.4% 2.5%
In the implementation of Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," software development expenditures on Adobe products, after achieving technological feasibility, were deemed to be immaterial. Certain software development expenditures on Aldus products have been capitalized and are being amortized over the lives of the respective products. In the third quarter and first nine months of 1995, software development expenditures on all products, after reaching technological feasibility, were immaterial and the Company anticipates that this trend will continue in the future. Accordingly, 1995 will reflect the expense of amortizing software development costs acquired in connection with the Company's merger with Aldus in addition to the actual development expenditures (classified as research and development) made prior to achieving technological feasibility. It is expected that amortization of software development costs will decrease both in absolute dollars and as a percentage of total revenue during 1995 as these costs become fully amortized. 20
1995 1994 Change ---------- ---------- ---------- Third quarter period: SALES, MARKETING AND CUSTOMER SUPPORT $49.7 $52.3 -5% Percentage of total revenue 31.7% 35.7% Nine month period: SALES, MARKETING AND CUSTOMER SUPPORT $145.0 $149.4 -3% Percentage of total revenue 29.4% 34.6%
Sales, marketing and customer support expenses generally include salaries and benefits, sales commissions, travel expenses and related facilities costs for the Company's sales, marketing, customer support and distribution personnel. Sales, marketing and customer support expenses also include the costs of programs aimed at increasing revenues, such as advertising, trade shows and other market development programs. Sales, marketing and customer support expenses decreased for the third quarter and first nine months of 1995 compared with the same periods of 1994. The timing of product release schedules and major trade shows will affect the level of expense in any given quarter. In the third quarter and first nine months of 1995 reduced costs resulting from the restructuring of the combined company following the merger with Aldus are partially offset by increased advertising relating to the release of Adobe PageMaker 6.0 for the Macintosh and expenses from several major trade shows. Continuing efforts to expand markets and increase penetration into targeted software markets, as well as increasing competition in the software industry are expected to cause sales, marketing and customer support expenditures for all of 1995 to approximate 1994 spending levels in absolute dollars.
1995 1994 Change ---------- ---------- ---------- Third quarter period: GENERAL AND ADMINISTRATIVE $11.4 $12.9 -12% Percentage of total revenue 7.3% 8.8% Nine month period: GENERAL AND ADMINISTRATIVE $35.1 $39.1 -10% Percentage of total revenue 7.1% 9.0%
General and administrative expenses consist principally of salaries and benefits, travel expenses, and related facility costs for the finance, human resources, legal, information services and administrative personnel of the Company. General and administrative expenses also include outside legal and accounting fees, bad debts and expenses associated with computer equipment and software used in the administration of the business. 21 In the third quarter and first nine months of 1995, general and administrative expenses reflect savings related to the restructuring of the combined company after the merger with Aldus. The Company expects general and administrative spending for all of 1995 to approximate the year-to-date level as a percentage of revenue. NONOPERATING INCOME
1995 1994 Change ---------- ---------- ---------- Third quarter period: INTEREST, INVESTMENT AND OTHER INCOME $6.8 $1.8 284% Percentage of total revenue 4.3% 1.2% Nine month period: INTEREST, INVESTMENT AND OTHER INCOME $19.0 $5.6 238% Percentage of total revenue 3.9% 1.3%
The increase in interest, investment and other income is primarily due to a larger investment base and generally higher interest rates compared to 1994. In 1995, the Company has increased the weighted average days-to-maturity of its investments, which has generated higher rates of return. PROVISION FOR INCOME TAXES
1995 1994 Change ---------- ---------- ---------- Third quarter period: PROVISION FOR INCOME TAXES $16.1 $10.7 50% Percentage of total revenue 10.3% 7.3% Effective tax rate 35.3% 37.2% Nine month period: PROVISION FOR INCOME TAXES $56.2 $31.7 77% Percentage of total revenue 11.4% 7.3% Effective tax rate 36.5% 36.8%
