Macromedia Reports Fourth Quarter and Fiscal Year 2005 Financial Resul

Macromedia Reports Fourth Quarter and Fiscal Year 2005 Financial Results; Delivers 18% Annual Revenue Growth

    Business Editors/High-Tech Writers

    SAN FRANCISCO--(BUSINESS WIRE)--May 3, 2005--Macromedia, Inc. (Nasdaq:MACR)

Macromedia, Inc. (Nasdaq:MACR) Three Months Year Ended Summary Financial Results Ended March 31 (in millions, except per share data) March 31 2005 2004 2005 2004 Net Revenues $ 116 $ 102 $ 436 $ 370 Net income (loss) per diluted share - GAAP $(0.03) $0.19 $0.55 $0.54 Net income per diluted share - pro forma $ 0.23 $0.22 $0.85 $0.65

    Macromedia (Nasdaq:MACR) today reported financial results for its fiscal fourth quarter and fiscal year ended March 31, 2005. Net revenues for the quarter were $116.1 million, a 14 percent increase compared to the $102.0 million reported for the same period last year. Net revenues for fiscal year 2005 were $436.2 million, an 18 percent increase compared to the $369.8 million for fiscal year 2004.
    "Macromedia has delivered an outstanding quarter and fiscal year highlighted by strong growth and solid profitability," said Stephen Elop, CEO, Macromedia. "We are equally proud of the strategic progress that we have made. In the last 90 days alone, we have chalked up major strategic wins in each of our growth agendas, including mobile, Flex, and Breeze."
    Net loss for the fiscal fourth quarter was $2.3 million, or $0.03 per diluted share, compared to net income of $13.5 million, or $0.19 per diluted share, for the same quarter a year ago. Pro forma net income for the three months ended March 31, 2005 was $18.2 million, or $0.23 per diluted share, compared to $15.5 million, or $0.22 per diluted share, for the comparable quarter a year ago.
    Net income for the year ended March 31, 2005 was $42.5 million, or $0.55 per diluted share, compared to $37.4 million, or $0.54 per diluted share, for the prior fiscal year. Pro forma net income for fiscal year 2005 was $65.2 million, or $0.85 per diluted share, compared to a pro forma net profit of $45.0 million, or $0.65 per diluted share, for fiscal year 2004.
    The Company's cash, cash equivalents, and short-term investments were $378.3 million as of March 31, 2005, a $37.4 million and $95.6 million increase from December 31, 2004 and March 31, 2004, respectively. Deferred revenue was $52.0 million as of March 31, 2005, a $2.8 million and $14.6 million increase from December 31, 2004 and March 31, 2004, respectively.

    Pro Forma Results

    Macromedia's pro forma operating results for the three months and fiscal year ended March 31, 2005 and 2004 differ from corresponding results reported under U.S. GAAP due to adjustments for the following items reported in its consolidated results from operations:

--	The amortization and impairment of acquired developed technology and intangible assets and the write-off of in-process research and development.
--	A decrease in expenses resulting from a reduction in the estimated fair value of contingencies assumed in our acquisition of eHelp Corporation in FY04.
--	A restructuring charge to reflect costs associated with exiting leased facilities.
--	Gains on investments in privately-held companies.
--	The application of a 20 percent tax rate to pro-forma net income.

    See the attached reconciliation of GAAP and pro forma results.

    Business Outlook

    The following statements are based upon current expectations and exclude any impacts resulting from the Company's announced plans to be acquired by Adobe Systems Incorporated. These forward looking statements are subject to risks and uncertainties discussed below. Actual results may differ materially.
    For the fiscal year ending March 31, 2006, the Company reiterated its guidance for net revenues to exceed $500 million, with gross margin between 91 percent and 92 percent of revenue, and operating profit margin trending towards 20 percent over the course of the year.
    For the quarter ending June 30, 2005, Macromedia expects net revenues to be flat to slightly down from its March quarter, with gross margins in the 92 to 93 percent range, and an operating profit margin between 15 and 17 percent.

