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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended March 31, 2005

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.  ¨

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, 2004, the last business day of the Registrant’s most recently completed second fiscal quarter: $1.4 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 3, 2005, there were 77.0 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, 2005

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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.

Merger of Macromedia, Inc. with Adobe Systems Incorporated

On April 17, 2005, Adobe Systems Incorporated (“Adobe”) entered into a definitive Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Macromedia, Inc. (“Macromedia”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Avner Acquisition Sub, Inc., a wholly owned subsidiary of Adobe, will merge with and into Macromedia, with Macromedia as the surviving corporation of the merger (the “Merger”). As a result of the Merger: (i) Macromedia will become a wholly owned subsidiary of Adobe; and (ii) each outstanding share of our common stock will be converted into the right to receive 1.38 shares of Adobe common stock (after taking into account the two-for-one stock split in the form of a stock dividend of Adobe common stock distributed on May 23, 2005 to Adobe stockholders of record as of May 2, 2005) (the “Exchange Ratio”). Consummation of the Merger is subject to customary closing conditions and regulatory approvals, including antitrust approvals and approval by the stockholders of Adobe and Macromedia, respectively. The Merger is expected to close in the Fall of calendar year 2005 and may not be completed if any of the conditions are not satisfied or waived. Unless otherwise indicated, the discussions in this document relate to Macromedia as a standalone entity and do not reflect the impact of the proposed merger with Adobe.

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 and mobile application solutions.

We were incorporated in Delaware in February 1992. In January 2005, we began the process of relocating our principal executive offices from 600 Townsend Street, San Francisco, California 94103 to 601 Townsend Street, San Francisco, California 94103. The relocation of our principal executive offices was completed in April 2005. Our telephone number is (415) 832-2000.

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 also maintains a website that contains reports, proxy and

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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

We believe that several broad industry trends in the development of software systems for corporate businesses, government and educational institutions, service providers and enterprises are shaping the market opportunities for our products and services. These broad industry trends include the following:

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 display and user interaction, server software that can extend application server communication technologies and development tools to design content, develop interactions and integrate content and application functionality.

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The current trends in the business, education and government sectors described above 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 primary product offerings as follows:

DESIGNER AND DEVELOPER MARKET

Products marketed to Designers and Developers include web development tools for creating rich internet applications (“RIAs”), multimedia and graphics software tools, and server software. In fiscal years 2005, 2004 and 2003, these revenues comprised 79%, 89% and 94% of total net revenues, respectively.

Our MX family of products provides a complete, integrated solution for building internet 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.

Our server software, which includes Macromedia ColdFusion MX, Macromedia Flex, and Macromedia JRun is used by thousands of companies worldwide to develop and deploy web applications. Our server products are available across multiple platforms including the leading server Operating Systems (“OS”) and Unix NT platforms.

Macromedia’s client software enables 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

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(“Microsoft”), Apple Computer, Inc. (“Apple”) and Dell Inc. (“Dell”). In addition, we also license our client software for non-personal computing platforms on a per-license fee basis to OEMs including Casio Computer Co., Ltd. and Sony Corporation. Our two primary client software products are Macromedia Flash Player and Macromedia Shockwave Player. We reflect related revenues as part of either our Designer and Developer market or our Consumer market, depending on the end user of our licensed client software.

Our primary products which address the needs of designers and developers include the following:

Macromedia Studio MX and Macromedia Studio MX Professional—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. Macromedia Studio MX is also available with Flash MX Professional as Macromedia Studio MX Professional, which is primarily marketed to developers and experienced designers in need of more video capabilities in developing Flash content.

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 Flash MX and Macromedia Flash MX Professional—Macromedia Flash MX and Macromedia 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 Macromedia 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 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 RoboHelp—Macromedia 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. (“Sun”).

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.

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 the Macromedia Flash Player. Macromedia Fireworks MX integrates with Macromedia Flash MX and Macromedia Dreamweaver MX.

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Macromedia Authorware—Macromedia Authorware is a rich media authoring tool used to develop caption based e-learning on Windows and Macintosh 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 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 forms and two-way communications. According to a March 2005 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 560 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 technologies 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 2005, Macromedia Shockwave Player was available to approximately 54% of worldwide web users, which represents approximately 308 million personal computing devices.

Macromedia Flex—Macromedia Flex provides a solution for enterprise programmers that build and deploy enterprise class applications 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 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. 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.