The effective tax rate for the nine month period of 1995 was slightly lower than that of 1994. The Company anticipates that the effective tax rate for the full year of 1995 will approximate that of the nine month period of 1995. 22 NET INCOME AND NET INCOME PER SHARE
1995 1994 Change ---------- ---------- ---------- Third quarter period: NET INCOME $29.5 $18.1 63% Percentage of total revenue 18.8% 12.3% NET INCOME PER SHARE $0.44 $0.29 52% Weighted shares (In thousands) 67,121 62,566 Nine month period: NET INCOME $97.7 $54.5 79% Percentage of total revenue 19.8% 12.6% NET INCOME PER SHARE $1.48 $0.88 68% Weighted shares (In thousands) 66,032 61,874
Net income for the third quarter of 1995 increased 63% from the third quarter of 1994. Earnings per share were $.44, a 52% increase from the third quarter of 1994. Net income for the nine months ended September 1, 1995 increased 79% over the same period in 1994 and earnings per share increased 68% for the same period. The increase in earnings per share was caused by increased revenue, lower expense levels as a percentage of revenue and a relatively constant tax rate. ANNOUNCED ACQUISITION OF FRAME TECHNOLOGY CORPORATION As described in the Company's Form 10-Q for the second quarter of 1995, on June 22, 1995, the Company and Frame Technology Corporation ("Frame") announced a definitive agreement under which the Company will acquire Frame through an exchange of common stock of the two companies. Frame, a California corporation established in 1986, provides document creation, management and distribution software for individuals and workgroups. Under the agreement, which has been approved by the Board of Directors of both companies, the Company will exchange .52 shares of its common stock for each share of Frame common stock. The acquisition is intended to qualify as a tax- free reorganization and a pooling of interests for accounting purposes. This transaction is subject to conditions customary for acquisitions of publicly-held companies, including approval by Frame's shareholders at a Special Meeting of Shareholders on October 26, 1995. The Securities and Exchange Commission has approved the transaction and the applicable waiting period under the Hart-Scott- Rodino Antitrust Improvements Act of 1976 expired with no action taken by the Federal Trade Commission. Assuming that shareholder approval is obtained, the Company expects the acquisition to be effective upon the filing of Articles of Merger with the Secretary of the State of California, which will occur following the receipt of shareholder approval. 23 FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS The Company believes that in the future its results of operations could be impacted by factors such as the ability of the Company to integrate Adobe, Aldus and Frame product lines, renegotiation of royalty arrangements, delays in shipment of the Company's new products and major new versions of existing products, market acceptance of new products and upgrades, growth in worldwide personal computer and printer sales and sales price adjustments, consolidation in the OEM printer business, and adverse changes in general economic conditions in any of the countries in which the Company does business. In connection with the acquisition of Frame, the Company intends to seek to reduce expenses by the elimination of duplicate or unnecessary facilities, employees, marketing programs and other expenses. There can be no assurance that the Company will be able to reduce expenses in this fashion, that there will not be high costs associated with such activities, that such reductions will not result in a decrease in revenue or that there will not be other material adverse effects of the Company's integration efforts. Such effects could materially reduce the earnings of the combined company. The Company will incur estimated merger transaction costs of approximately $13.5 million related to the acquisition, which will be charged to operations in the fourth quarter of 1995. In addition, the Company expects to incur a restructuring charge during the fourth quarter of 1995, currently estimated to be in the range of $15.0 million to $25.0 million, to reflect the costs associated with combining the two companies, including severance and outplacement costs