-----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, Rf+j69ukA4/gIA9eT6xYipF+X/SRpgsXoST92S8nzMOy+ws6Fn0SSeW1jTVEZ1zk fpbZUVXqSPQcGJ343mSIRA== 0001047469-98-014381.txt : 19980410 0001047469-98-014381.hdr.sgml : 19980410 ACCESSION NUMBER: 0001047469-98-014381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980227 FILED AS OF DATE: 19980409 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: SEC FILE NUMBER: 000-15175 FILM NUMBER: 98590888 BUSINESS ADDRESS: STREET 1: 345 PARK AVE CITY: SAN JOSE STATE: CA ZIP: 95110-2704 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES 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 FEBRUARY 27, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER: 0-15175 ADOBE SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 77-0019522 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 345 PARK AVENUE, SAN JOSE, CALIFORNIA 95110-2704 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 536-6000 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 March 27, 1998 ----- ------------------ Common stock, $0.0001 par value 66,623,523 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page No. PART I -- FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements: Condensed Consolidated Statements of Income Quarter Ended February 27, 1998 and February 28, 1997 3 Condensed Consolidated Balance Sheets February 27, 1998 and November 28, 1997 4 Condensed Consolidated Statements of Cash Flows Quarter Ended February 27, 1998 and February 28, 1997 5 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 PART II -- OTHER INFORMATION Item 1. Legal Proceedings 27 Item 6. Exhibits and Reports on Form 8-K 28 Signatures 31 Summary of Trademarks 32 EXHIBITS Exhibit 27.1 Financial Data Schedule Exhibit 27.2 Financial Data Schedule 2 PART I -- FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
QUARTER ENDED -------------------------- FEBRUARY 27 FEBRUARY 28 1998 1997 ----------- ----------- Revenue: Licensing $ 41,851 $ 51,460 Application products 155,962 174,999 ----------- ----------- Total revenue 197,813 226,459 Direct costs 29,986 34,289 ----------- ----------- Gross margin 167,827 192,170 ----------- ----------- Operating expenses: Research and development 46,427 38,197 Sales and marketing 71,834 72,038 General and administrative 24,076 17,496 Acquired in-process technology 3,818 -- Other non-recurring items -- (2,359) ----------- ----------- Total operating expenses 146,155 125,372 ----------- ----------- Operating income 21,672 66,798 Nonoperating income: Investment gain (loss) 12,462 (624) Interest and other income 8,501 6,993 ----------- ----------- Total nonoperating income 20,963 6,369 ----------- ----------- Income before income taxes 42,635 73,167 Provision for income taxes 15,891 26,683 ----------- ----------- Net income $ 26,744 $ 46,484 ----------- ----------- ----------- ----------- Basic net income per share $ .39 $ .65 ----------- ----------- ----------- ----------- Shares used in computing basic net income per share 67,762 71,493 ----------- ----------- ----------- ----------- Diluted net income per share $ .38 $ .63 ----------- ----------- ----------- ----------- Shares used in computing diluted net income per share 69,585 73,939 ----------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT PER SHARE DATA)
FEBRUARY 27 FEBRUARY 28 1998 1997 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 106,653 $ 267,576 Short-term investments 271,545 235,380 Receivables, net of allowances of $4,309 and $3,634, respectively 115,019 130,974 Other current assets 48,765 45,016 ---------- ---------- Total current assets 541,982 678,946 Property and equipment 84,539 80,978 Other assets 186,924 163,148 Deferred income taxes 16,214 16,999 ---------- ---------- $ 829,659 $ 940,071 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade and other payables $ 42,929 $ 57,857 Accrued expenses 94,766 102,741 Income taxes payable 44,098 48,343 Deferred revenue 13,902 15,706 ---------- ---------- Total current liabilities 195,695 224,647 ---------- ---------- Stockholders' equity: Preferred stock, $0.0001 par value; 2,000 shares authorized; none issued -- -- Common stock, $0.0001 par value; Authorized: 200,000 shares; Issued: 74,637 and 73,941 shares in 1998 and 1997, respectively; Outstanding: 66,441 and 68,765 shares in 1998 and 1997, respectively 7 7 Additional paid-in capital 312,072 291,274 Retained earnings 687,383 663,861 Unrealized gains on investments, net 827 3,590 Cumulative translation adjustment (4,858) (4,620) Treasury stock, at cost (8,196 and 5,176 shares in 1998 and 1997, respectively) (361,467) (238,688) ---------- ---------- Total stockholders' equity 633,964 715,424 ---------- ---------- $ 829,659 $ 940,071 ---------- ---------- ---------- ----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