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 2005, 2004 and 2003, these revenues comprised 12%, 6% and 1% of total net revenues, respectively. Products which address the needs of non-technical business users include the following:

Macromedia Breeze—Macromedia Breeze is a rich web communication system which enables organizations to deliver online training, marketing, sales and web conferencing solutions which are instantly accessible by customers, partners and employees using Macromedia Flash content and Microsoft PowerPoint to author their content. Macromedia Breeze consists of the core Breeze Server and modules that provide specific application functionality, including Breeze Training and Breeze Meeting. 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, analysis, course administration and content

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management. Breeze Meeting 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 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. As a server application, Macromedia Contribute provides a web publishing system which enables Information Technology professionals to manage and administer users and permissions as part of the web publishing process. Macromedia Contribute enables content providers and web professionals to save time and streamline the web-content maintenance process.

Macromedia Captivate—Macromedia Captivate is a tool which enables users to create interactive demonstrations and software simulations in the Flash file format. Macromedia Captivate 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 Macromedia Captivate simulations and demonstrations easy to publish online or burn onto a CD for use in training, sales, marketing or user support. Used in combination with Macromedia Breeze, Macromedia Captivate provides a robust technology solution to bring understanding and retention to the end users of rapid training and e-learning solutions.

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 and deliver Flash-based information 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 2005, 2004 and 2003, Consumer revenues comprised 7%, 3% and 1% of total net revenues, respectively.

Macromedia Flash Lite—Macromedia Flash Lite is a Macromedia Flash player profile specifically developed for mobile phones and other consumer electronic devices. This profile is designed to require fewer device resources and can therefore operate on many devices from feature phones to TVs and digital video recorders. Beginning with the NTT DoCoMo 505i series mobile phones deployed in 2003, there are now more than 75 models of Flash enabled handsets available worldwide. New handsets from recent customers such as Nokia and Samsung will provide new content and handset interfaces to subscribers around the world.

Macromedia Flash SDK—Macromedia Flash SDK is a Macromedia Flash profile specifically developed for consumer electronic devices. This profile is designed to require fewer device resources, and can therefore operate on many devices from game devices to TVs and digital video recorders.

Product Development

We perform the majority of our research and product development in the United States. Development teams or contractors in various countries perform additional development work on our products, 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 2005, 2004 and 2003:

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In addition, amortization of capitalized software costs related to contracted localization services and purchased technology embedded in our products and included in cost of net revenues, amounted to $4.7 million, $4.4 million and $4.8 million were recorded in fiscal years 2005, 2004 and 2003, 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 do not expect all of our product development projects will result in products that are ultimately released for sale. We may terminate product development projects before completion or decide not to introduce a product offering for a number of reasons. For example, we may decide that a product may not be sufficiently competitive in a relevant market, or for technological or marketing reasons, may decide to offer a different product instead.

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 and demands of business users and consumers. 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 demand generation and awareness activities which include 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. We have embarked on a significant effort to grow our direct sales force and to develop a multi-tiered sales strategy that targets large accounts, as well as pursues partnering strategies.

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.

One distributor, Ingram Micro, Inc. accounted for 20%, 21%, and 28% of our consolidated net revenues in fiscal years 2005, 2004 and 2003, respectively. A second distributor, Tech Data Corporation accounted for 12%, 13% and 8% of our consolidated net revenues in fiscal years 2005, 2004 and 2003, respectively. The loss of or a significant reduction in business with either of these or other major distributors could harm our business.

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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. In order to support sales to these customers as well as increase revenues in our Business User and Consumer markets, we expect to increase our investment in our direct sales force through fiscal year 2006.

Internationally, our products are sold through our distributor network and directly to end users. Sales outside of North America accounted for approximately 46%, 44% and 42% of our consolidated net revenues in fiscal years 2005, 2004 and 2003, 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, we do not believe that backlog as of any particular date is indicative of past or future results. Our sales are made primarily pursuant to purchase orders for our standard product offerings, and pursuant to negotiated contracts with major corporate customers, OEMs and distributors.

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.

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, pre-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 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 by reducing the pricing on the products we license to schools and students.

Order Fulfillment and Suppliers

Production of our finished products sold primarily through distributors involves replication of the software, preparation 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 assembly 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 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 volume-licensing programs. 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.

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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 rapidly develop and incorporate new product 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, IBM and Adobe. The web application development tools market is very competitive. While we believe that we are a leader in the market for web development tools with Macromedia Dreamweaver MX, we face competition from stand-alone tool products, such as Microsoft FrontPage, Adobe GoLive, and various proprietary and open source web authoring tools. We also increasingly face competition from integrated development environments that enable developers to create web applications, such as Microsoft Visual Studio .NET and similar developer offerings from IBM, Borland Software Corporation (“Borland”), BEA Systems, Inc. (“BEA”) and others. We believe our ability to compete successfully in the web application development tools market in the future will require continued product development and innovation to produce new functionality that integrates well 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, and 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 our Flash Player technology. We believe the future results from our server products 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, increased distribution and functionality of the media players available from Microsoft, Apple, and Real Networks, Inc., and by new technologies provided by major operating system vendors including Microsoft and Apple. We believe that our existing market penetration and user acceptance provide our client technologies with a competitive advantage, but will not guarantee our success given the rapid pace of innovation and change for client 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

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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 to our Flash-based products, such as Java, MPEG-4 and SVG, which may slow the adoption of our Flash Player technology. Emerging platforms for mobile devices may bundle such competing technologies. Platforms from companies such as Qualcomm, Microsoft and Openwave are implementing SVG players. Additionally, there are a number of companies that are attempting to build competing animation players that render mobile content in the Flash file format.

