-----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, Apb0Uv67KlVubPZ0sPZino3cLOBB9KJkvqmQgt5poZj9kj0l4L14ZiGDgjTitvnm 8r6v/I46/bana3pFxLeYHg== 0001047469-98-030797.txt : 19980813 0001047469-98-030797.hdr.sgml : 19980813 ACCESSION NUMBER: 0001047469-98-030797 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MACROMEDIA INC CENTRAL INDEX KEY: 0000913949 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943155026 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22688 FILM NUMBER: 98684217 BUSINESS ADDRESS: STREET 1: 600 TOWNSEND ST STREET 2: STE 310 W CITY: SAN FRANCISCO STATE: CA ZIP: 94103 BUSINESS PHONE: 4152522000 MAIL ADDRESS: STREET 1: 600 TOWNSEND ST STREET 2: STE 310W CITY: SAN FRANCISCO STATE: CA ZIP: 94103 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to ------------- ------------- COMMISSION FILE NO. 0-22688 MACROMEDIA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-3155026 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 600 TOWNSEND STREET SAN FRANCISCO, CALIFORNIA 94103 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (415) 252-2000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO . --- --- As of July 31, 1998, there were outstanding 39,613,767 shares of the Registrant's Common Stock, par value $0.001 per share. This Report, including exhibits, consists of 14 sequentially numbered pages. The Index to Exhibits appears on sequentially numbered page 13 . ---- 1 MACROMEDIA, INC. AND SUBSIDIARIES INDEX
PART I - FINANCIAL INFORMATION Page ITEM 1. FINANCIAL STATEMENTS ---- Condensed Consolidated Balance Sheets June 30, 1998 and March 31, 1998 3 Condensed Consolidated Statements of Operations Three Months Ended June 30, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows Three Months Ended June 30, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 SIGNATURES 14
2 PART I - FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS MACROMEDIA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (unaudited)
June 30, March 31, 1998 1998 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 8,873 $ 10,019 Short-term investments 85,361 76,112 Accounts receivable, net 9,634 7,696 Inventory, net 762 743 Prepaid expenses and other current assets 11,192 3,819 Deferred tax assets, short-term 8,548 8,548 -------- -------- Total current assets 124,370 106,937 Land and building, net 20,147 20,372 Other fixed assets, net 16,540 18,528 Other long-term assets 9,378 8,347 -------- -------- Total assets $170,435 $154,184 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,647 $ 4,091 Accrued liabilities 22,406 19,132 Unearned revenue 10,272 1,927 -------- -------- Total current liabilities 34,325 25,150 Deferred tax liabilities, long term 306 306 Other long-term liabilities 225 263 -------- -------- Total liabilities 34,856 25,719 Stockholders' equity: Common stock, par value $0.001 per share; 80,000,000 shares authorized; 39,022,421 and 38,297,968 shares issued and outstanding (net of 510,000 treasury shares) at June 30, 1998 and March 31, 1998, respectively 40 39 Other stockholders' equity 135,539 128,426 -------- -------- Total stockholders' equity 135,579 128,465 Total liabilities and stockholders' equity $170,435 $154,184 -------- -------- -------- --------
See accompanying notes to condensed consolidated financial statements. 3 MACROMEDIA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited)
Three months ended June 30, ------------------- 1998 1997 ------- ------- Revenues $32,335 $27,329 Cost of revenues 3,119 4,568 ------- ------- Gross profit 29,216 22,761 Operating expenses: Sales and marketing 14,329 14,340 Research and development 8,528 8,701 General and administrative 3,352 2,610 ------- ------- Total operating expenses 26,209 25,651 ------- ------- Operating income (loss) 3,007 (2,890) Other income, net 1,282 1,094 ------- ------- Income (loss) before income taxes 4,289 (1,796) (Provision) benefit for income taxes (1,330) 557 ------- ------- Net income (loss) $ 2,959 $(1,239) ------- ------- ------- ------- Net income (loss) per share Basic $ 0.08 $ (0.03) Diluted $ 0.07 $ (0.03) ------- ------- ------- ------- Weighted average common shares outstanding Basic 38,626 37,866 Diluted 43,863 37,866 ------- ------- ------- -------
See accompanying notes to condensed consolidated financial statements. 4 MACROMEDIA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