Restatement For A Non-Cash Operating Expense Item and Income Taxes

    On May 2, 2005 the Company determined that at March 31, 2004, it had understated by $6.1 million a liability related to the accrued benefit of an employee sabbatical leave program adopted in fiscal year 1999 which provides paid-time-off to employees based on years of employment. The Company believes that the appropriate manner in which to correct the cumulative effect of this non-cash error is to restate previously issued financial statements for fiscal years ended March 31, 2004, 2003, 2002, 2001, 2000, and 1999. Additionally, the Company's previously reported results for the three and nine-month periods ended December 31, 2004 included a cumulative adjustment to its income tax provision of $2.0 million related to periods prior to April 1, 2004, in order to properly remeasure the Company's net foreign-currency denominated tax liabilities to U.S. dollars. Because Macromedia will be restating its previously issued financial statements for the employee sabbatical leave program, the Company has also restated its previously issued financial statements for fiscal years 2004, 2003, and 2002 to properly apply the provisions of Financial Accounting Standard No. 109, Income Taxes. The Company intends to file the restated audited financial statements and related auditor's report by amending its Form 10-K for the fiscal year ended March 31, 2004. The impact of correcting prior period financial statements for these non-cash items is summarized in the supplemental schedules attached to the related Form 8-K we filed today, which may be accessed through the SEC's web site at www.sec.gov or our investor relations website at http://www.macromedia.com. We expect to file an amended Form 10-K for fiscal year 2004 within the next several weeks.

    Conference Call

    Macromedia's fourth quarter and fiscal year 2005 financial results will be discussed in a Macromedia Breeze presentation available after the close of market on Tuesday, May 3, 2005 at http://www.macromedia.com/MACR/. In addition, a teleconference is scheduled to begin at 2 p.m. Pacific Time / 5 p.m. Eastern Time on Tuesday, May 3, 2005. After the conclusion of the teleconference, a replay of the conference call will be available on the Company's website.

    About Macromedia

    Experience matters. Macromedia is motivated by the belief that great experiences build great businesses. Our software empowers millions of business users, developers, and designers to create and deliver effective, compelling, and memorable experiences -- on the Internet, on fixed media, on wireless, and on digital devices.

    Cautionary Note About Forward Looking Statements

    Matters discussed in this news release may be considered forward looking statements, including those under the heading "Business Outlook" that relate to expected future financial results which involve risks and uncertainties.
    Such risks and uncertainties include impacts resulting from Adobe's proposed acquisition of the Company (including but not limited to canceled or postponed purchases of the Company's products, reduced interest in adopting and deploying the Company's technology, reduced support for marketing and distributing of the Company's products, and failure to attract or retain key Company personnel), customer acceptance of new products and services and new versions of existing products, the impact of competition, risks associated with integration of acquired companies and their employees, products, and technologies, the risk of adequately evolving and operating our internal systems and processes in a dynamic business environment, the risk of delays in product development and release dates, the risk of not attracting and retaining key personnel, new regulations and other government actions that may materially increase the cost of compliance and doing business, risks associated with participating in international markets (including, but not limited to, foreign policies, market instability, exchange rate fluctuation, and regulations in the applicable foreign countries), the economic condition in the domestic and significant international markets in which the Company operates, dependence on the growth of the Internet, quarterly fluctuations of the Company's operating results, the Company's dependence on distributors and resellers, the risk of product returns, the challenges faced in protecting the Company's intellectual property within and outside the U.S., the risks associated with potential litigation and intellectual property ownership claims against the Company and others in the industry, volatility of the Company's stock, and other risks detailed from time to time in the Company's filings with the SEC, including without limitation, its annual report on Form 10-K, and its quarterly reports on Form 10-Q, as they may be updated or amended with future filings. The actual results the Company achieves may differ materially from any forward looking statements due to such risks and uncertainties.