and the elimination of duplicate facilities (including cancellation of leases). These amounts are preliminary estimates only and are therefore subject to change. In addition, there can be no assurance that the Company will not incur additional charges in subsequent quarters to reflect costs associated with the acquisition. As previously stated, effective January 1, 1995, the Company no longer markets FreeHand and discontinued marketing PhotoStyler in late 1994. These two products aggregated $53.2 million of revenue and $35.4 million of gross profit in fiscal year 1994. There can be no assurance that the Company will be able to continue to replace this lost revenue or that it will be able to do so as profitably. The Company's OEM customers on occasion seek to renegotiate their royalty arrangements. The Company evaluates these requests on a case-by-case basis. If an agreement is not reached, a customer may decide to pursue other options, including licensing a PostScript language compatible interpreter from a third party, which could result in lower licensing revenue for the Company. With the acquisition of Aldus, the Company derives a larger portion of its revenue from its subsidiaries located in Europe and the Pacific Rim. While most of the revenue of these subsidiaries is denominated in U.S. dollars, the majority of their expense transactions are denominated in foreign currencies, including the Japanese yen and most major European currencies. As a result, the Company's operating results are subject to fluctuations in foreign currency exchange rates. To date, the impact of such fluctuations has been insignificant and the Company has not engaged in any significant activities to hedge its exposure to foreign currency exchange rate fluctuations. In addition, the Company generally experiences lower revenues from its European operations in the third quarter. 24 The Company's ability to develop and market products, including upgrades of currently shipping products, that successfully adapt to current market needs may also have an impact on the results of operations. A portion of the Company's future revenue will come from these products. Delays in such introductions could have an adverse effect on the Company's revenue, earnings or stock price. The Company cannot determine the ultimate effect that these new products or upgrades will have on its sales or results of operations. Due to the factors noted above, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, the Company may not learn of such shortfalls until late in the fiscal quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Finally, the Company participates in a highly dynamic industry, which often results in significant volatility of the Company's common stock price. FINANCIAL CONDITION CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
September 1 November 25 1995 1994 Change ----------- ----------- ----------- CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS $474.3 $400.4 18%
The Company's cash balances and short-term investments have increased each year due to profitable operations, partially offset by expenditures for capital outlays and other investments. Cash equivalents consist of highly liquid money market instruments. Certain cash equivalents and all of the Company's short- term investments, consisting principally of municipal bonds, commercial paper, auction rate securities, United States government and government agency securities and asset-backed securities, are classified as available-for-sale under the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The securities are carried at fair value with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. The Company does not invest in securities which involve a high degree of risk or complexity. 25 NONCURRENT LIABILITIES AND SHAREHOLDERS' EQUITY
September 1 November 25 1995 1994 Change ----------- ----------- ----------- SHAREHOLDERS' EQUITY $611.2 $456.8 34%