Three months ended June 30, ------------------- 1998 1997 ------- ------- Cash flows from operating activities: Net income (loss) $ 2,959 $(1,239) Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities: Depreciation and amortization 2,057 2,374 Deferred compensation 77 12 Changes in operating assets and liabilities: Accounts receivable, net (1,938) (5,513) Inventory, net (19) 818 Prepaid expenses and other current assets (7,373) 174 Accounts payable (2,444) (1,570) Accrued liabilities 3,274 (1,267) Unearned revenue 8,345 212 Other long-term liabilities (38) 192 ------- ------- Net cash provided by / (used in) operating activities 4,900 (5,807) ------- ------- Cash flows from investing activities: Capital expenditures (750) (5,860) Proceeds from sale of fixed assets 961 - Net (purchases) / sales / maturities of short-term available-for-sale investments (9,296) 20,941 Other long-term assets (1,086) (690) ------- ------- Net cash (used in) / provided by investing activities (10,171) 14,391 ------- ------- Cash flows from financing activities: Proceeds from issuance of common stock 4,125 868 ------- ------- Net cash provided by financing activities 4,125 868 ------- ------- (Decrease)/increase in cash and cash equivalents (1,146) 9,452 Cash and cash equivalents, beginning of period 10,019 15,397 ------- ------- Cash and cash equivalents, end of period $ 8,873 $24,849 ------- ------- ------- ------- Supplemental disclosure of cash flow information: Interest paid during period $ 0 $ 0 ------- ------- ------- ------- Income taxes paid $ 0 $ 85 ------- ------- ------- -------
See accompanying notes to condensed consolidated financial statements. 5 MACROMEDIA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PREPARATION The condensed consolidated financial statements at June 30, 1998 and for the three months ended June 30, 1998 and 1997 are unaudited and reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the Company's financial position and operating results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's annual report on Form 10-K for the fiscal year ended March 31, 1998. The results of operations for the three months ended June 30, 1998 are not necessarily indicative of the results for the fiscal year ending March 31, 1999 or any other future periods. 2. EARNINGS PER SHARE "Basic" earnings per share is calculated by dividing net income or loss by the weighted average common shares outstanding during the period. "Diluted" earnings per share reflects the net incremental shares that would be issued if outstanding stock options were exercised and if the funds collected for the employee stock purchase plan were used to purchase treasury shares. In the case of a net loss, it is assumed that no incremental shares would be issued because they would be antidilutive. In addition, certain options are considered antidilutive because the options' exercise prices were above the average market price during the period. Antidilutive shares are not included in the computation of diluted earnings per share, in accordance with SFAS No. 128.
Three months ended June 30, (In thousands except per share data) 1998 1997 - -------------------------------------------------------------------------------- BASIC NET INCOME (LOSS) PER SHARE COMPUTATION Numerator: Net income (loss) $ 2,959 $(1,239) ------------------- Denominator: Weighted average number of common shares outstanding during the period 38,626 37,866 Basic net income (loss) per share $ 0.08 $ (0.03) ------------------- DILUTED NET INCOME (LOSS) PER SHARE COMPUTATION Numerator: Net Income (loss) $ 2,959 $(1,239) ------------------- Denominator: Weighted average number of common shares outstanding during the period 38,626 37,866 Effect of dilutive securities: Employee stock options 5,211 - Employee stock purchase plans 26 - ------------------- Total 43,863 37,866 ------------------- Diluted net income (loss) per share $ 0.07 $ (0.03) ------------------- -------------------
6 3. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards of reporting and display of comprehensive income and its components of net income and "other comprehensive income" in a full set of general purpose financial statements. "Other comprehensive income" refers to revenues, expenses, gains and losses that are not included in net income but rather are recorded directly in stockholders' equity. SFAS No. 130 is effective for annual and interim periods beginning after December 15, 1997 and for periods ended before that date when presented for comparative purposes. For the three months ended June 30, 1998 and 1997, the difference between comprehensive income and net income was immaterial. The primary components of other comprehensive income in the first quarter of fiscal year 1999 are unrealized gains and losses related to the Company's available-for-sale securities. 4. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. The Company is currently evaluating the operating segment information that it will be required to report. The Company is required to adopt the new standard for its year ending March 31, 1999. In June 1998, the Financial Accounting Standards Board issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company is currently evaluating the impact of the new rule on the Company's consolidated financial statements. The Company is required to adopt the new standard in the first quarter of fiscal year 2001. 5. INCOME TAXES The Company provides for income taxes during interim reporting periods based upon an estimate of the annual effective tax rate. Such an estimate reflects an effective tax rate lower than the federal statutory rate primarily because of utilization of research and experimentation tax credits, and foreign operating results, which are taxed at rates other than the US statutory rate. The effective rate used for the quarter ended June 30, 1998 was 31%. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES. The Company derives revenues primarily from software sales to domestic and international distributors, value-added resellers (VARs), original equipment manufacturers (OEMs), corporate accounts, and registered users. To a lesser extent, revenues are also derived from contracts to provide maintenance to customers and technology licensing. Two of the Company's products, Director and FreeHand, continue to provide a majority of the Company's revenues; however, new Web products such as Flash, Dreamweaver and Fireworks, and Web-related revenues, accounted for 32% of revenue in the first quarter of fiscal 1999. In addition, revenue deferred in the first quarter arising from the sale and licensing of certain intellectual property will be recognized over the appropriate contract and support obligation periods, which range from 1 year to 3 years. The Company's first quarter fiscal 1999 revenues of $32.3 million increased 18% from revenues of $27.3 million during the same quarter in fiscal 1998. The increase is principally due to revenue streams from new Web-related products and services, lower returns during the quarter and lower reserves for anticipated future product returns, offset by the timing impact of version releases of core products year over year. During the first quarter of fiscal year 1999, the Company shipped new versions of Flash and Dreamweaver, an upgrade to Director, and Fireworks, a new Web graphics production tool. During the first quarter of fiscal 1999, Macintosh-related revenues increased 11% over the first quarter of fiscal 1998 and 14% over the fourth quarter of fiscal 1998, primarily as a result of sales of new Web products. North American revenues increased $1.9 million to $18.3 million in the first quarter of fiscal 1999 from $16.4 million in the first quarter of fiscal 1998, and were 57% of total revenues, versus 60% in the first quarter of fiscal 1998. International revenues increased $3.1 million to $14.0 million in the first quarter of fiscal 1999 from $10.9 million in the first quarter of fiscal 1998, and increased to 43% from 40% of total revenues. Revenues by geographic region vary quarter to quarter depending on product cycles and the timing of the release of localized versions of products. The table below summarizes revenue by geography: ($ in millions) Three months ended June 30, -------------------------------- 1998 1997 % change North America $ 18.3 $ 16.4 12% % of total revenue 57% 60% International 14.0 10.9 29% % of total revenue 43% 40% Total revenue $ 32.3 $ 27.3
GROSS MARGIN. Gross margin for the first quarter of fiscal 1999 was 90% compared to 83% for the same period in fiscal 1998. The improvement is primarily due to the results of cost control programs implemented over the past year, including a move to just-in-time manufacturing which resulted in lower inventory obsolescence and lower inventory levels, and improved inventory review procedures. 8 SALES AND MARKETING. Sales and marketing expenses decreased as a percentage of revenues by 8%, from 52% in the first quarter of fiscal 1998 to 44% in the first quarter of fiscal 1999 but remained constant in absolute dollars at $14.3 million. Expenses decreased as a percentage of revenues due to higher sales levels. Increases in advertising and compensation-related expenses during the first quarter of fiscal 1999 were offset by reductions in tradeshow and other marketing expenses, thereby keeping overall sales and marketing expenses essentially flat with the first quarter of the prior year. Sales and marketing expenses are expected to increase over the next two years beginning in the second quarter of fiscal 1999 as a result of the amortization of capitalized costs arising from licensing and distribution agreements entered into during the first quarter. RESEARCH AND DEVELOPMENT. Research and development expenses decreased $0.2 million from $8.7 million in the first quarter of fiscal 1998 to $8.5 million in the first quarter of fiscal 1999, and decreased as a percentage of revenues from 32% to 26%. Expenses decreased in the first quarter of fiscal year 1999 primarily due to reduced costs for facilities, offset by increases in headcount-related costs and technology infrastructure. Expenses decreased as a percentage of revenues due to higher sales levels. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by $0.7 million, from $2.6 million in the first quarter of fiscal 1998 to $3.4 million in the first quarter of fiscal 1999. Expenses increased in the first quarter of fiscal 1999 primarily due to legal fees associated with the class action law suits (described below) and increases in headcount and costs associated with building the infrastructure required to support the growth of the Company. General and administrative costs remained a constant 10% of revenues for the first quarter of both fiscal 1999 and 1998. OTHER INCOME. Other income increased by $0.2 million from $1.1 million for the first quarter of fiscal 1998 to $1.3 million for the first quarter of fiscal 1999. The increase was primarily due to higher interest income, which resulted from an increase in the average short-term investment balance on hand during the period. PROVISION/BENEFIT FOR INCOME TAXES. The Company's provision for income taxes for the first three months of fiscal 1999 was $1.3 million as compared with a benefit of $0.6 million for the first three months of fiscal 1998. The effective tax rate for the quarterly provision was 31% during the first quarter of the fiscal years 1999 and 1998. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998, the Company had cash, cash equivalents and short-term investments of $94.2 million. For the three months ended June 30, 1998, cash provided by operating activities of $4.9 million was primarily attributable to net income for the period and an increase in unearned revenue associated with licensing agreements, offset by an increase in prepaid marketing costs plus the net impact of the sales, cash disbursements and cash collection cycles. Cash used in investment activities of $10.2 million related primarily to the purchase of $9.3 million in available-for-sale short-term investments. Cash provided by financing activities of $4.1 million was attributable to proceeds received from the issuance of common stock upon exercise of stock options. Collectively, the above activity resulted in a net decrease of $1.1 million from the March 31, 1998 balances of cash and cash equivalents. Working capital increased by $8.3 million from the March 31, 1998 balance of $81.8 million, to $90.0 million at June 30, 1998. The Company anticipates future capital expenditures of approximately $12.0 million for the remainder of fiscal 1999. In addition to cash, cash equivalents, and short-term investments, the Company has $15.0 million available under an unsecured revolving line of credit. The line of credit bears interest at the bank's prime rate and expires on July 15, 1999. As of June 30, 1998, the Company had no borrowings outstanding. 9 The Company believes that existing cash resources, available bank borrowings and cash generated from operations will be sufficient to meet the Company's cash and investment requirements through at least March 31, 1999. FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS Except for the historical information contained in this Form 10-Q, the matters discussed herein are forward-looking statements that involve risks and uncertainties, including those detailed below, and from time to time in the Company's other reports filed with the Securities and Exchange Commission. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. INTENSE COMPETITION. The markets for the Company's products are highly competitive and characterized by pressure to reduce prices, incorporate new features, and accelerate the release of new product versions. A number of companies currently offer products that compete directly or indirectly with one or more of the Company's products. These companies include Adobe Systems Inc. (Adobe), Apple Computer, Inc., Asymetrix Corporation, Corel Corporation (Corel), MetaCreations Corporation, and Microsoft Corporation (Microsoft). As the Company competes with larger competitors such as Adobe, Corel and Microsoft across a broader range of product lines and different platforms, the Company may face increasing competition from such companies. FLUCTUATIONS OF OPERATING RESULTS; PRODUCT INTRODUCTION DELAYS. The Company's quarterly operating results may vary significantly depending on the timing of new product introductions and enhancements by the Company. A majority of the Company's revenues is derived from two products: Director and FreeHand. The Company has in the past experienced delays in the development of new products and enhancement of existing products, and such delays may occur in the future. If the Company is unable, due to resource constraints or technological or other reasons, to develop and introduce such products in a timely manner, this inability could have a material adverse effect on the Company's results of operations. If the Company does not ship new versions of its products as planned, sales of existing versions decline, or new products do not receive market acceptance, the Company's results of operations in a given quarter could be materially adversely affected as they were during the fourth quarter of fiscal 1997 when the Company delayed shipment of a new version of Director to the following quarter. DEPENDENCE ON DISTRIBUTORS. A substantial majority of the Company's revenues is derived from the sale of its products through a variety of distribution channels, including traditional software distributors, mail order, educational distributors, VARs, OEMs, hardware and software superstores, retail dealers, and direct sales. Domestically, the Company's products are sold primarily through distributors, VARs, and OEMs. In particular, one distributor, Ingram Micro, Inc., accounted for 28% of gross revenues in fiscal 1998 and in the first quarter of fiscal 1999. Internationally, the Company's products are sold through distributors. DEPENDENCE ON MACINTOSH PLATFORM. In the past, a majority of the Company's revenues was derived from its products for the Macintosh. Macintosh revenues accounted for 51% of product revenues for the first quarter of fiscal 1999, compared to 44% of revenues for all of fiscal 1998. Although the relative percentage of Macintosh platform revenues will vary from quarter to quarter based on product release schedules, the Company remains heavily dependent on the sale of products for the Macintosh platform. A continuing leveling-off or decline in the sales rate of multimedia-capable Macintosh computers or shifts in mail order or other distribution mechanisms for Macintosh products could have a material adverse effect on the Company's results of operations. 