QUARTER ENDED -------------------------- FEBRUARY 27 FEBRUARY 28 1998 1997 ----------- ----------- Cash flows from operating activities: Net income $ 26,744 $ 46,484 Adjustments to reconcile net income to net cash provided by operating activities: Stock compensation expense 875 1,171 Depreciation and amortization 15,458 11,210 Deferred income taxes (969) (725) Provision for losses on accounts receivable 770 381 Tax benefit from employee stock plans 2,617 1,031 Equity in net loss of Adobe Ventures 525 624 Gain on sale and distribution of equity investments (12,987) -- Write-off of acquired in-process technology 3,818 -- Changes in operating assets and liabilities: Receivables 15,185 (7,039) Other current assets (1,994) (4,989) Trade and other payables (14,928) (5,669) Accrued expenses 2,281 8,237 Income taxes payable (4,245) (15,189) Deferred revenue (1,805) (40) ----------- ----------- Net cash provided by operating activities 31,345 35,487 ----------- ----------- Cash flows from investing activities: Purchases of short-term investments (392,262) (1,426,947) Maturities and sales of short-term investments 354,628 1,401,942 Acquisitions of property and equipment (11,926) (6,628) Additions to other assets (30,716) (16,033) ----------- ----------- Net cash used for investing activities (80,276) (47,666) ----------- ----------- (Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (CONTINUED) (UNAUDITED)
QUARTER ENDED -------------------------- FEBRUARY 27 FEBRUARY 28 1998 1997 ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock $ 17,306 $ 11,315 Repurchase of common stock (122,779) (16,134) Payment of dividends (6,281) (3,589) ----------- ----------- Net cash used by financing activities (111,754) (8,408) ----------- ----------- Effect of foreign currency exchange rates on cash and cash equivalents (238) (471) ----------- ----------- Net decrease in cash and cash equivalents (160,923) (21,058) Cash and cash equivalents at beginning of period 267,576 110,745 ----------- ----------- Cash and cash equivalents at end of period $ 106,653 $ 89,687 ----------- ----------- ----------- ----------- Supplemental disclosures: Cash paid during the period for income taxes $ 12,182 $ 37,260 ----------- ----------- ----------- ----------- Noncash investing and financing activities: Cash dividends declared but not paid $ 3,333 $ 3,589 ----------- ----------- ----------- ----------- Dividends in-kind distributed $ 7,197 $ -- ----------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 6 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the condensed consolidated financial position at February 27, 1998, and the condensed consolidated statements of income and cash flows for the three-month periods ended February 27, 1998 and February 28, 1997. 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. Adobe Systems Incorporated ("Adobe" or 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 28, 1997, November 29, 1996 and December 1, 1995, in the Company's 1997 Annual Report on Form 10-K. The results of operations for the interim period ended February 27, 1998, are not necessarily indicative of the results to be expected for the full year. 7 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET INCOME PER SHARE The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," in the quarter ended February 27, 1998. All prior period share and per share amounts have been restated to comply with SFAS No. 128. Basic net income per share is computed using the weighted average number of common shares outstanding for the period. Diluted net income per share is based upon the weighted average common shares outstanding for the period plus dilutive common equivalent shares including unvested restricted common stock, stock options using the treasury stock method, and put warrants written by the Company using the reverse treasury stock method.
QUARTER ENDED -------------------------- FEBRUARY 27 FEBRUARY 28 1998 1997 ----------- ----------- Net income $ 26,744 $ 46,484 ----------- ----------- ----------- ----------- Shares used to compute basic net income per share (weighted average shares outstanding during the period) 67,762 71,493 Dilutive common equivalent shares: Unvested restricted stock 90 146 Stock options 1,591 2,300 Put warrants 142 -- ----------- ----------- Shares used to compute diluted net income per share 69,585 73,939 ----------- ----------- ----------- ----------- Basic net income per share $ .39 $ .65 ----------- ----------- ----------- ----------- Diluted net income per share $ .38 $ .63 ----------- ----------- ----------- -----------
REVENUE RECOGNITION In October 1997, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 establishes standards relating to the recognition of all aspects of software revenue. Based on the Company's initial assessment of the impact SOP 97-2 may have on its consolidated results of operations, the Company intends to modify certain aspects of its business model such that any impact will not be significant. The Company will adopt SOP 97-2 for its fiscal year 1999. 8 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in the financial statements. It does not, however, require a specific format for the disclosure but requires the Company to display an amount representing total comprehensive income for the period in its financial statements. The Company will be required to implement SFAS No. 130 for its fiscal year 1999. SEGMENT REPORTING In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. The Company is currently evaluating the operating segment information to determine whether this will have an impact on its financial statement reporting. The Company will be required to implement SFAS No. 131 for its fiscal year 1999. NOTE 2. OTHER ASSETS Other assets consisted of the following:
FEBRUARY 27 NOVEMBER 28 1998 1997 ---------- ---------- Equity investments $ 47,901 $ 35,689 Purchased technology and licensing agreements 4,883 5,043 Restricted funds and security deposits 115,244 102,962 Miscellaneous other assets 47,384 45,097 ---------- ---------- 215,412 188,791 Less accumulated amortization 28,488 25,643 ---------- ---------- $ 186,924 $ 163,148 ---------- ---------- ---------- ----------
NOTE 3. ACCRUED EXPENSES Accrued expenses consisted of the following:
FEBRUARY 27 NOVEMBER 28 1998 1997 ---------- ---------- Accrued compensation and benefits $ 27,582 $ 37,833 Sales and marketing allowances 11,653 13,028 Other 55,531 51,880 ---------- ---------- $ 94,766 $ 102,741 ---------- ---------- ---------- ----------
9 ADOBE SYSTEMS INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED) NOTE 4. STOCKHOLDERS' EQUITY STOCK REPURCHASE PROGRAM In September 1997, the Company's Board of Directors authorized, subject to certain business and market conditions, the purchase of up to 15.0 million shares of the Company's common stock over a two-year period. The Company repurchased approximately 3.0 million shares of its common stock during the first quarter of 1998. PUT WARRANTS AND CALL OPTIONS To facilitate the Company's stock repurchase programs, the Company sold put warrants to independent third parties. Each warrant entitles the holder to sell one share of Adobe's common stock to the Company at a specified price. On February 27, 1998, put warrants to sell approximately 4.1 million shares of the Company's common stock were outstanding that expire on various dates through November 1998 with an average exercise price of $40.10 per share. Under these put warrant arrangements, the Company, at its option, can settle with physical delivery or net shares equal to the difference between the exercise price and market value at the date of exercise; therefore the put warrants do not result in a liability on the balance sheet. In addition, the Company purchased call options from independent third parties that entitle the Company to buy its common stock on certain dates at specified prices. On February 27, 1998, call options to purchase approximately 1.2 million shares of the Company's common stock were outstanding that expire on various dates through July 1998 with an average exercise price of $41.44 per share. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION (PRESENTED IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO. IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS." READERS SHOULD CAREFULLY REVIEW THE RISKS DESCRIBED IN OTHER DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE ADDITIONAL QUARTERLY REPORTS ON FORM 10-Q TO BE FILED BY THE COMPANY IN 1998. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS QUARTERLY REPORT ON FORM 10-Q. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THE FORWARD-LOOKING STATEMENTS OR REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS DOCUMENT. RESULTS OF OPERATIONS OVERVIEW Adobe Systems Incorporated ("Adobe" or the "Company") develops, markets, and supports computer software products and technologies that enable users to express and use information across both print and electronic media. The Company offers a market-leading line of application software and type products for creating and distributing visually rich communication materials; licenses its industry-standard technologies to major hardware manufacturers, software developers, and service providers; and offers integrated software solutions to businesses of all sizes. The Company distributes its products through a network of original equipment manufacturer ("OEM") customers, distributors and dealers, value-added resellers ("VARs"), and system integrators and has operations in North America, Europe, Japan, and Asia, Pacific and Latin America. 11 The following table sets forth for the quarters ended February 27, 1998 and February 28, 1997, the Company's condensed consolidated statements of income expressed as a percentage of total revenue:
QUARTER ENDED -------------------------- FEBRUARY 27 NOVEMBER 28 1998 1997 ----------- ----------- Revenue: Licensing 21.2% 22.7% Application products 78.8 77.3 ----------- ----------- Total revenue 100.0 100.0 ----------- ----------- Direct costs 15.2 15.1 ----------- ----------- Gross margin 84.8 84.9 ----------- ----------- Operating expenses: Research and development 23.5 16.9 Sales and marketing 36.3 31.8 General and administrative 12.2 7.7 Acquired in-process technology 1.9 -- Other non-recurring items -- (1.0) ----------- ----------- Total operating expenses 73.9 55.4 ----------- ----------- Operating income 10.9 29.5 Nonoperating income, net: Investment gain (loss) 6.3 (0.3) Interest and other income 4.3 3.1 ----------- ----------- Total nonoperating income 10.6 2.8 ----------- ----------- Income before income taxes 21.5 32.3 Provision for income taxes 8.0 11.8 ----------- ----------- Net income 13.5% 20.5% ----------- ----------- ----------- -----------
12 REVENUE
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Total revenue $ 197.8 $ 226.5 (12.6)%
Total revenue decreased from the same quarter last year due primarily to continuing weak demand in Asia, deterioration in Macintosh platform revenues, and a decline in North American revenues. A decrease in product unit volume (as opposed to price) was the principal factor in the Company's revenue decline in application products revenue.
