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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended March 31, 2004

OR

Commission File No. 000-22688

MACROMEDIA, INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the Registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2003, the last business day of the Registrant’s most recently completed second fiscal quarter: $1.6 billion (based on the closing sales price of the Registrant’s common stock on that date). See definition of affiliate in Rule 12b-2 of the Exchange Act. As of June 2, 2004, there were 70.9 million shares of the Registrant’s common stock, $0.001 par value per share, outstanding, including 1.8 million shares held in treasury.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the documents listed below have been incorporated by reference into the indicated parts of this report, as specified in the responses to the item numbers involved.

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MACROMEDIA, INC.

FORM 10-K

ANNUAL REPORT

FOR THE FISCAL YEAR ENDED MARCH 31, 2004

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PART I

Except for historical financial information contained herein, the matters discussed in this Form 10-K may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Such statements include declarations regarding our intent, belief, or current expectations and those of our management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks, uncertainties and other factors, some of which are beyond our control; actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to: (i) that the information is of a preliminary nature and may be subject to further adjustment; (ii) those risks and uncertainties identified under “Risk Factors that May Affect Future Results of Operations;” and (iii) the other risks detailed from time-to-time in our reports and registration statements filed with the Securities and Exchange Commission (“SEC”). Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 1.    BUSINESS

Overview

We are an independent software company providing software that empowers designers, developers and business users to create and deliver effective user experiences on the Internet, fixed media, and wireless and digital devices. Our integrated family of technologies enables the development of a wide range of internet solutions including websites, rich media content and Internet applications across multiple platforms and devices.

We were incorporated in Delaware in February 1992. Our principal executive offices are located at 600 Townsend Street, San Francisco, California 94103.

We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC electronically. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. We also make available free of charge copies of our SEC filings and submissions on our website, www.macromedia.com, as soon as practicable after electronically filing or furnishing such documents to the SEC.

Market Opportunity

Several broad industry trends in the development of software systems for corporations, government and educational institutions shape the market opportunities for our products.

First, the digital world has come to understand what the physical world has known for some time: great experiences build great businesses. Organizations are increasingly focused on providing great experiences for their customers, partners and employees both in the physical and digital worlds.

Second, as technologies evolve to meet user demands, the web environment is evolving from a flat text oriented web to a rich multimedia web with the use of images, animation, voice and increasingly, video.

Third, whereas, in the past, business users hired technical users to write to the web, trends suggest that business users increasingly want the flexibility to write to the web themselves. These trends are creating new market opportunities for applications that facilitate the creation and posting of information to websites.

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Fourth, the market for wireless and digital devices, including Internet-connected devices, cellular phones, personal digital assistants, game consoles and home entertainment systems continues to expand. This expansion increases the opportunities for applications that build on these evolving platforms and user experiences.

Fifth, organizations are continuing to adopt internet technologies as a primary mechanism for deploying content and applications to end-users. This trend began in the mid 1990s and is continuing today as more and more organizations recognize the benefits of using internet technologies to communicate and interact with employees, customers and partners, moving the development of websites from smaller design firms to integral functions within Information Technology (“IT”) departments.

Sixth, large organizations are migrating existing business systems to a new generation of application-server technologies such as Java application servers and the Microsoft .NET framework.

In the context of these broad industry trends, we believe there is a significant opportunity for software that makes it easier and more cost-effective to create content and applications that provide great user experiences. Creating high-quality, responsive and effective interfaces for users requires a combination of client software for enabling the display of information and user interactions, server software that can extend application server communications technologies to handle the unique needs of generating a high-quality user experience and development tools that can be used to design content, develop interactions and integrate content and application functionality.

The current trends in the business and government sectors continue to influence the long-term demands for specialized computing skills in the labor force. As a result, educational institutions in both the K-12 and higher education markets are seeking to incorporate technology into their curricula that enables students to learn professional skills and gain general computer competencies through the use of software. The demand for technology in the education market represents another opportunity for us to sell our products directly to educational institutions, instructional program designers and students.