10 RISKS OF INTERNATIONAL OPERATIONS. For the first quarter of fiscal 1999, the Company derived approximately 43% of its revenues from international sales, compared with 48% for all of fiscal 1998. The Company expects that international sales will continue to generate a significant percentage of its revenues. The Company relies on distributors for sales of its products in foreign countries and, accordingly, is dependent on their ability to promote and support the Company's products, and in some cases, to translate them into foreign languages. International business is subject to a number of special risks, including: foreign government regulation; general geopolitical risks such as political and economic instability, hostilities with neighboring countries and changes in diplomatic and trade relationships; more prevalent software piracy; unexpected changes in, or imposition of, regulatory requirements, tariffs, import and export restrictions and other barriers and restrictions; longer payment cycles, greater difficulty in accounts receivable collection, potentially adverse tax consequences, the burdens of complying with a variety of foreign laws; foreign currency risk; and other factors beyond the control of the Company. In addition, the Company's results may be adversely affected by worldwide economic events beyond the control of the Company, such as those presently occurring in Asia. Approximately 16% of revenues in the first quarter of fiscal 1999 and 20% of revenues in fiscal 1998 were derived from the Asia Pacific region, including Japan. During fiscal 1998, the Company experienced a decline in revenue growth rates in Asia Pacific in part due to the economic crises that occurred throughout this region. There can be no assurances that these economies will recover in the near term or that the Company's results or growth rates in this geographic region will return to previous levels even if the recovery occurs. The Company enters into foreign exchange forward contracts to reduce economic exposure associated with sales and asset balances denominated in various European currencies and Japanese Yen. As of June 30, 1998, the notional principal of forward contracts outstanding amounted to $6.1 million. These contracts are of a short-term duration and the fair value of such contracts equals the market value as of June 30, 1998. There can be no assurance that such contracts will adequately hedge the Company's exposure to currency fluctuations. VOLATILITY OF STOCK. Due to the factors noted above, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, the Company may not learn of such shortfalls until late in the fiscal quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Finally, the Company participates in a highly dynamic industry. In addition to factors specific to the Company, changes in analysts' earnings estimates for the Company or its industry and factors affecting the corporate environment or the securities markets in general will often result in significant volatility of the Company's common stock price. YEAR 2000 COMPLIANCE The Company is aware of the issues associated with the programming code in existing computer systems as the year 2000 approaches. The Year 2000 issue creates risk for the Company from unforeseen problems in its own computer systems and from third parties, including customers, vendors, and manufacturers, with whom the Company deals on financial transactions worldwide. Failures of the Company's and/or third parties' computer systems could have a material impact on the Company's ability to conduct its business. Although the Company does not believe there are any material operational issues or costs associated with preparing its internal systems for the year 2000, there can be no assurance that the Company will not experience serious unanticipated negative consequences and/or material costs caused by undetected errors or defects in the technology used in its internal systems. The Company is assessing the impact to its operations of addressing the Year 2000 issues. The Company believes that its software will handle Year 2000 compliance correctly assuming that the operating systems upon which they run have been updated to comply. Macromedia's software products obtain date information, such as creation dates and modification dates, directly from the computer's operating system. Both Microsoft and Apple have stated that their operating systems will continue to operate properly into the twenty-first century. 