Adobe 1998 Annual Report Download - page 15

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion (presented in millions, except per share amounts) should be read in conjunction
with the consolidated financial statements and notes thereto.
In addition to historical information, this Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties that could cause actual results to differ materially. Factors that
might cause or contribute to such differences include, but are not limited to, those discussed in the section
entitled ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors
That May Affect Future Results of Operations.’’ Readers should carefully review the risks described in other
documents the Company files from time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q to be filed by the Company in 1999. Readers are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of this Annual Report on
Form 10-K. The Company undertakes no obligation to publicly release any revisions to the forward-looking
statements or reflect events or circumstances after the date of this document.
RESULTS OF OPERATIONS
Overview
Adobe Systems Incorporated (‘‘Adobe’’ or the ‘‘Company’’) develops, markets, and supports computer
software products and technologies that enable users to express and use information across print and
electronic media. The Company offers a market-leading line of applications software products, type
products, and content for creating, distributing, and managing information of all types; licenses its
technology to major hardware manufacturers, software developers, and service providers; and offers
integrated software solutions to businesses of all sizes. The Company distributes its products through a
network of original equipment manufacturer (‘‘OEM’’) customers, distributors and dealers, and value-
added resellers (‘‘VARs’’) and systems integrators and has operations in North America, Europe, Japan,
and Asia Pacific and Latin America.
Revenue
1998 Change 1997 Change 1996
Total revenue ................................. $894.8 (2)% $911.9 16% $786.6
Total revenue decreased $17.1 million, or 2%, in fiscal 1998 compared to fiscal 1997, primarily due to
the ongoing weakness in the Japanese economy and a decline in licensing revenue related to the
Company’s PostScript technology. The revenue growth in fiscal 1997 compared to fiscal 1996 was
essentially attributable to increased sales of application products resulting from the release of new and
enhanced products. In fiscal 1998, revenue from one major distributor of application products accounted
for 13.5% of the Company’s total revenue. No customer accounted for more than 10% of the Company’s
total revenue in fiscal 1997 or 1996.
1998 Change 1997 Change 1996
Product revenue:
Licensing ................................... $164.1 (16)% $196.2 — $196.7
Percentage of total revenue ....................... 18.3% 21.5% 25.0%
Licensing revenue is made up of royalties received from OEM customers who ship products contain-
ing Adobe’s PostScript technology, including Adobe PostScript, Adobe PostScript 3, Adobe PrintGear, and
PostScript Extreme. Adobe PostScript is a software language for describing to a printer the appearance of
a page, including text, graphics, and images. Products containing Adobe PostScript technology that
implement the language include: (1) black-and-white printers; (2) color printers; (3) slide recorders;
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