Products

Macromedia serves three broad markets, the Designer and Developer, the Business User and the Consumer, with its product offerings as follows:

DESIGNER AND DEVELOPER MARKET

Products marketed to Designers and Developers include web development tools, multimedia and graphics software tools and servers for creating rich internet applications (“RIAs”). These products are primarily comprised of our MX family of products which provide a complete, integrated solution for building internet

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applications that combine the interactivity of multimedia and desktop applications, the multi-way communication capabilities of collaborative computing systems and the flexible deployment characteristics of web applications. The products in the Macromedia MX family include Macromedia Dreamweaver MX, Macromedia Flash MX, Macromedia Flash MX Professional and Macromedia Fireworks MX. These products are licensed individually and together in a suite, Macromedia Studio MX, which also includes Macromedia FreeHand MX and a development license of ColdFusion MX Server Professional Edition. A substantial portion of our revenues are derived from licensing the software products included in our Macromedia MX product family.

Our server software, which includes Macromedia ColdFusion MX and Macromedia JRun, is used by thousands of companies worldwide to develop and deploy web applications. Adding to our server software product portfolio, we introduced Macromedia Flex in March 2004 for enterprise programmers. Our server products are available across multiple platforms including the leading server Operating Systems (“OS”) and Unix NT platforms.

We also offer client software which is enabling technology allowing users to view content created in our Flash and Shockwave formats. We distribute our client software for the personal computing platform directly through downloads from our websites at no charge and through original equipment manufacturers (“OEMs”) such as Microsoft Corporation (“Microsoft”), Apple Computer, Inc. (“Apple”) and Dell Inc. (“Dell”). In addition, we also license our client software for non-personal computing platforms on a fee per license basis to OEMs including Casio Computer Co., Ltd., Nokia Corporation and Sony Corporation. Our two primary client software products are Macromedia Flash Player and Macromedia Shockwave Player. Depending on the end user of our licensed client software, we reflect related revenues as part of either our Designer and Developer market or our Consumer market.

Macromedia Studio MX—Macromedia Studio MX is a suite of integrated application tools for developing the full spectrum of internet solutions, from simple HTML to the emerging class of RIAs. Macromedia Studio MX includes Macromedia Dreamweaver MX, Macromedia Flash MX, Macromedia Fireworks MX, Macromedia FreeHand MX and a developer edition of ColdFusion MX. Studio MX is also available with Flash MX Professional.

Macromedia Dreamweaver MX—Macromedia Dreamweaver MX is a leading professional software development environment for creating websites and applications. It includes capabilities for visually designing HTML pages, coding HTML and application logic and working with application server technologies. Macromedia Dreamweaver MX is used by designers and developers to create a broad range of web solutions for publishing online commerce, customer service and online educational content. Macromedia Dreamweaver MX is available for both the Microsoft Windows and Apple OS X operating systems.

Macromedia Flash MX—Macromedia Flash MX and Flash MX Professional provide development environments for creating internet user experiences that integrate animations, motion graphics, sound, text, video and application functionality. Solutions built with Macromedia Flash MX are deployed via the web to browsers and Internet-connected devices that run Macromedia Flash Player. Macromedia Flash MX and Flash MX Professional are part of the Macromedia MX product family, which are designed to work with and complement the other Macromedia MX products, including integration on the server side with Macromedia ColdFusion MX. Macromedia Flash MX and Flash MX Professional are available for both the Microsoft Windows and Apple OS X operating systems.

Macromedia Fireworks MX—Macromedia Fireworks MX is a professional graphics design tool for building interactive web graphics. Macromedia Fireworks MX gives professional designers, as well as developers who need to create graphics for websites and applications, tools for creating images that can be deployed to web browsers and Macromedia Flash Player. Macromedia Fireworks MX integrates with Macromedia Flash MX and Macromedia Dreamweaver MX. Macromedia Fireworks MX is available for both the Microsoft Windows and Apple OS X operating systems.