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Product group revenue -- Licensing $ 41.8 $ 51.5 (18.7)% Percentage of total revenue 21.2% 22.7%
Licensing revenue is derived from shipments by OEM customers of products containing Adobe PostScript and Adobe PrintGear technology. Adobe PostScript is a software language for describing to a printer the appearance of a page, including text, graphics, and images. Products that contain PostScript technology include: (1) black-and-white printers; (2) color printers; (3) slide recorders; (4) imagesetters; (5) screen displays; and (6) digital copiers. Adobe PostScript technology includes Adobe PostScript, Adobe PostScript Level 2, Adobe PostScript 3, all of which serve the enterprise, graphic arts, and production printing markets, and Adobe PostScript Extreme, a solution for high-volume production printing. Adobe PrintGear is a different architecture for printers targeted at the small office/home office ("SOHO") market. Licensing revenue decreased $9.6 million or 18.7% in the first quarter of 1998 compared to the same period last year primarily due to three factors: (1) ongoing weakness in the color copier business due to product transitions and excess copier inventory, (2) ongoing weakness in the Japanese personal computer and printer markets, and (3) a decline in royalty revenue from Hewlett-Packard Company's ("HP") desktop monochrome laser printer division which is now incorporating a non-Adobe clone version of Adobe PostScript into its products. The Company continues to be cautious about licensing revenue in the short term because of Japanese market conditions, the uncertain timing of OEM customer introductions of products incorporating Adobe's latest technologies, and the anticipated full impact of loss of revenue from HP's monochrome laser printer products in the second quarter of fiscal 1998. Based on a strategic review of the Company's printing systems division, the Company intends to refocus its resources on high growth revenue opportunities in digital color, color inkjet, short-run on-demand digital printing, and digital copiers. This strategic refocusing is intended to increase licensing revenue growth in the long term, although the Company anticipates that its licensing revenue in the remainder of fiscal 1998 will be below fiscal 1997 levels. 13
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Product group revenue -- Application products $ 156.0 $ 175.0 (10.9)% Percentage of total revenue 78.8% 77.3%
Application products revenue is derived predominantly from shipments of application software programs marketed through distribution channels with the exception of Adobe FrameMaker and Adobe Acrobat products which are more widely distributed through VARs and systems integrators. Adobe PhotoDeluxe is primarily distributed through OEM bundling agreements with digital camera, scanner, and personal computer manufacturers. Application products revenue decreased $19.0 million or 10.9% in the first quarter of 1998 compared to the same period last year due to a number of factors. First, the absence of recent major product releases or upgrades during the quarter adversely impacted application products revenue in all product families with the exception of Adobe FrameMaker, a new version of which was released in the fourth quarter of 1997. By comparison, the first quarter of 1997 benefited from revenue momentum related to two major product releases -- Adobe Photoshop 4.0 which was released just before the quarter began, and Adobe PageMaker 6.5 which was released during the quarter. Secondly, application products revenue was adversely affected by continuing weakness in the Japanese economy and a resulting decline in end-user demand. Further, during the first quarter of 1998, the Company worked proactively with its distributors in Japan to match lower sell-through rates, thereby decreasing channel inventory levels in anticipation of the new product release cycle. The Company remains cautious about the economic conditions in Japan as well as the fluctuating economic conditions in other Asian countries in the short term. Additionally, although application products revenue for the Windows platform grew 18% as compared to the first quarter of last year, Macintosh revenue declined 36%. Total application products revenue (excluding platform independent and UNIX revenues) for the first quarter of 1998 was split 59% on Windows and 41% on Macintosh as compared to 44% and 56%, respectively, for the first quarter of 1997. The Company expects this trend toward the Windows platform to continue for the foreseeable future. Lastly, application products revenue was adversely affected by a quarter-to-quarter revenue decline in North America, not only affected by the product cycle and Macintosh platform issues, but also by a reduction in channel inventory of approximately $7.5 million and sales management challenges from the absence of permanent sales leadership. During the quarter, the Company completed searches for a new senior sales management team, recruiting three key new executives who have already joined the Company. 14 DIRECT COSTS
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Direct costs $ 30.0 $ 34.3 (12.5)% Percentage of total revenue 15.2% 15.1% Gross margin 84.8% 84.9%
Direct costs include direct product, packaging, and shipping costs, as well as royalties and amortization of localization costs and acquired technologies. Gross margin (expressed as a percentage of revenue), in general, is affected by the mix of licensing revenue versus application products revenue, the product mix within application products, and the mix of full and upgrade products sold. The decrease in gross margin versus a year ago is due primarily to inventory write-downs for various products as the Company approaches a new cycle of product upgrade releases offset by lower royalty payments. The Company anticipates that gross margin in the latter part of 1998 will improve slightly due to relative decreases in inventory write-downs partially offset by increased localization costs associated with the translation of new product user interfaces into local languages. OPERATING EXPENSES
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Research and development $ 46.4 $ 38.2 21.5% Percentage of total revenue 23.5% 16.9%
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 expenses increased in absolute dollars and as a percentage of revenue 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 these efforts. The Company continues to make significant investments in the development of Adobe PostScript and application software products, including those targeted for the growing Internet market. The Company believes that 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. Accordingly, the Company intends to continue recruiting and hiring experienced software developers. While the Company expects that research and development expenditures for the remainder of 1998 will increase in absolute dollars compared to fiscal 1997 levels, such expenditures are expected to decrease as a percentage of revenue compared to the first quarter of 1998. 15
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Sales and marketing $ 71.8 $ 72.0 (0.3)% Percentage of total revenue 36.3% 31.8%
Sales and marketing expenses generally include salaries and benefits, sales commissions, travel expenses, and related facility costs for the Company's sales, marketing, customer support, and distribution personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows, and other market development programs. The slight decrease in absolute dollars for sales and marketing expenses for the first quarter of 1998 compared with the same period last year is due to decreased sales commissions and bonuses associated with the decline in revenue partially offset by increased headcount. Sales and marketing expenses are expected to increase in absolute dollars, but remain flat or slightly decrease as a percentage of revenue compared to the first quarter of 1998, as the Company invests in marketing programs for new products and upgrades scheduled to be released later in fiscal 1998.