The Company has no long-term debt or other noncurrent liabilities. The Board of Directors of the Company declared a cash dividend on the Company's common stock of $.05 per common share on September 18, 1995, for the third quarter of 1995. The dividend will be for shareholders of record as of October 6, 1995, and will be paid on October 20, 1995. The declaration of future dividends is within the discretion of the Board of Directors of the Company and will depend upon business conditions, results of operations, the financial condition of the Company and other factors. Under its stock repurchase program, the Company repurchased 434,003 shares at a cost of $17.7 million in the first nine months of 1995. These share repurchases are intended to fund the employee stock purchase and stock option plans. Additional repurchases of the Company's common stock in the open market to provide shares for issuance under its stock plans will continue subsequent to the completion of the announced acquisition of Frame. WORKING CAPITAL
September 1 November 25 1995 1994 Change ----------- ----------- ----------- WORKING CAPITAL $466.7 $363.6 28%
Net working capital grew to $466.7 million as of September 1, 1995, compared to $363.6 million as of November 25, 1994. Cash flow provided by operations during the first nine months of 1995 was $129.4 million. Expenditures for property and equipment totaled $20.4 million. Such expenditures are expected to continue, including computer systems for development, sales and marketing, product support, and administrative staff. In the future, cash may be used to acquire technology, or to invest in companies owning key technologies, where appropriate. On March 31, 1995, the Company entered into an agreement with the developers of the technology underlying its Adobe Photoshop product to pay the developers a lump sum payment of $34.5 million in lieu of all future royalty obligations in connection with the technology (see Note 8 -- Adobe Photoshop Technology). Net cash provided by financing activities during the first nine months of 1995 was $31.1 million; $58.4 million was provided by proceeds from issuance of common stock; $17.7 million was used to repurchase common stock; and $9.5 million was used to pay cash dividends. 26 The Company's principal commitments as of September 1, 1995, consisted of obligations under operating leases for facilities, a real estate development agreement and various service and lease guarantee agreements with a related party. The Company has entered into a real estate development agreement for the construction of an office facility and in 1996 will enter into an operating lease agreement for this facility. The Company will have the option to purchase the facility at the end of the lease term. In the event the Company chooses not to exercise this option, the Company is obligated to arrange the sale of the facility to an unrelated party and is required to pay the lessor any difference between the net sales proceeds and the lessor's net investment in the facility, in an amount not to exceed that which would preclude classification of the lease as an operating lease, approximately $52.0 million. The Company also is required, periodically during the construction period, to deposit funds with the lessor to secure the performance of its obligations under the lease and as of September 1, 1995, the Company had deposited approximately $20.0 million in time deposit securities. The Company has also entered into various agreements with McQueen Holdings Limited ("McQueen"), a European operating entity, whereby the Company has agreed to guarantee obligations under operating leases for certain European facilities utilized by McQueen, and to guarantee certain levels of business between Adobe and McQueen. The Company currently owns approximately 16 percent of the outstanding stock in McQueen. The Company believes that existing cash, cash equivalents and short-term investments, together with cash generated from operations, will provide sufficient funds for the Company to meet its operating cash requirements in the foreseeable future. 27 PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Index to Exhibits Incorporated by Reference Exhibit ------------------------------ Number Exhibit Description Form Date Number ------- ------------------------- ------ -------- ------ 10.1 1984 Stock Option Plan S-1 07/01/86 10.1 10.1.1 1984 Stock Option Plan, as amended 10-K 11/30/87 10.1.1 10.1.2 1984 Stock Option Plan, as amended 10-K 11/30/88 10.1.2 10.1.3 1984 Stock Option Plan, as amended 10-K 11/30/89 10.1.3 10.1.4 1984 Stock Option Plan, as amended 10-K 11/30/90 10.1.4 10.1.5 1984 Stock Option Plan, as amended 10-K 11/27/92 10.1.5 10.1.6 1984 Stock Option Plan, as amended 10-Q 07/02/93 10.1.6 10.1.7 1994 Stock Option Plan 10-Q 07/06/94 10.1.7 10.2 Common Stock Purchase Agreement of John E. Warnock dated December 29, 1982, and, as amended