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Macromedia FreeHand MX—Macromedia FreeHand MX is a professional vector graphics tool that designers and illustrators use to create high quality images that can be scaled. Macromedia FreeHand MX supports developing images for print, the web and the Macromedia Flash Player and is available for both the Microsoft Windows and Apple OS X operating systems.

Macromedia Director MX—Macromedia Director MX is a tool for creating professional multimedia content that combines images, text, audio and video into presentations and interactive experiences. For websites, Macromedia Director MX provides a powerful solution for delivering multimedia content that supports three dimensional images and animations for use in various markets, including education, games and commerce. In addition, Macromedia Director MX enables the creation of fixed-media content for CD titles and DVD titles in the entertainment, education and corporate training markets. Macromedia Director MX is available for both the Microsoft Windows and Apple OS X operating systems.

Macromedia RoboHelp—Macromedia RoboHelp (“RoboHelp”) is a help authoring tool used by developers and technical writers to create professional help systems and documentation for desktop and web-based applications. RoboHelp users can leverage support for XML, portable document format (“PDF”) import/export, content management, distributed workforces, team authoring capabilities, as well as the newly released JavaHelp 2.0 from Sun Microsystems, Inc. RoboHelp is available for both the Microsoft Windows operating system.

Macromedia RoboInfo—Macromedia RoboInfo (“RoboInfo”) is a tool which enables organizations to easily and cost-effectively publish and manage policies and procedures online. Information technology managers, human resources professionals and call center managers use RoboInfo to deliver information online, from employee manuals and reference materials to policies and procedures.

Macromedia Authorware—Macromedia Authorware is a rich media authoring tool used to develop caption based e-learning on Windows and Mac based platforms. Uses of Macromedia Authorware range from creating web-based tutorials to simulations incorporating audio and video. Applications developed with Macromedia Authorware can be delivered on the web, over corporate networks or on CD-ROM. Macromedia Authorware is available for both the Microsoft Windows and Apple OS X operating systems.

Macromedia ColdFusion MX—Macromedia ColdFusion MX provides a server-scripting environment and a set of features for building database-driven applications that are accessible through web browsers and Macromedia Flash Player. ColdFusion MX is used by organizations that need a way to quickly build scalable business applications. Macromedia ColdFusion MX is built on an open Java technology architecture. As a result, it can be deployed on third-party Java application servers that support the Java 2, Enterprise Edition (“J2EE”) specification, including Macromedia JRun, International Business Machine Corporation’s (“IBM”) WebSphere and Sun’s SunONE application servers.

Macromedia JRun—Macromedia JRun is a Java application server based on the J2EE specification. While not part of the Macromedia MX product family, Macromedia JRun integrates with our development tool offerings and is designed to compete at the mid-range of the Java application server market through ease-of-use and price. Macromedia JRun is used to deploy applications for functions such as online banking and customer service.

Macromedia Flex—Released in March 2004, our newest server product, Macromedia Flex (“Flex”), provides a solution for enterprise programmers that build and deploy enterprise class RIAs and leverage Macromedia’s widely used Flash Player technology. Flex is a presentation server and application framework that helps developers put more effective interfaces on critical business applications. With Flex, enterprise-class applications are able to combine the rich user interface of desktop software with the reach and ease of deployment of the web.

Macromedia Flash Player—Macromedia Flash Player is the most widely distributed rich client software on the Internet. The player provides a runtime environment for text, graphics, animations, sound, video, application

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forms and two-way communications. According to a March 2004 survey conducted by The NPD Group, Inc. (“The NPD Group”), a provider of global information for measuring product movement and consumer behavior in a variety of industries, 98% of worldwide web users, which represents approximately 482 million personal computing devices, could view content created for the Flash Player. The Flash Player is also available on a wide range of Internet-connected devices such as wireless and handheld devices, interactive TV and game consoles.