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 31, 1997, a complaint entitled Rosen et al. V. Macromedia, Inc., et al., (Case No. 988526) was filed in the Superior Court for San Francisco, California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of California Corporations Code Sections 25400 and 25500 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding the Company's financial results and prospects. Plaintiffs seek to represent a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Four similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in San Francisco Superior Court, and consolidated for pre-trial purposes with Rosen. Defendants filed demurrers to the complaint and other motions which were argued on December 19, 1997 and January 5, 1998. Before the demurrers could be heard, one defendant, Richard Wood, died in an automobile accident. The Court sustained in part and overruled in part the demurrers by order dated March 6, 1998. Claims against Susan Bird were dismissed with leave to amend and the Court overruled the demurrers as to Macromedia, John Colligan, James Von Ehr, II, and Kevin Crowder. The Plaintiffs did not file an amended complaint, and defendants have answered. Discovery is now proceeding. By agreement of the parties, the rulings apply to the other state court actions, and separate answers to the remaining complaints need not be filed. On September 25, 1997, a complaint entitled City Nominees v. Macromedia, Inc. et al., (Case No. C-97-3521-SC) was filed in the United States District Court for the Northern District of California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of Sections 10 and 20(a) of the Securities and Exchange Act of 1934 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding the Company's financial results and prospects. Plaintiffs seek to represent a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Three similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in United States District Court for the Northern District of California. All of these cases have been consolidated. Lead plaintiffs and lead counsel have been appointed under the provisions of the Private Securities Law Reform Act by the District Court pursuant to an Order of January 23, 1998. A consolidated complaint was filed on February 13, 1998. Defendants promptly moved to dismiss, which motion was granted by order filed May 18, 1998, on the grounds that plaintiffs' claims were barred by the applicable statute of limitations. Plaintiffs have filed a notice of appeal of the dismissal. Discovery has been stayed by operation of statute and local rule. All complaints seek damages in unspecified amounts, as well as other forms of relief. The Company believes the complaints are without merit and intends to vigorously defend the actions. 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On July 30, 1998, the Company held its annual meeting of stockholders. The stockholders passed the following proposals by the votes indicated.
Matter Votes For Withheld ------ ---------- -------- 1. Election of Directors Stewart Alsop 34,920,514 488,095 Robert K. Burgess 34,923,060 485,549 John (Ian) Giffen 34,926,296 482,313 Mark D. Kvamme 34,923,616 484,993 Donald L. Lucas 34,899,503 509,106 James R. Von Ehr, II 34,926,028 482,581 William B. Welty 34,881,580 527,029 Votes Votes Broker Matter Votes For Against Abstained Non Votes ------ --------- ---------- --------- --------- 2. Amendment of the 1992 Equity Incentive plan to increase the number of shares reserved for issuance thereunder by 1,500,000 shares from 11,800,000 shares to 13,300,000 shares 23,597,670 11,616,821 194,118 0 3. Amendment of the 1993 Directors Stock Option Plan to increase the number of shares reserved for issuance thereunder by 400,000 shares from 300,000 shares to 700,000 shares 25,696,929 9,528,085 183,595 0 4. Amendment to the award formula for non- employee directors in the 1993 Directors Stock Option Plan 25,817,384 9,462,157 129,068 0 5. Ratify selection of KPMG Peat Marwick LLP as independent auditors for the Company for the current fiscal year. 35,262,072 55,731 90,806 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed herewith: Exhibit Number Exhibit Title - ------- ------------- 27.01 - Financial Data Schedule (b) Reports on Form 8-K The Company did not file a report on Form 8-K during the period ended June 30, 1998. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MACROMEDIA, INC. (Registrant) Date: August 12, 1998 /s/ Robert K. Burgess ---------------------------------------------- Robert K. Burgess President and Chief Executive Officer Date: August 12, 1998 /s/ Elizabeth A. Nelson ---------------------------------------------- Elizabeth A. Nelson Chief Financial Officer, Senior Vice President
14 EX-27.1 2 EXHIBIT 27.1
5 1,000 3-MOS MAR-31-1999 APR-01-1998 JUN-30-1998 8,873 85,361 17,424 7,790 762 124,370 58,799 22,112 170,435 34,325 0 0 0 40 135,539 170,435 32,335 32,335 3,119 26,209 0 0 0 4,289 1,330 2,959 0 0 0 2,959 $.08 $.07
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