MACROMEDIA, INC. Condensed Consolidated Statements of Operations Impact of Pro Forma Adjustments on Reported Net Income (Loss) (In thousands, except percentages and per share data) (unaudited)

Three Months Ended March 31, 2005 -------------------------------- GAAP Adjustments Pro Forma --------- ----------- ----------

Net revenues $116,054 $ - $116,054 Cost of revenues: Cost of net revenues 8,789 - 8,789 Amortization and impairment of acquired developed technology 1,004 (1,004) - -------- -------- -------- Total cost of revenues 9,793 (1,004) 8,789 -------- -------- -------- Gross profit 106,261 1,004 107,265 -------- -------- -------- Operating expenses: Sales and marketing 48,112 - 48,112 Research and development 25,170 - 25,170 General and administrative 12,814 422 (A) 13,236 Amortization of intangible assets 241 (241) - Restructuring and other 19,172 (19,172) - -------- -------- -------- Total operating expenses 105,509 (18,991) 86,518 -------- -------- -------- Operating income 752 19,995 20,747 -------- -------- -------- Other income (expense): Interest income, net 2,155 - 2,155 Gain on investments 304 (304) (B) - Other, net (172) - (172) -------- -------- -------- Total other income 2,287 (304) 1,983 -------- -------- -------- Income before income taxes 3,039 19,691 22,730 Provision for income taxes (5,303) 757 (C) (4,546) -------- -------- -------- Net income (loss) $ (2,264) $ 20,448 $ 18,184 ======== ======== ========

Net income (loss) per common share: Basic $ (0.03) Diluted $ (0.03) $ 0.23 Weighted average common shares outstanding used in net income per common share calculation: Basic 73,890 Diluted 73,890 80,120

Gross Margin Gross profit as a percentage of net revenues 92% 92%

Selected operating expenses as a percentage of net revenues: Sales and marketing 41% 41% Research and development 22% 22% General and administrative 11% 11%

Operating Margin: Operating income as a percentage of net revenues 1% 18%

Three Months Ended March 31, 2004 -------------------------------- GAAP Adjustments Pro Forma --------- ----------- ---------- (As (As Restated) Restated) (1) (1)

Net revenues $102,006 $ - $ 102,006 Cost of revenues: Cost of net revenues 7,941 - 7,941 Amortization and impairment of acquired developed technology 911 (911) - -------- ------ ------------ Total cost of revenues 8,852 (911) 7,941 -------- ------ ------------ Gross profit 93,154 911 94,065 -------- ------ ------------ Operating expenses: Sales and marketing 42,084 - 42,084 Research and development 23,440 - 23,440 General and administrative 9,960 - 9,960 Amortization of intangible assets 375 (375) - Restructuring and other - - - -------- ------ ------------ Total operating expenses 75,859 (375) 75,484 -------- ------ ------------ Operating income 17,295 1,286 18,581 -------- ------ ------------ Other income (expense): Interest income, net 1,027 - 1,027 Gain on investments - - - Other, net (219) - (219) -------- ------ ------------ Total other income 808 - 808 -------- ------ ------------ Income before income taxes 18,103 1,286 19,389 Provision for income taxes (4,569) 691 (C) (3,878) -------- ------ ------------ Net income (loss) $ 13,534 $1,977 $ 15,511 ======== ====== ============

Net income (loss) per common share: Basic $ 0.20 Diluted $ 0.19 $ 0.22 Weighted average common shares outstanding used in net income per common share calculation: Basic 67,700 Diluted 71,990 71,990

Gross Margin Gross profit as a percentage of net revenues 91% 92%

Selected operating expenses as a percentage of net revenues: Sales and marketing 41% 41% Research and development 23% 23% General and administrative 10% 10%

Operating Margin: Operating income as a percentage of net revenues 17% 18%

(1) Operating income for the three months ended March 31, 2004 has been reduced from previously reported amounts by $0.3 million resulting from a non-cash restatement to properly record a liability related to an employee sabbatical leave program which provides paid time off to employees based on years of employment. For the period, income tax expense has been increased from previously reported amounts by $0.9 million resulting from a non-cash restatement to properly apply the provisions of Statement of Financial Accounting Standards No. 109, Income Taxes.