Macromedia Shockwave Player—Macromedia Shockwave Player is a rich media player used for deploying multimedia content for use in Internet solutions including education, training, games and commerce. According to a survey conducted by The NPD Group, at March 31, 2004, Macromedia Shockwave Player was available to approximately 61% of worldwide web users, which represents approximately 298 million personal computing devices.

BUSINESS USER MARKET

We introduced products which address the needs of non-technical business users to communicate, create and deliver information over the Internet into the market place in fiscal year 2003. In fiscal years 2004 and 2003, these revenues comprised 6% and 1% of total net revenues, respectively. Products which address the needs of non-technical business users include the following:

Macromedia Contribute—Macromedia Contribute is an easy way to update, add and publish web content. With Macromedia Contribute, non-technical business users can make changes to intranet and Internet websites while automatically maintaining site standards for style, layout and code. Macromedia Contribute enables content providers and web professionals to save time and streamline the web-content maintenance process.

Macromedia Breeze—Macromedia Breeze solutions enable organizations to quickly provide customers, partners and employees with consistent, just-in-time education and training online using Macromedia Flash content and Microsoft PowerPoint to author their content. Macromedia Breeze consists of the core Breeze Platform and modules that provide specific application functionality, including Breeze Training and Breeze Live. Breeze can be deployed with either some or all of these components together. Breeze Training allows the user to build a complete online training system with PowerPoint presentations that include surveys, tracking, analysis, course administration and content management. Breeze Live allows users to meet instantly with colleagues in virtual online meetings, to provide seminar and training sessions as well as to conduct business presentations through the web.

Macromedia RoboDemo—Macromedia RoboDemo (“RoboDemo”) is a tool which enables users to create interactive demonstrations and software simulations in Flash format. RoboDemo records users’ actions in any application and instantly creates Flash simulations with visible and audible mouse movements. The small file size and high resolution make RoboDemo simulations and demos easy to publish online or burn onto a CD for use in training, sales, marketing or user support.

CONSUMER MARKET

Our strategy in addressing the Consumer Market is to license our Flash Player technology (described above in our Designer and Developer products) to device manufacturers, telecommunications carriers and news and entertainment networks who embed our technology on their platforms, enabling them to provide multimedia content to their customers. As Flash Player technology penetrates digital devices and platforms, millions of developers are able to use the Flash MX authoring products to create both engaging consumer content and rich mobile business applications. In fiscal years 2004, 2003 and 2002, Consumer revenues comprised 3%, 1% and 1% of total net revenues, respectively.

Macromedia Flash Lite—Macromedia Flash Lite is a new Macromedia Flash profile specifically developed for mobile phones. This profile is designed to require fewer device resources and to operate in most mass-market phones shipping this year. Beginning with the NTT DoCoMo 505i series mobile phones, every i-mode handset has the embedded Macromedia Flash profile available for use from within the browser and the ability to have Flash based screen savers.

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Product Development

We perform the majority of our research and product development in the United States. Development teams or contractors in various countries perform quality and assurance, testing, translation and localization of foreign-language versions of certain products.

The following table summarizes our consolidated research and development expenses for fiscal years 2004, 2003 and 2002:

In addition, amortization of capitalized software costs related to localization activities of $3.6 million, $4.6 million and $4.0 million were recognized in fiscal years 2004, 2003 and 2002, respectively, and included in cost of net revenues.

Because the software industry is characterized by rapid technological change, a continuously high level of expenditure is required to enhance existing products and develop new products. We believe that our future success depends on our ability to enhance existing products as well as develop and introduce new products on a timely basis. It is critical that new products and enhancements keep pace with constantly evolving network infrastructure, internet technology and competitive offerings. We continue to adapt our products to new hardware and software platforms in order to embrace industry standards and, therefore, we will continue to incur significant operating expenses in the future for product research and development. As part of this effort, we may, as appropriate, acquire additional software and system technologies that we consider critical to meet the needs of web developers, business users and consumers.