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) General and administrative $ 24.1 $ 17.5 37.6% Percentage of total revenue 12.2% 7.7%
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 executive and administrative personnel of the Company. General and administrative expenses also include outside legal and accounting fees, provision for bad debts, and expenses associated with computer equipment and software used in the administration of the business. General and administrative expenses increased in absolute dollars and as a percentage of revenue for the first quarter of 1998 compared with the same period last year due to increased employee costs primarily associated with increased headcount and a more comprehensive administrative infrastructure. Additionally, general and administrative expenses in the first quarter of 1998 include the write-off of $2.4 million of goodwill associated with an acquisition that took place in 1997. The Company expects general and administrative spending in 1998 to continue to be higher than 1997 levels in absolute dollars as the Company continues to invest in an expanded and more comprehensive executive and administrative infrastructure. General and administrative expenses are expected to decrease as a percentage of revenue as compared to the first quarter of 1998. 16
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Acquired in-process technology $ 3.8 ----- 100% Percentage of total revenue 1.9% -----
Acquired in-process technology includes several acquired technologies associated with Adobe products that have yet to reach technological feasibility as defined within SFAS No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," and for which no alternative uses have been established by the Company.
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Other non-recurring items ----- $ (2.4) (100)% Percentage of total revenue ----- (1.0)%
The non-recurring item which occurred during the first quarter of 1997 represents proceeds on the divestiture of a product line. NONOPERATING INCOME
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Investment gain (loss) $ 12.5 $ (0.6) 2,097.1% Percentage of total revenue 6.3% (0.3)%
Investment gain (loss) consists principally of realized gains or losses from direct investments as well as mark-to-market valuation adjustments for Adobe Ventures L.P. During the first quarter of 1998, McQueen International Limited ("McQueen"), a former investee of the Company, was acquired by Sykes Enterprises, Incorporated ("Sykes"), a publicly traded company. In connection with the acquisition, the Company exchanged its shares of McQueen for approximately 487,000 shares of Sykes' restricted common stock and recorded a gain on the exchange of $6.7 million. Also, during the first quarter of 1998, the Company liquidated its investment in Siebel Systems, Incorporated ("Siebel") through the distribution to its stockholders of approximately 165,000 shares of Siebel as a dividend-in-kind and the sale of its remaining Siebel shares. A gain was recognized on the transaction of approximately $5.7 million.
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Interest and other income $ 8.5 $ 7.0 21.6% Percentage of total revenue 4.3% 3.1%
Interest and other income consists principally of interest earned on cash, cash equivalents, and short term investments as well as foreign exchange transaction gains and losses. 17 The increase in interest and other income in the first quarter of 1998 compared to the same period last year is due primarily to foreign exchange gains in Europe offset by a decrease in interest income as a result of lower average cash balances. PROVISION FOR INCOME TAXES
1998 1997 CHANGE ---------- ---------- ------------ First quarter: (Dollars in millions) Provision for income taxes $ 15.9 $ 26.7 (40.4)% Percentage of total revenue 8.0% 11.8% Effective tax rate 37.3% 36.5%
The Company's effective tax rate increased in the first quarter of 1998 primarily due to the nondeductible write-off of goodwill relating to an acquisition which took place in 1997, a decrease in research and experimentation tax credits (the federal credit is set to expire on June 30, 1998), and lower tax-exempt interest income. The Company expects that the effective tax rate for the remainder of fiscal 1998 will be between 37% and 38% due to lower tax-exempt interest income as a result of cash requirements for the Company's stock repurchase programs and the expiration of the federal research and experimentation tax credit on June 30, 1998. 18 FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS The Company believes that in the future its results of operations could be affected by various factors, such as delays in shipment of the Company's new products and major new versions of existing products, lack of market acceptance of new products and upgrades, weakness in demand for Macintosh application software and Macintosh-related printers, renegotiation of royalty arrangements, growth in worldwide personal computer and printer sales and sales price adjustments, consolidation in the OEM printer business, ongoing weakness in the color copier business due to product transitions and excess copier inventory, industry transitions to new business and information delivery models, ongoing weakness in the Japanese and other Asian economies, and adverse changes in general economic conditions in any of the countries in which the Company does business. The Company's ability to develop and market products, including upgrades of current products that successfully adapt to changing customer needs, may also have an impact on the results of operations. The Company's ability to extend its core technologies into new applications and to anticipate or respond to technological changes could affect its ability to develop these products. A portion of the Company's future revenue will come from these new applications. Delays in product or upgrade 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 revenue or results of operations. The market for the Company's graphics applications, particularly the consumer products, is intensely and increasingly competitive and is significantly affected by product introductions and market activities of industry participants. Additionally, Microsoft Corp. has stated its intention to increase its presence in the digital imaging market in 1998; the Company believes that, due to Microsoft's market dominance, any new Microsoft digital imaging products