November 30, 1983 S-1 07/01/86 10.2 10.3 Common Stock Purchase Agreement of Charles M. Geschke dated December 29, 1982, and, as amended November 30, 1983 S-1 07/01/86 10.3 10.4 Common Stock Purchase Agreement of Q.T. Wiles dated December 29, 1982 S-1 07/01/86 10.4 10.5 Common Stock Purchase Agreement of David Evans dated December 29, 1982 S-1 07/01/86 10.5 (Continued) 28 a) Index to Exhibits (Continued) Incorporated by Reference Exhibit ------------------------------ Number Exhibit Description Form Date Number ------- ------------------------- ------ -------- ------ 10.6 Common Stock Purchase Agreement of William Hambrecht dated December 29, 1982 S-1 07/01/86 10.6 10.7 Exchange Agreement dated December 29, 1983, for John E. Warnock S-1 07/01/86 10.7 10.8 Exchange Agreement dated December 29, 1983, for Charles M. Geschke S-1 07/01/86 10.8 10.9 Form of Shareholders Exchange Agreement used in connection with the exchange of shares of Old Adobe for shares of the Company S-1 07/01/86 10.9 10.10 Form of Agreement for Assignment of Limited Partnership Interest used in connection with exchange of limited partnership interests in Adobe Systems Limited, a California limited partnership, for shares of the Series B Preferred Stock of the Company S-1 07/01/86 10.10 10.11 Registration Rights Agreement dated December 29, 1983 S-1 07/01/86 10.11 10.12 Old Adobe's 1983 Stock Purchase Plan and the Company's 1984 Stock Purchase Plan with standard form of Stock Purchase Agreement S-1 07/01/86 10.12 10.12.1 1988 Employee Stock Purchase Plan, as amended 10-Q 07/06/94 10.12.1 (Continued) 29 a) Index to Exhibits (Continued) Incorporated by Reference Exhibit ------------------------------ Number Exhibit Description Form Date Number ------- ------------------------- ------ -------- ------ 10.13 Form of Employee Common Stock Purchase Agreement dated July 23, 1984 S-1 07/01/86 10.13 10.14 Warrant to Purchase Series C Preferred Stock to Apple Computer, Inc., dated November 26, 1984, with executed subscription form dated November 28, 1984 S-1 07/01/86 10.14 10.15 Warrant to Purchase Series C Preferred Stock to Evans & Sutherland Computer Corporation dated April 25, 1984, with executed subscription form dated June 19, 1986 S-1 07/01/86 10.15 10.16 License Agreement between the Company and Evans & Sutherland Computer Corporation dated April 25, 1984 S-1 07/01/86 10.16 10.17 License Agreement between the Company and Apple Computer, Inc., dated November 12, 1985 (confidential treatment granted) S-1 07/01/86 10.17 10.17.1 License Agreement Restatement between the Company and Apple Computer, Inc., dated April 1, 1987 (confidential treatment granted) 10-K 11/30/88 10.17.1 (Continued) 30 (a) Index to Exhibits (Continued) Incorporated by Reference Exhibit ------------------------------ Number Exhibit Description Form Date Number ------- ------------------------- ------ -------- ------ 10.17.2 Amendment No. 1 to the License Agreement Restatement between the Company and Apple Computer, Inc., dated November 27, 1990 (confidential treatment granted). 10-K 11/30/90 10.17.2 10.18 Lease Agreement dated November 11, 1983, between Mozart Family Trust and Epson America Inc. S-1 07/01/86 10.18 10.19 Assignment of Lease dated November 11, 1983, between Epson America Inc. and the Company dated February 1, 1986 S-1 07/01/86 10.19 10.20 Lease Agreement between Mozart Family Trust and the Company dated November 30, 1983 S-1 07/01/86 10.20 10.21 Bonus Plans S-1 07/01/86 10.21 10.21.1 Revised Bonus Plan 10-K 11/27/92 10.21.1 10.21.2 Revised Bonus Plan 10-K 11/26/93 10.21.2 10.22 Restricted Stock Option Plan 10-K 11/30/87 10.22 10.22.1 Restricted Stock Option Plan, as amended 10-K 11/30/89 10.22.1 10.22.2 Restricted Stock Option Plan, as amended 10-K 11/30/90 10.22.2 10.22.3 Restricted Stock Option Plan, as amended 10-K 11/29/91 10.22.3 10.22.4 Restricted Stock Option Plan, as amended 10-Q 07/06/94 10.22.4 (Continued) 31 (a) Index to Exhibits (Continued) Incorporated by Reference Exhibit ------------------------------ Number Exhibit Description Form Date Number ------- ------------------------- ------ -------- ------ 10.23 Amended and Restated Software License Agree- ment between the Company and QMS, Inc., dated May 15, 1987 (confidential treatment granted) 10-K 11/30/88 10.23 10.24 1989 Restricted Stock Plan 10-K 11/30/88 10.24 10.24.1 1994 Performance and Restricted Stock Plan S-4 07/27/94 10.1 10.25 Form of Indemnity Agree- ment 