Independent firms and contractors perform some of our product development activities, while other technologies used in our products are licensed from third parties. We either own or license the software developed by third parties. As qualified development personnel are in high demand, independent developers, including those who currently develop products for us, may not be able to provide development support to us in the future. Similarly, we may not be able to obtain and renew existing license agreements on favorable terms, if at all, and any failure to do so could harm our business.

Marketing and Sales

Our customer-related operations are divided into three primary geographic regions, North America, Europe and Asia Pacific and Other, and are supported by global marketing and sales organizations. Through these organizations, we extend our brand worldwide through various marketing techniques, including direct mailing and advertising both on the web and in print, customer seminars and trade shows. We also work directly with our distributors, resellers and OEMs on cooperative advertising, promotions and trade show presentations.

A substantial portion of our revenues is derived from the sale of our software products through a variety of distribution channels, including traditional software distributors, catalogs, value-added resellers (“VARs”), electronic commerce through our websites, OEMs, hardware and software superstores and retail dealers.

Our ability to effectively distribute our products, particularly in the international markets we serve, depends in part upon the financial and business condition of our distributor network. From time-to-time, computer software distributors experience financial and operating difficulties, particularly during times of economic contraction and may do so in the future. Moreover, the changing distribution models resulting from our increased focus on direct sales to major accounts and the use of electronic commerce through our websites, may impact our distributor network in the future.

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One distributor, Ingram Micro, Inc. accounted for 21%, 28%, and 28% of our consolidated net revenues in fiscal years 2004, 2003, and 2002, respectively. A second distributor, Tech Data Corporation accounted for 13%, 8% and 8% of our consolidated net revenues in fiscal years 2004, 2003 and 2002, respectively. The loss of these distributors or a significant reduction in business with these or other major distributor could harm our business.

We also sell our products directly to large corporate and educational institutions, typically under volume licensing agreements where customers have the right to reproduce and use our software products. We expect that our direct sales force will continue to grow in conjunction with expansion in our Business User and Consumer markets.

Internationally, our products are sold through our distributor network and directly to users. Sales outside of North America accounted for approximately 44%, 42% and 40% of our consolidated net revenues in fiscal years 2004, 2003 and 2002, respectively. In certain cases, distributors have exclusive distribution rights to certain products in their respective territories.

We typically ship products shortly after receipt of an order, which is a common practice in the computer software industry. As a result, backlog on any particular date may not be indicative of actual sales during any succeeding period.

Customer Support and Training

We believe that providing a high level of customer service and technical support is necessary to achieve rapid product implementation that, in turn, is essential to customer satisfaction and continued license sales and revenue growth. Our customers have a broad choice of support options depending on the level of service they desire. We provide free access to a wide range of technical information on our websites, as well as online forums for each of our products. For our Designer and Developer and Business User products, we offer complimentary 90-day technical support for end-users who have registered their products with us via email or over the phone.

In addition, we offer a number of paid support and maintenance options for our end-users, including consumers, professionals and enterprise-level customers. These options include single incident-based support options, annual support plans with configurable service levels, as well as access on a “24 by 7” basis to production assistance support. Optionally, these programs include Macromedia DevNet Subscriptions (“DevNet”) that we introduced in March 2003. Our DevNet Professional program offers a comprehensive set of tools, servers, extensions, components and other resources over a one-year subscription period.

Our customers also depend on support from our worldwide network of VARs, OEMs, training centers and third-party developers. We offer several programs that provide marketing, sales and technical support to augment services provided by our global partner network.

We offer both online and classroom-based training as well as formal certification for our Designer and Developer products through a worldwide network of authorized third-party training centers and certified Macromedia instructors. In addition, training and instruction on the use of Macromedia products is provided by high schools, colleges and technical schools throughout the world. We encourage the expanded use of Macromedia products for classroom training by providing approved curricula and through reducing the pricing on the products we license to schools and students.