Pro forma results for the three months ended March 31, 2005 and 2004 differ from results reported under Generally Accepted Accounting Principles in the U.S. due to adjustments for the amortization and impairment of acquired developed technology and intangible assets and restructuring and other charges, as well as the following items reported in its unaudited Condensed Consolidated Statements of Operations:

(A) A non-cash offset against expense reflecting a reduction in the estimated fair value of a contingency assumed in our acquisition of eHelp Corporation.

(B) A gain related to proceeds to be received on the disposition of non-marketable securities held in a privately-held company which had no carrying value due to a write-down recorded in a prior period.

(C) Pro forma results for the three months ended months ended March 31, 2005 and 2004 reflect an assumed tax rate of 20 percent, reflecting U.S. federal and state income taxes and foreign taxes at rates other than U.S. statutory rates and exclude the non-cash impact of remeasuring foreign-currency denominated tax assets and liabilities.

MACROMEDIA, INC. Condensed Consolidated Statements of Income Impact of Pro Forma Adjustments on Reported Net Income (In thousands, except percentages and per share data) (unaudited)

Year Ended March 31, 2005 -------------------------------- GAAP Adjustments Pro Forma --------- ----------- ----------

Net revenues $436,168 $ - $436,168 Cost of revenues: Cost of net revenues 31,557 - 31,557 Amortization and impairment of acquired developed technology 3,236 (3,236) - -------- -------- -------- Total cost of revenues 34,793 (3,236) 31,557 -------- -------- -------- Gross profit 401,375 3,236 404,611 -------- -------- -------- Operating expenses: Sales and marketing 183,208 - 183,208 Research and development 98,722 - 98,722 General and administrative 44,120 2,080 (A) 46,200 Amortization of intangible assets 965 (965) - Write-off of acquired in-process technology - - - Restructuring and other 19,172 (19,172) - -------- -------- -------- Total operating expenses 346,187 (18,057) 328,130 -------- -------- -------- Operating income 55,188 21,293 76,481 -------- -------- -------- Other income (expense): Interest income, net 5,760 - 5,760 Gain on investments 1,654 (1,654) (B) - Other, net (684) - (684) -------- -------- -------- Total other income 6,730 (1,654) 5,076 -------- -------- -------- Income before income taxes 61,918 19,639 81,557 Provision for income taxes (19,456) 3,145 (C) (16,311) -------- -------- -------- Net income $ 42,462 $ 22,784 $ 65,246 ======== ======== ========

Net income per common share: Basic $ 0.60 Diluted $ 0.55 $ 0.85 Weighted average common shares outstanding used in net income per common share calculation: Basic 70,860 Diluted 76,650 76,650

Gross Margin Gross profit as a percentage of net revenues 92% 93%

Selected operating expenses as a percentage of net revenues: Sales and marketing 42% 42% Research and development 23% 23% General and administrative 10% 11%

Operating Margin: Operating income as a percentage of net revenues 13% 18%

Year Ended March 31, 2004 -------------------------------- GAAP Adjustments Pro Forma --------- ----------- ---------- (As (As Restated) Restated) (1) (1)

Net revenues $ 369,786 $ - $369,786 Cost of revenues: Cost of net revenues 30,658 - 30,658 Amortization and impairment of acquired developed technology 1,954 (1,954) - -------- -------- -------- Total cost of revenues 32,612 (1,954) 30,658 -------- -------- -------- Gross profit 337,174 1,954 339,128 -------- -------- -------- Operating expenses: Sales and marketing 156,346 - 156,346 Research and development 91,693 - 91,693 General and administrative 37,512 - 37,512 Amortization of intangible assets 1,135 (1,135) - Write-off of acquired in-process technology 2,010 (2,010) - Restructuring and other - - - -------- -------- -------- Total operating expenses 288,696 (3,145) 285,551 -------- -------- -------- Operating income 48,478 5,099 53,577 -------- -------- -------- Other income (expense): Interest income, net 3,698 - 3,698 Gain on investments 927 (927) (B) - Other, net (1,000) - (1,000) -------- -------- -------- Total other income 3,625 (927) 2,698 -------- -------- -------- Income before income taxes 52,103 4,172 56,275 Provision for income taxes (14,683) 3,428 (C) (11,255) -------- -------- -------- Net income $ 37,420 $ 7,600 $ 45,020 ======== ======== ========