Proprietary Rights and Licenses

The success of our business is to a large extent dependent upon our proprietary technologies. To protect our intellectual property rights and products, we rely on a combination of patent, copyright, trade secret and trademark laws, as well as employee and third-party nondisclosure agreements. We generally license our software to end users under “shrink-wrap” or “click-through” license agreements that end users accept when they install our products or activate electronic versions of our products. The enforceability of “shrink-wrap” and “click-through” licenses, however, has not been conclusively determined in all jurisdictions and contexts. 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, may be invalidated or challenged, or other companies could independently develop products and technologies that are similar in functionality to our products and technologies. 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. Our inability to adequately protect and enforce our proprietary rights could materially and adversely harm our business.

Policing unauthorized use of our software products is difficult. We have dedicated resources to focus on software piracy and we participate in industry groups to further reduce unauthorized use of our software products. We have also implemented and continue to implement different activation technologies and procedures designed to reduce unauthorized use of our software products. Although we have recovered some revenue resulting from the unauthorized use of our software products, we cannot determine the exact extent to which piracy of our software products exists. We anticipate that piracy of software products will continue to be a persistent issue in the software industry.

Employees

At March 31, 2005, we had 1,445 full-time employees worldwide with 1,151 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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As of March 31, 2005, we leased the major facilities described below:

All of our leased facilities are leased under operating leases. We have an additional 29 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 expirations between 2005 and 2008.

In addition, we purchased two properties in fiscal year 2004 and finalized the purchase of a third property in fiscal year 2005. These properties are located in San Francisco, California and are comprised of two commercial office spaces and one parking structure. In January 2005, we began the process of relocating our principal executive offices from 600 Townsend Street, San Francisco, CA 94103 to 601 Townsend Street, San Francisco, California 94103 (the “601 Property”). The relocation of our principal executive offices to the 601 Property was completed in April 2005. The 601 Property has approximately 210,000 square feet of occupied space and serves 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, which is approximately 53,000 square feet, in fiscal year 2006. We believe our facilities are adequate for our current and near term needs.

On September 6, 2002, Plaintiff Fred B. Dufresne filed suit against Macromedia, Adobe, Microsoft and Trellix Corporation (“Defendant”) in the U.S. District Court, District of Massachusetts (the “Dufresne Matter”), alleging infringement of U.S. Patent No. 5,835,712 (the “712 patent”) entitled “Client-Server System Using Embedded Hypertext Tags for Application and Database Development.” The Plaintiff’s complaint asserts, among other things, that Defendants have infringed, and continue to infringe, one or more claims of the 712 patent by making, using, selling and/or offering for sale, products supporting Microsoft Active Server Pages technology. The Plaintiff seeks unspecified compensatory damages, preliminary and permanent injunctive relief, trebling of damages for willful infringement, and fees and costs. We believe the action has no merit and are vigorously defending against it.

From time to time, in addition to the Dufresne Matter, 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 the Dufresne Matter, and 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.

No matters were submitted to a vote of our security holders during the fourth quarter of fiscal year 2005.

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PART II

Macromedia’s common stock is traded on the NASDAQ National Market under the symbol “MACR.” The Company’s closing stock price was $43.41 on June 3, 2005 and there were 501 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:

Stock Options and Restricted Stock Awards

Our stock option plans and restricted stock awards are part of a broad-based recruitment and long-term retention program that is intended to attract and retain talented employees and directors and align stockholder and employee interests. Additional information regarding our stock option plans and plan activity for fiscal years 2005, 2004, and 2003, and our restricted stock awards in fiscal year 2005 are provided in our consolidated financial statements included in Item 8 and Item 15 of this annual report and under the section entitled “Stock-Based Compensation” in Item 7 of this annual report.

Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities

We did not sell any securities that were not registered under the Securities Act during fiscal years 2005, 2004 or 2003.

Purchases of Equity Securities of the Issuer and Affiliated Purchasers

Neither we nor any affiliated purchaser repurchased any of our equity securities in the fourth quarter of fiscal year 2005.

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The following 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. The selected financial data for each of the years in the three year period ended March 31, 2005 and as of March 31, 2004 and 2005 is derived from our Consolidated Financial Statements that have been included in this Annual Report. The selected financial data as of March 31, 2003, 2002 and 2001 is derived from consolidated financial statements that have not been included in this annual report.