Adobe 1999 Annual Report Download - page 22

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21
Research and development expenses consist principally of salaries and benefits for software develop-
ers, contracted development efforts, related facilities costs, and expenses associated with computer
equipment used in software development.
Research and development expenses increased $9.2 million, or 5%, in fiscal 1999 compared to fiscal
1998, due to higher incentive compensation expenses primarily associated with the improvement in our
financial performance in fiscal 1999 over fiscal 1998 and higher incentive compensation targets. This
increase was partially offset by a decrease in salaries as a result of lower headcount and decreases in
general office expenses and professional fees as a result of our fiscal 1998 restructuring program and other
cost reduction efforts implemented at that time.
Research and development expenses increased $22.4 million, or 14%, in fiscal 1998 compared to fiscal
1997, due to the expansion of our engineering staff and related costs required to support our continued
emphasis on developing new products and enhancing existing products. The increase also reflects our
increased investments in new technologies, new product development, and the infrastructure to support
such activities. The increase in research and development expenses in fiscal 1998 was partially offset by
certain cost reduction initiatives related to the restructuring program that was implemented during the
third quarter of fiscal 1998. We also reduced outside labor costs and professional fees by discontinuing
certain research and development programs.
We believe that investments in research and development, including the recruiting and hiring of
software developers, are critical to remain competitive in the marketplace and are directly related to
continued timely development of new and enhanced products. We will continue to make significant
investments in the development of our application software products, including those targeted for the
growing Internet market. We expect that research and development expenses for fiscal 2000 will increase in
absolute dollars. We have targeted such expenditures to be approximately 20% of revenue in fiscal 2000.
Sales and Marketing
1999 Change 1998 Change 1997
Sales and marketing ............... $328.5 4% $315.5 9% $290.1
Percentage of total revenue .......... 32.3% 35.3% 31.8%
Sales and marketing expenses include salaries and benefits, sales commissions, travel expenses, and
related facilities costs for our sales, marketing, customer support, and distribution personnel. Sales and
marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising,
trade shows, public relations, and other market development programs.
Sales and marketing expenses increased $13.0 million, or 4%, in fiscal 1999 compared to fiscal 1998 as
a result of higher incentive compensation expenses primarily associated with the improvement in our
financial performance in fiscal 1999 over the prior year and higher incentive compensation targets. In
addition, sales and marketing expenses increased year over year, due to increased advertising, promotional,
and trade show expenses associated with new product releases. The increase was partially offset by cost
reduction initiatives related to the restructuring program implemented during the third quarter of fiscal
1998 that eliminated certain brand advertising campaigns and other marketing activities related to the
divestiture of a business.
Sales and marketing expenses increased $25.4 million, or 9%, in fiscal 1998 compared to fiscal 1997,
due to higher employee costs, increased customer support costs, and increased marketing and advertising
activities. Higher commissions were also paid as a result of increased headcount and growth in application
products revenue compared to fiscal 1997. Additionally, sales and marketing expenses included higher
outside labor costs to support user education related to new product releases and for the development of
our Web site. These increased expenses were partially offset by cost reduction initiatives related to the
restructuring program implemented during the third quarter of fiscal 1998.