Production and Suppliers

Production of our finished products sold primarily through distributors involves replication of the software, the printing of user manuals and product assembly. The production and distribution of finished goods is performed by a third-party manufacturer. A significant amount of our product manufacturing is currently performed by this vendor at facilities located in the United States, the Netherlands and Singapore. Our current vendor operates multiple facilities around the world that are capable of serving additional needs that we may

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have. In addition, these facilities could serve as viable back-ups in the event manufacturing difficulties arise at the existing facilities used to support our business. Further, we believe there are other third-party vendors capable of fulfilling our production and distribution requirements. To date, we have not experienced any difficulties or delays in the production of our software and documentation or in the distribution of finished products.

We also license and distribute our software products directly to end-users through a volume-licensing program. The management, tracking and fulfillment of the volume license orders are performed by a third party at its facilities located in the United States and France.

In addition, we license and distribute our software products directly to end-users over the Internet through our websites. With an increase in revenues derived from online sales, customer access to our websites affects the volume of software products we sell and thus affects our consolidated net revenues. A third party hosts the primary computer equipment and communications systems that we use to run our websites. We have also developed applications internally that we use to run some of our websites and other non-customer facing e-commerce platforms. To prevent system interruptions and to ensure integration with our other business systems, we, as well as our third-party service providers, periodically upgrade software, hardware and network infrastructures used in the operation of our websites to accommodate increased traffic and sales volume on our websites.

Competition

We operate in a highly competitive market characterized by market and customer expectations to incorporate new features and to accelerate the release of new products. These market factors represent both opportunities and competitive threats to us.

In the Designer and Developer market, we compete directly and indirectly with major vendors including Microsoft, International Business Machines (“IBM”) and Adobe Systems, Inc. (“Adobe”). The web application development tools market is very competitive. While we believe that we are a leader in the market for professional web development tools with Macromedia Dreamweaver MX, we face competition from Adobe GoLive as well as competition from mid-range products, such as Microsoft’s FrontPage. We believe our ability to compete favorably in this market in the future will require continued product development and innovation to produce new functionality that can integrate with our existing products so that we can offer our customers a more comprehensive suite of products and solutions.

Our server products compete in a highly competitive and rapidly changing market for application server technologies. We face competition from major vendors including Microsoft, IBM, BEA Systems, Inc. (“BEA”) and Sun Microsystems, Inc. (“Sun”). In addition, Macromedia ColdFusion MX competes with several technologies available today at no cost including the PHP and PERL programming environments that are available for the Apache web server. Macromedia JRun competes with large Java application server vendors as well as products available at no cost including the Tomcat Java Servlet Engine provided by the Apache Foundation. Also, our newest server product, Flex provides a solution to Java, C++ and C Sharp programmers wanting to deploy Enterprise class, rich web applications and leverages the ubiquitous Flash Player technology. We believe our future results largely depend on our ability to innovate by developing new products and providing enhancements and upgrades of current product offerings that compete favorably with respect to reliability, performance, ease of use and pricing.

Today our client technologies, Macromedia Flash Player and Shockwave Player, command leadership positions in their respective categories. For animation and application user interfaces, Macromedia Flash Player is the most widely distributed web browser plug-in worldwide. We distribute our client technologies through OEM agreements with a number of major operating system vendors and hardware manufacturers. For application development, Macromedia Flash Player faces competition from new vendors and technology providers. The on-going success of Macromedia Flash Player could be threatened by new capabilities added to web browsers or

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by alternatives provided by major operating system vendors including Microsoft and Apple. We believe that our existing market penetration and user acceptance provides our client technologies with a competitive advantage over other competing technologies.

Our Business User market addresses the needs of a much broader set of customers. Competition for the non-technical business user comes from a much broader range of companies. Generally, these products target a specific business work flow such as updating content on a website or using the Internet to communicate with a company’s customers, partners and employees. Companies in this market space include Microsoft, IBM and WebEx Communications, Inc.