10-K 11/30/88 10.25 10.26 Lease Agreement by and between Charleston Place Associates and Adobe Systems Incorporated dated April 14, 1987 10-K 11/30/88 10.26 10.26.1 Amendment One to Lease Agreement dated March 1, 1988 10-K 11/30/88 10.26.1 10.26.2 Amendment Two to Lease Agreement dated September 1, 1988 10-K 11/30/88 10.26.2 10.27 Lease Agreement by and between John Mozart and Adobe Systems Incorporated dated July 20, 1988 10-K 11/30/88 10.27 10.28 Limited Partnership Agreement of University Circle Building I, Ltd., dated May 22, 1991 10-K 11/29/91 10.28 10.29 University Centre Building I Lease Agree- ment dated May 22, 1991 10-K 11/29/91 10.29 10.30 University Circle Termination and Security Agreement and Mutual Release dated January 7, 1993 10-K 11/27/92 10.30 (Continued) 32 (a) Index to Exhibits (Continued) Incorporated by Reference Exhibit ------------------------------ Number Exhibit Description Form Date Number ------- ------------------------- ------ -------- ------ 10.31 Restated Agreement and and Plan of Merger and Reorganization By and Among Adobe Systems Incorporated, P Acquisition Corp and Aldus Corporation S-4 07/13/94 10.31 10.32 Sublease of the Land and Lease of the Improvements By and Between Sumitomo Bank Leasing and Finance Inc. and Adobe Systems Incorporated 10-K 11/25/94 10.32 10.33 Sale of Rights under Software Development and Acquisition Agreement By and Between Adobe Systems Incorporated and Thomas Knoll and John Knoll (confidential treatment granted) 10-Q 6/2/95 10.33 10.34 Agreement and Plan of Merger and Reorganization By and Among Adobe Systems Incorporated, J Acquisition Corporation and Frame Technology Corporation S-4 8/18/95 2.1 11 Computation of Earnings Per Common Share N/A N/A N/A 27 Financial Data Schedule N/A N/A N/A 33 (b) Reports on Form 8-K One report dated June 28, 1995 was filed by the Company, reporting the execution of a definitive agreement under which the Company will acquire Frame Technology Corporation through an exchange of the common stock of the two companies. 34 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ADOBE SYSTEMS INCORPORATED Date: October 12, 1995 By /s/ M. Bruce Nakao ---------------------------------------- M. Bruce Nakao, Senior Vice President, Finance and Administration, Chief Financial Officer, Treasurer and Assistant Secretary (Principal Financial Officer) 35 SUMMARY OF TRADEMARKS The following trademarks of Adobe Systems Incorporated, which may be registered in certain jurisdictions, are referenced in this Form 10-Q: Adobe Adobe Illustrator Adobe PageMaker Adobe Persuasion Adobe Photoshop Adobe Premiere Display PostScript PostScript Type On Call All other brand or product names are trademarks or registered trademarks of their respective holders. 36 EX-11 2 EXHIBIT 11 ADOBE SYSTEMS INCORPORATED EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Quarters Ended Nine Months Ended -------------------------- -------------------------- September 1 August 26 September 1 August 26 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Net income $ 29,453 $ 18,061 $ 97,705 $ 54,460 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Primary shares outstanding: Weighted average shares outstanding during the period 63,664 59,914 62,707 59,390 Common stock equivalent shares 3,457 2,652 3,325 2,484 ----------- ----------- ----------- ----------- 67,121 62,566 66,032 61,874 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Fully diluted shares outstanding: Weighted average shares outstanding during the period 63,664 59,914 62,707 59,390 Common stock equivalent shares 3,458 2,971 3,486 2,750 ----------- ----------- ----------- ----------- 67,122 62,885 66,193 62,140 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Primary net income per common stock and common stock equivalent share $ .44 $ . 29 $ 1.48 $ .88 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Fully diluted net income per common stock and common stock equivalent share $ .44 $ .29 $ 1.48 $ .88 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 1, 1995, AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 1, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-01-1995 NOV-26-1994 SEP-01-1995 108,817 365,469 95,830 3,068 6,983 9,912 128,451 84,920 748,040 136,883 0 206,536 0 0 404,621 748,040 136,484 493,267 89,267 89,267 268,230 903 0 153,866 56,161 97,705 0 0 0 97,705 1.48 1.48
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