Net income per common share: Basic $ 0.58 Diluted $ 0.54 $ 0.65 Weighted average common shares outstanding used in net income per common share calculation: Basic 64,380 Diluted 69,430 69,430

Gross Margin Gross profit as a percentage of net revenues 91% 92%

Selected operating expenses as a percentage of net revenues: Sales and marketing 42% 42% Research and development 25% 25% General and administrative 10% 10%

Operating Margin: Operating income as a percentage of net revenues 13% 14%

(1) Operating income for the fiscal year ended March 31, 2004 has been reduced from previously reported amounts by $1.0 million resulting from a non-cash restatement to properly record a liability related to an employee sabbatical leave program which provides paid time off to employees based on years of employment. For the period, income tax expense has been increased from previously reported amounts by $3.1 million resulting from a non-cash restatement to properly apply the provisions of Statement of Financial Accounting Standards No. 109, Income Taxes.

Pro forma results for the fiscal years ended March 31, 2005 and 2004 differ from results reported under Generally Accepted Accounting Principles in the U.S. due to adjustments for the amortization and impairment of acquired developed technology and intangible assets, the write-off of acquired in- process technology and restructuring and other charges, as well as the following items reported in its unaudited Condensed Consolidated Statements of Operations:

(A) A decrease in expenses reflecting a reduction in the estimated fair value of a contingency assumed in our acquisition of eHelp Corporation.

(B) Gains on investments in privately-held companies related to an adjustment in the fair value of non-marketable securities in one company as well as proceeds on the disposition of other non-marketable securities which had no carrying value due to write-downs recorded in prior periods. (C) Pro forma results for the fiscal years ended months ended March 31, 2005 and 2004 reflect an assumed tax rate of 20 percent, reflecting U.S. federal and state income taxes and foreign taxes at rates other than U.S. statutory rates and exclude the non-cash impact of remeasuring foreign-currency denominated tax assets and liabilities.

MACROMEDIA, INC. Condensed Consolidated Balance Sheets (In thousands) (unaudited) March 31, March 31, ASSETS 2005 2004 -------- -------- (As Restated) (1) Current assets: Cash, cash equivalents and short-term investments $378,279 $282,691 Accounts receivable, net 57,582 38,210 Prepaid expenses and other current assets 23,553 29,726 -------- -------- Total current assets 459,414 350,627 Property and equipment, net 109,509 45,512 Goodwill, purchased and other intangible assets, net 240,725 254,973 Deferred income taxes, non-current 22,196 16,062 Other assets 11,767 14,798 -------- -------- Total assets $843,611 $681,972 ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,355 $ 5,311 Accrued liabilities and income taxes payable 85,209 78,758 Accrued restructuring 9,151 6,934 Deferred revenues 42,604 32,215 -------- -------- Total current liabilities 142,319 123,218 Accrued restructuring, non-current 20,171 11,657 Deferred revenues, non-current 9,413 5,173 Other liabilities, non-current 1,728 5,024 -------- -------- Total liabilities 173,631 145,072

Total stockholders' equity 669,980 536,900 -------- -------- Total liabilities and stockholders' equity $843,611 $681,972 ======== ========

(1) The balance at March 31, 2004 for accrued liabilities and income taxes payable has been increased by $8.1 from previously reported amounts to reflect the restatement to adjust the liability related to an employee sabbatical leave program and for restatements of income taxes payable.

Additionally, certain balances at March 31, 2004 contained in these unaudited Condensed Consolidated Balance Sheets have been reclassified to conform to the current presentation, including an increase in Goodwill, purchased and other intangible assets of $4,100 with corresponding reductions of $2,218 and $1,882 to Prepaid expenses and other current assets and Other assets, respectively.