In our Consumer market, there are many alternative and overlapping technologies such as Java, MPEG-4 or SVG, which may slow the adoption of our Flash Player. Additionally, there are a number of companies that are attempting to build competing or clone animation players.

Proprietary Rights and Licenses

We rely on a combination of copyright, patent, trade secret and trademark laws, as well as employee and third-party nondisclosure agreements, to protect our intellectual property rights and products. We generally license our software to end-users under “shrink-wrap” license agreements that the end-users accept when they install our products or activate electronic versions of our products. Despite our efforts to protect our intellectual property rights and products, certain of our intellectual property rights may not be successfully asserted in the future or may be invalidated or challenged. In addition, the laws of certain countries in which our products are or may be distributed do not protect our products and intellectual property rights to the same extent as the laws of the United States. Furthermore, the enforceability of “shrink-wrap” licenses has not been conclusively determined. Our inability to adequately protect and enforce our proprietary rights could harm our business.

Policing unauthorized use of our software products is difficult. We have dedicated resources to focus on software piracy and participate in industry groups to further police unauthorized use of our software. In addition, we are developing and implementing activation technology designed to reduce unauthorized use of our products. While we have recovered some revenue resulting from the unauthorized use of our software products, we cannot determine the extent to which software piracy of our products exists. We anticipate that software piracy will continue to be a persistent issue in the software industry.

Employees

At March 31, 2004, we had 1,213 full-time employees worldwide with 1,063 of these employees located in the United States. None of our employees is subject to a collective bargaining agreement and we have not experienced any work stoppages. We believe that our relations with our employees and contingent workers are good. Our future success is highly dependent on our ability to attract, retain and motivate highly skilled employees.

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ITEM 2.    PROPERTIES

As of March 31, 2004, we leased the major facilities described below:

All of our leased facilities are leased under operating leases. We have an additional 16 field support offices in various locations within the United States, Canada, Latin America, Europe and Asia Pacific. All our support offices are leased with lease terminations between 2004 and 2006. In aggregate, total lease obligations through termination for these 16 leases were less than $1.0 million as of March 31, 2004.

In addition, in August 2003, we exercised options to purchase three properties, which consist of a parking structure and two office buildings, and are in immediate proximity to our current headquarters in San Francisco, California. We purchased two of these properties for $14.7 million and title to these properties was transferred to us as of March 31, 2004. For the third property, we deposited $2.7 million into escrow in August 2003, and paid the remaining $37.7 million of the purchase price in April 2004. These properties will serve as our corporate headquarters where we conduct various corporate, product development and operational activities. We are currently utilizing the parking structure and expect to occupy the third property in the fourth quarter of fiscal year 2005. We expect to begin occupying the second office building based on future headcount and operational needs subsequent to fiscal year 2005. We believe our facilities are adequate for our current and near term needs.

ITEM 3.    LEGAL PROCEEDINGS

From time to time, Macromedia is involved in various disputes and litigation matters that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, mergers and acquisitions, licensing, contract law, distribution arrangements and employee relation matters.

As of the time of this Annual Report, there were no material pending legal proceedings other than ordinary routine litigation incidental to our business, to which we or any of our subsidiaries are a party or of which any of our property is subject.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth quarter of fiscal year 2004.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Macromedia’s common stock is traded on the NASDAQ National Market under the symbol “MACR.” The Company’s closing stock price was $24.87 on June 2, 2003 and there were 542 stockholders of record as of that date, excluding stockholders whose shares were held in nominee or street name by brokers. The Company has not paid any cash dividends and does not currently have plans to do so in the foreseeable future.

The following table sets forth the high and low sales price per share for Macromedia’s common stock for the periods indicated:

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ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below is derived from our Consolidated Financial Statements and related notes thereto. This selected consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial Statements and related Notes thereto included in Item 15 of this Form 10-K. Historical results are not necessarily indicative of future performance.