MACROMEDIA INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File No. 000-22688

MACROMEDIA, INC.

(Exact name of registrant as specified in its charter)

Delaware

600 Townsend Street

94-3155026

(State or other jurisdiction of

incorporation or organization)

San Francisco, California 94103

Telephone: (415) 252-2000

(I.R.S. Employer

Identification No.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Act. Yes x No ¨

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 64.4 million shares of Common Stock, $0.001 par value per common share, outstanding on July 21, 2003, including 1.8 million shares held in treasury.

MACROMEDIA, INC.

REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2003

INDEX

PART I

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets June 30, 2003 and March 31, 2003	3

	Condensed Consolidated Statements of Operations Three Months Ended June 30, 2003 and 2002	4

	Condensed Consolidated Statements of Cash Flows Three Months Ended June 30, 2003 and 2002	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	32

PART II

Item 1.	Legal Proceedings	33

Item 2.	Changes in Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Submission of Matters to a Vote of Security Holders	34

Item 5.	Other Information	34

Item 6.	Exhibits and Reports on Form 8-K	34

Signatures		37

MACROMEDIA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

	June 30, 2003			March 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	95,172		$	96,831
Short-term investments		147,886			118,755
Accounts receivable, net of allowance for doubtful accounts of $2,256 and $3,174 at June 30, 2003 and March 31, 2003, respectively		24,648			27,610
Inventory		995			1,216
Prepaid expenses and other current assets		11,034			12,330
Deferred income taxes		10,314			10,314

Total current assets		290,049			267,056

Property and equipment, net		31,715			34,856
Goodwill, net		201,392			201,392
Other intangible assets, net		3,960			4,526
Restricted cash		11,412			11,412
Other non-current assets		6,927			8,181

Total assets	$	545,455		$	527,423

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,144		$	6,714
Accrued liabilities		39,952			39,441
Current income taxes payable		10,368			10,294
Accrued restructuring		10,135			11,024
Unearned revenues		30,432			33,916

Total current liabilities		98,031			101,389

Other liabilities:
Accrued restructuring, non-current		17,659			20,064
Other non-current liabilities		6,422			6,440

Total liabilities		122,112			127,893

Commitment and contingencies
Stockholders’ equity
Preferred stock, par value $0.001 per preferred share: 5,000 shares authorized, no shares issued as of June 30, 2003 and March 31, 2003		—			—
Common stock, par value $0.001 per common share: 200,000 shares authorized, 64,212 and 62,965 shares issued as of June 30, 2003 and March 31, 2003, respectively		64			63
Treasury stock, at cost: 1,818 shares as of June 30, 2003 and March 31, 2003		(33,649	)		(33,649	)
Additional paid-in capital		768,372			751,134
Accumulated other comprehensive income		261			417
Accumulated deficit		(311,705	)		(318,435	)

Total stockholders’ equity		423,343			399,530

Total liabilities and stockholders’ equity	$	545,455		$	527,423

See accompanying notes to condensed consolidated financial statements.

MACROMEDIA, INC.

CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,
	2003		2002
Net revenues	$	83,064	$	84,294
Cost of revenues		7,341		11,093

Gross profit		75,723		73,201

Operating expenses:
Sales and marketing		34,676		37,396
Research and development		23,300		26,372
General and administrative		9,702		10,613
Amortization of intangible assets		414		3,364

Total operating expenses		68,092		77,745

Operating income (loss)		7,631		(4,544	)

Other income:
Interest income and other, net		717		1,148
Gain (loss) on investments		65		(803	)
Litigation settlement		—		2,822

Total other income		782		3,167

Income (loss) before income taxes		8,413		(1,377	)

Provision for income taxes		1,683		607

Net income (loss)	$	6,730	$	(1,984	)

Net income (loss) per common share:
Basic	$	0.11	$	(0.03	)
Diluted	$	0.10	$	(0.03	)
Weighted average common shares outstanding used in calculating net income (loss) per common share:
Basic		61,670		59,550
Diluted		65,480		59,550

See accompanying notes to condensed consolidated financial statements.

MACROMEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended June 30,
	2003			2002
Cash flows from operating activities:
Net income (loss)	$	6,730		$	(1,984	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		5,025			7,974
Loss on investments		—			803
Loss on disposal of long-lived assets		48			—
Change in operating assets and liabilities:
Accounts receivable, net		2,962			(14,123	)
Prepaid expenses and other current assets		2,112			3,742
Accrued liabilities and payables		990			2,558
Accrued restructuring		(3,294	)		(3,472	)
Unearned revenues		(3,484	)		4,925

Net cash provided by operating activities		11,089			423

Cash flows from investing activities:
Purchases of property and equipment		(1,366	)		(2,342	)
Purchases of available-for-sale short-term investments		(83,261	)		(13,566	)
Proceeds from sales and maturities of available-for-sale short-term investments		53,906			35,536
Other, net		1,202			530

Net cash (used in) provided by investing activities		(29,519	)		20,158

Cash flows from financing activities:
Proceeds from issuance of common stock		16,771			8,795

Net cash provided by financing activities		16,771			8,795

Net (decrease) increase in cash and cash equivalents		(1,659	)		29,376
Cash and cash equivalents, beginning of period		96,831			66,874

Cash and cash equivalents, end of period	$	95,172		$	96,250

See accompanying notes to condensed consolidated financial statements.

MACROMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations

Macromedia, Inc. (the “Company” or “Macromedia”) provides software that empowers business users, developers and designers to create and deliver effective user experiences on the Internet, fixed media, wireless devices and digital devices. The Company’s integrated family of technologies enables the development of a wide range of Internet applications including websites, rich media content and Internet applications across multiple platforms and devices.

The Company sells its products through a worldwide network of distributors, value-added resellers (“VARs”), its own sales force and its websites. In addition, Macromedia derives revenues from software maintenance and technology licensing agreements, including those directly with original equipment manufacturers (“OEM”s), device manufacturers and media carriers.

2. Summary of Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The interim financial information is unaudited, but reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of Macromedia’s consolidated financial position, operating results and cash flows for the interim periods. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

These condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q, and therefore, do not include all information and notes normally provided in annual financial statements. As a result, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in Macromedia’s annual report on Form 10-K for the fiscal year ended March 31, 2003. The results of operations for the three months ended June 30, 2003 are not necessarily indicative of the results for the fiscal year ending March 31, 2004 or any other future periods.

MACROMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Stock-Based Compensation. In fiscal year 2003, the Company adopted the disclosure provisions in SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment to SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 148”). The Company accounts for its stock option plans and employee stock purchase plan using the intrinsic value method prescribed by APB Opinion No. 25 and allowed by SFAS No. 148. Pursuant to SFAS No. 148, the Company is required to disclose the pro forma effects on net income (loss) and net income (loss) per share as if the Company had elected to use the fair value approach to account for all of its employee stock-based compensation plans. Had compensation cost for the Company’s plans been determined consistently with the fair value approach in accordance with SFAS No. 123, the Company’s pro forma net loss and pro forma net loss per share would have been:

	Three Months Ended June 30,
	2003			2002
	(In thousands, except per share data)
Net income (loss):
As reported	$	6,730		$	(1,984	)
Stock-based compensation costs, net of taxes, included in the determination of net income (loss) as reported		—			99
Stock-based compensation costs, net of taxes, that would have been included in the determination of net income (loss) had the fair value-based method been applied to all awards		(23,199	)		(21,534	)

Pro forma net loss	$	(16,469	)	$	(23,419	)

Basic net income (loss) per common share:

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