MACROMEDIA, INC. Selected Financial Data (In millions, except percentages) (unaudited)

Selected Cash Flow Three Months Ended Year Ended Information: March 31, March 31, ----------------- -------------- 2005 2004 2005 2004 ----- ----- ----- ----- Depreciation and amortization $ 4.5 $ 3.5 $16.2 $15.4 Amortization of acquired developed technology and other intangible assets $ 1.2 $ 1.3 $ 4.2 $ 3.1 Purchase of property and equipment $14.5 $ 2.7 $74.0 $25.7 Proceeds from employee stock purchase and stock option plans $28.5 $ 9.9 $91.6 $55.9

Earnings before interest, Three Months Ended Year Ended taxes, depreciation and March 31, March 31, amortization: ----------------- -------------- 2005 2004 2005 2004 ----- ----- ----- ----- (As (As Restated) Restated) (1) (1) Operating income $ 0.8 $17.3 $55.2 $48.5 Depreciation and amortization 4.5 3.5 16.2 15.4 Amortization of acquired developed technology and other intangible assets 1.2 1.3 4.2 3.1 ----- ----- ----- ----- EBITDA $ 6.5 $22.1 $75.6 $67.0 ===== ===== ===== =====

Net Revenues by Geography: Three Months Ended March 31, ------------------------------------- 2005 2004 % ---------------- ------------ $ % $ % Change ----------- ---- ------- ---- ------ North America $59.2 51% $55.8 55% 6% ----------- ---- ------- ----

Europe 35.2 30% 27.4 27% 28% Asia Pacific and Other 21.7 19% 18.8 18% 16% ----------- ---- ------- ---- International 56.9 49% 46.2 45% 23% ----------- ---- ------- ----

Net Revenues $116.1 100% $102.0 100% 14% ============ ==== ======= ====

Net Revenues by Geography: Year Ended March 31, ------------------------------------- 2005 2004 % ---------------- ------------ $ % $ % Change ----------- ---- ------- ---- ------ North America $234.8 54% $206.4 56% 14% ----------- ---- ------- ----

Europe 114.5 26% 94.4 26% 21% Asia Pacific and Other 86.9 20% 69.0 18% 26% ----------- ---- ------- ---- International 201.4 46% 163.4 44% 23% ----------- ---- ------- ----

Net Revenues $436.2 100% $369.8 100% 18% ============ ==== ======= ====

Net Revenues by Market: Three Months Ended March 31, ------------------------------------- 2005 2004 % ---------------- ------------ $ % $ % Change ----------- ---- ------- ---- ------ Designer and Developer $89.0 77% $89.4 88% (0)% Business User 14.6 13% 9.1 9% 61% Consumer 10.9 9% 1.4 1% 697% Other 1.6 1% 2.1 2% (31)% ----------- ---- ------- ---- Net Revenues $116.1 100% $102.0 100% 14% =========== ==== ======= ====

Net Revenues by Market: Year Ended March 31, ------------------------------------- 2005 2004 % ---------------- ------------ $ % $ % Change ----------- ---- ------- ---- Designer and Developer $346.5 79% $327.8 89% 6% Business User 51.8 12% 22.2 6% 133% Consumer 31.5 7% 11.4 3% 176% Other 6.4 2% 8.4 2% (24)% ----------- ---- ------- ---- Net Revenues $436.2 100% $369.8 100% 18% =========== ==== ======= ====

(1) For the three months and fiscal year ended March 31, 2004, operating income decreased from previously reported amounts by $0.3 million and $1.0 million, respectively, on both a GAAP and Pro Forma basis, to reflect an adjustment related to an employee sabbatical leave program liability.

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CONTACT: Macromedia Michael Look, 415-832-5995 mlook@macromedia.com

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE ELECTRONIC GAMES/MULTIMEDIA SOFTWARE INTERNET E-COMMERCE EARNINGS CONFERENCE CALLS SOURCE: Macromedia

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