will be highly competitive with the Company's products. If competing new products achieve widespread acceptance, it would have a significant adverse impact on the Company's operating results. Although the Company generally offers its application products on Macintosh, Windows, and UNIX platforms, a majority of the overall revenue from these products prior to 1997 has been for the Macintosh platform, particularly for the higher end Macintosh computers. In 1997, Windows-based application revenue exceeded that from the Macintosh platform for the first time. If there is a continuing slowdown of customer purchases in the higher end Macintosh market, or if the Company is unable to increase its revenue from Windows customers commensurate with such a slowdown, the Company's operating results could be materially adversely affected. Also, as the Company seeks to further broaden its customer base to achieve greater penetration in the corporate business and consumer markets, the Company will need to adapt its application software distribution channels. The Company could experience decreases in average selling prices and some transitions in its distribution channel which could materially adversely affect its operating results. In addition, to the extent that there is a slowdown of customer purchases of personal computers in general, the Company's operating results could be materially adversely affected. 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, which could result in lower licensing revenue for the Company. In the fall of 1997, HP began to ship non-Adobe clone software in some printers, resulting in somewhat lower licensing revenue to the Company, although the impact to date has been minimal. The Company 19 expects a more significant impact on its remaining 1998 licensing revenue, although it continues to work with HP printer operations to incorporate Adobe PostScript and other technologies in other HP products. During late 1997, the Company experienced a decline in both application and licensing revenue from the Japanese market, due to a weak Japanese computer market and general economic conditions in Japan. In addition, at the end of fiscal 1997, inventory levels for application products at the Company's Japanese distributors remained higher than what the Company considers normal. During the first quarter of fiscal 1998, the Company worked with its major distributors in Japan to reduce channel inventory by approximately $11 million. The Company expects these adverse economic conditions to continue in the short term, and they may adversely affect the Company's revenue and earnings. Although there are also adverse conditions in other Asian economies, the countries affected represent a much smaller portion of the Company's revenue and thus have less impact on the Company's operational results. The Company has experienced, and expects to continue to experience, significant growth. Competition for high quality personnel, especially highly skilled engineers, is extremely intense. The Company's ability to effectively manage its growth will require it to continue to improve its operational and financial controls and information management systems, and to attract, retain, motivate, and manage employees effectively. The failure of the Company to effectively manage growth and transition in multiple areas of its business could have a material adverse effect on its results of operations. The Internet market is rapidly evolving and is characterized by an increasing number of market entrants that have introduced or developed products addressing authoring and communications over the Internet. As is typical in the case of a new and evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty. The software industry addressing the authoring for and communications over the Internet is young and has few proven products. In addition, new models for licensing software will be needed to accommodate new information delivery practices. Moreover, critical issues concerning the commercial use of the Internet (including security, reliability, ease of use and access, cost, and quality of service) remain unresolved and may affect the growth of Internet use, together with the software standards and electronic media employed in such markets. The Company derives a significant portion of its revenue and operating income from its subsidiaries located in Europe, Japan, and Asia, Pacific, and Latin America. The Company generally experiences lower revenue from its European operations in the third quarter because many customers reduce their purchasing activities in the summer months. While most of the revenue of the European subsidiaries is denominated in U.S. dollars, the majority of revenue derived from Japan is denominated in yen and the majority of all subsidiaries' operating expenses are denominated in their local currencies. As a result, the Company's operating results are subject to fluctuations in foreign currency exchange rates. To date, the accounting impact of such fluctuations has been insignificant. The Company's hedging policy attempts to mitigate some of these risks, based on management's best judgment of the appropriate trade-offs among risk, opportunity, and expense. The Company has established a hedging program to hedge its exposure to foreign currency exchange rate fluctuations, primarily of the Japanese yen. The Company's hedging program is not comprehensive, and there can be no assurance that the program will offset more than a portion of the adverse financial impact resulting from unfavorable movement in foreign currency exchange rates. Due to the factors noted above, the Company's future earnings and stock price may 20 be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, the Company may not learn of such shortfalls until late in the fiscal quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Finally, the Company participates in a highly dynamic industry. In addition to factors specific to the Company, changes in analysts' earnings estimates for the Company or its industry and factors affecting the corporate environment, the Company's industry or the securities markets in general will often result in significant volatility of the Company's common stock price. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in the financial statements. It does not, however, require a specific format for the disclosure, but requires the Company to display an amount representing total comprehensive income for the period in its financial statements. The Company will be required to implement SFAS No. 130 for its fiscal year 1999. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. The Company is currently evaluating the operating segment information to determine whether this will have an impact on its financial statement reporting. The Company will be required to implement SFAS No. 131 for its fiscal year 1999. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 establishes standards relating to the recognition of all aspects of software revenue. Based on the Company's initial assessment of the impact SOP 97-2 may have on its consolidated results of operations, the Company intends to modify certain aspects of its business model such that any impact will not be significant. The Company intends to adopt SOP 97-2 for its fiscal year 1999. "YEAR 2000" ISSUES The Company is aware of the issues associated with the programming code in existing computer systems as the year 2000 approaches. The "Year 2000" problem is pervasive and complex, as many computer systems will be affected in some way by the rollover of the two-digit year value to 00. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The "Year 2000" issue creates risk for the Company from unforeseen problems in its own computer systems and from third parties with whom the Company deals on financial transactions worldwide. Failures of the Company's and/or third parties' computer systems could have a material impact on the Company's ability to conduct its business. The Company's financial information systems include an SAP system recently implemented in the United States and Japan and an Oracle system in Europe that will be upgraded to the most recent version later in fiscal 1998. These systems are believed to be "Year 2000" compliant. The Company is analyzing its remaining computer systems to 21 identify any potential "Year 2000" issues and will take appropriate corrective action based on the results of such analysis. Management has not yet determined the cost related to achieving "Year 2000" compliance. In addition, the "Year 2000" issue could affect the products that the Company sells. The Company believes that the current versions of its products are "Year 2000" compliant. The Company's products are subject to ongoing analysis and review. 22 FINANCIAL CONDITION CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
FEBRUARY 27 FEBRUARY 28 1998 1997 CHANGE ----------- ----------- ------------ (Dollars in millions) Cash, cash equivalents and short-term investments $378.2 $503.0 (24.8)%
Cash equivalents consist of highly liquid money market instruments. All of the Company's cash equivalents and short-term investments, consisting principally of municipal bonds, auction rate certificate securities, United States government and government agency securities, and asset-backed securities, are classified as available-for-sale under the provisions of Statement of Financial Accounting Standards 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 stockholders' equity. The Company's cash, cash equivalents and short-term investments decreased $124.8 million or 24.8% primarily due to cash used during the quarter to repurchase Adobe common stock partially offset by cash provided by operations. The timing and size of any future stock repurchases are subject to market conditions, stock prices, and Adobe's cash position and other cash requirements going forward. OTHER ASSETS
FEBRUARY 27 FEBRUARY 28 1998 1997 CHANGE ----------- ----------- ------------ (Dollars in millions) Other assets $186.9 $163.1 14.6%
Other assets include restricted investments, equity investments, licensing agreements, purchased technology, goodwill and capitalized localization costs. During the first quarter of 1998, McQueen International Limited ("McQueen"), a former investee of the Company, was acquired by Sykes Enterprises, Incorporated ("Sykes"), a publicly traded company. In connection with the acquisition, the Company exchanged its shares of McQueen for approximately 487,000 shares of Sykes' restricted common stock and recorded a gain on the exchange of $6.7 million and a corresponding increase to the investment. Also contributing to the increase in other assets during the quarter were additional investments made in the Company's venture investment program and an increase in restricted investments in connection with the Company's real estate development agreements. 23 STOCKHOLDERS' EQUITY
FEBRUARY 27 FEBRUARY 28 1998 1997 CHANGE ----------- ----------- ------------ (Dollars in millions) Stockholders' equity $634.0 $715.4 (11.4)%
Stockholders' equity decreased $81.5 million during the first quarter of 1998 as a result of the repurchase of approximately 3.0 million shares of Adobe common stock at an aggregate cost of $122.8 million under stock repurchase programs previously authorized by the Board of Directors. These stock repurchase programs are intended to enhance stockholder value by reducing the number of outstanding shares net of offsetting increases due to employee stock purchases and stock option exercises. The timing and size of any future stock repurchases are subject to market conditions, stock prices and Adobe's cash position and other cash requirements going forward. The Board of Directors of the Company declared a cash dividend on the Company's common stock of $.05 per common share on March 23, 1998, for the first quarter of 1998. The dividend will be for stockholders of record as of April 3, 1998, and will be paid on April 17, 1998. Also, on December 1, 1997, the Company dividended one share of Siebel Systems, Incorporated ("Siebel") common stock for each 300 shares of Adobe common stock held by stockholders of record on October 31, 1997. An equivalent cash dividend was paid for holdings of less than 7,500 Adobe shares and for odd-lot and fractional Siebel shares. 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. WORKING CAPITAL
FEBRUARY 27 FEBRUARY 28 1998 1997 CHANGE ----------- ----------- ------------ (Dollars in millions) Working capital $346.3 $454.3 (23.8)%
Net working capital decreased $108.0 million or 23.8% during the first quarter of 1998 due primarily to a decrease in cash, cash equivalents and short-term investments of $124.8 million. Cash flows provided from operating acitivites were $31.3 million for the first quarter of 1998. Expenditures for property and equipment totaled $11.9 million in the first quarter of 1998. Such expenditures are expected to continue, including computer systems for development, sales and marketing, product support, and administrative staff. In the future, additional cash may be used to acquire software products or technologies complementary to the Company's business. Net cash used by financing activities during the first quarter of 1998 was $111.8 million primarily resulting from the repurchase of stock and payment of dividends, partially offset by the issuance of common stock under employee stock plans. 24 The Company's principal commitments as of February 27, 1998 consisted of obligations under operating leases, venture investing activities, real estate development agreements, and various service and lease guarantee agreements with a related party. These arrangements are discussed in more detail in the Company's 1997 Annual Report filed on Form 10-K. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk disclosures set forth in its 1997 Annual Report filed on Form 10-K have not changed significantly. 26 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On April 17, 1997, a derivative action was filed in the Superior Court of the State of California, County of Santa Clara, against the current members of Adobe's Board of Directors and Paul Brainerd, a former member of the Board. The suit was filed by a stockholder purporting to assert on behalf of the Company claims for alleged breach of the Directors' fiduciary duty and mismanagement related to the Company's acquisition of Frame in October 1995. The Court granted Adobe's demurrer to the suit, with leave to amend for the plaintiff. In January 1998, the plaintiff filed an amended complaint making substantially the same claims. In March 1998, Adobe filed a demurrer to the amended complaint. Management believes that the ultimate resolution of this matter and other matters discussed in the Company's 1997 Annual Report on Form 10-K will not have a material impact on the Company's financial position or results of operations. 27 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Index to Exhibits
EXHIBIT INCORPORATED BY REFERENCE FILED NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH - ------- --------------------------- ---- ---- ------ -------- 3.1 The Registrant's (as suc- 10-Q 05/30/97 3.1 cessor in-interest to Adobe Systems (Delaware) Incorporated by virtue of a reincorporation effective 5/30/97) Certif- icate of Incorporation, as filed with the Secretary of State of the State of Delaware on 5/9/97. 3.2.10 Amended and Restated 10-K 11/28/97 3.2.10 Bylaws as currently in effect. 3.3 Certificate of Designation 10-K 11/28/97 3.3 of the Series A Preferred Stock 3.4 Agreement and Plan of 10-Q 05/30/97 2.1 Merger effective 5/30/97 (by virtue of a reincorp- oration), by and between Adobe Systems Incorpor- ated, a California Corp- oration and Adobe Systems (Delaware) Incorporated, a Delaware corporation. 4.1 Second Amended and 8-K 08/29/97 4 Restated Rights Agreement between the Company and Harris Trust Company of California 10.1.6 1984 Stock Option Plan, 10-Q 07/02/93 10.1.6 as amended* 10.17.1 License Agreement 10-K 11/30/88 10.17.1 Restatement between the Company and Apple Computer, Inc., dated April 1, 1987 (confidential treatment granted) (Continued)
28
EXHIBIT INCORPORATED BY REFERENCE FILED NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH - ------- --------------------------- ---- ---- ------ -------- 10.17.2 Amendment No. 1 to the 10-K 11/30/90 10.17.2 License Agreement Restatement between the Company and Apple Computer, Inc., dated November 27, 1990 (confidential treatment granted) 10.21.3 Revised Bonus Plan* 10-Q 02/28/97 10.21.3 10.24.1 1994 Performance and S-8 07/27/94 10.1 Restricted Stock Plan* 10.25.0 Form of Indemnity 10-K 11/30/90 10.17.2 Agreement* 10.25.1 Form of Indemnity 10-Q 05/30/97 10.25.1 Agreement* 10.32 Sublease of the Land and 10-K 11/25/94 10.32 Lease of the Improvements By and Between Sumitomo Bank Leasing and Finance Inc. and Adobe Systems Incorporated (Phase 1) 10.36 1996 Outside Directors 10-Q 05/31/96 10.36 Stock Option Plan* 10.37 Confidential Resignation 10-Q 05/31/96 10.37 Agreement* 10.38 Sublease of the Land and 10-Q 08/30/96 10.38 Lease of the Improvements By and Between Sumitomo Bank Leasing and Finance Inc. and Adobe Systems Incorporated (Phase 2) 10.39 1997 Employee Stock S-8 05/30/97 10.39 Purchase Plan, as amended* 10.40 1994 Stock Option S-8 05/30/97 10.40 Plan, as amended* (Continued)
29
EXHIBIT INCORPORATED BY REFERENCE FILED NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH - ------- --------------------------- ---- ---- ------ -------- 10.42 Amended and Restated 10-K 11/28/97 10.42 Limited Partnership Agreement of Adobe Incentive Partners, L.P.* 10.43 Resignation Agreement* 10-K 11/28/97 10.43 10.44 Forms of Retention 10-K 11/28/97 10.44 Agreement* 21 Subsidiaries of the 10-K 11/28/97 21 Registrant 27.1 Financial Data Schedule X 27.2 Financial Data Schedule X
*Compensatory plan or arrangement (b) Reports on Form 8-K No reports on Form 8-K were filed in the quarter ended February 27, 1998. 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ADOBE SYSTEMS INCORPORATED By /s/ P. JACKSON BELL ---------------------------- P. Jackson Bell, Executive Vice President, Chief Financial Officer, Chief Administrative Oficer, and Assistant Secretary (Principal Financial Oficer) By /s/ David P. Eichler ---------------------------- David P. Eichler Vice President, Finance (Principal Accounting Officer) Date: April 9, 1998 31 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 Acrobat FrameMaker Illustrator PageMaker PhotoDeluxe Photoshop PostScript PrintGear All other brand or product names are trademarks or registered trademarks of their respective holders. 32 EX-27.1 2 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT FEBRUARY 27, 1998, AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE QUARTER ENDED FEBRUARY 27, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS NOV-27-1998 NOV-29-1997 FEB-27-1998 106,653 271,545 119,328 4,309 8,593 541,982 198,803 114,264 829,659 195,695 0 0 0 7 633,957 829,659 41,851 197,813 29,986 29,986 145,385 770 0 42,635 15,891 26,744 0 0 0 26,744 0.39 0.38
EX-27.2 3 EXHIBIT 27.2
5 1,000 3-MOS NOV-28-1997 NOV-30-1996 FEB-28-1997 89,687 478,376 127,623 4,886 8,327 738,196 163,874 83,576 1,005,111 204,016 0 0 0 155,222 583,762 1,005,111 51,460 226,459 34,289 34,289 124,948 424 0 73,167 26,683 46,484 0 0 0 46,484 0.65 0.63
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