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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 0-21174
AVID TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2977748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
METROPOLITAN TECHNOLOGY PARK, ONE PARK WEST, TEWKSBURY, MA 01876
(Address of principal executive offices) (Zip Code)
(508) 640-6789
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock $.01 Par Value
(Title of Class)
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 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 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $138,598,416 based on the closing price of the
Common Stock on the NASDAQ National Market on March 17, 1997.
The number of shares outstanding of the registrant's Common Stock as of March
17, 1997, was 21,467,094.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART
Portions of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held June 4, 1997... III
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PART I
ITEM 1. BUSINESS
Avid develops, markets, sells and supports a wide range of disk-based systems
for creating and manipulating digital media content. Avid's digital, nonlinear
video and film editing systems are designed to improve the productivity of video
and film editors by enabling them to edit moving pictures and sound in a faster,
easier, more creative, and more cost-effective manner than traditional analog
tape-based systems. Avid also develops and sells digital editing systems and
newsroom computer systems for creating content in the television broadcast news
market and digital news gathering ("DNG") systems for delivering news content to
air. Avid also develops and sells digital audio systems for the music and audio
production and post-production markets. Avid's products are used worldwide in
production and post-production facilities; film studios; network, affiliate,
independent, and cable television stations; recording studios; advertising
agencies; government and educational institutions; and corporate video
departments.
In January 1995, Avid effected a merger with Digidesign, Inc. ("Digidesign").
Digidesign is a leading provider of computer-based, digital audio production
systems for the professional music, film, broadcast, multimedia, and home
recording markets. In March 1995, Avid acquired through merger Elastic Reality,
Inc. ("Elastic Reality"), and Parallax Software Limited and 3 Space Software
Limited (together "Parallax Software"). Elastic Reality and Parallax Software
now form Avid's graphics and effects group. This group develops a range of image
manipulation products that allow users in the video and film post-production and
broadcast markets to create graphics and special effects for use in feature
films, television programs and advertising, and news programs.
The text of this document may include forward-looking statements. Actual results
may differ materially from those described herein, depending on such factors as
are described herein, including under "Certain Factors That May Affect Future
Results."
DIGITAL MEDIA CONTENT MARKETS
Digital media are media elements, whether video or audio or graphics, in which
the image, sound or picture is recorded and stored as digital values, as opposed
to analog signals. For example, a letter prepared on a computer using word
processing software is the digital media representation of a typewritten letter.
The word-processed letter example also illustrates some of the characteristics
of digital media, such as flexible editing, the ability to create different
versions, simple production of multiple identical copies, and easy integration
with other digital media types, such as charts and graphics. These
characteristics generally provide digital formats with advantages over their
analog equivalents. However, creating and manipulating digital content typically
requires new digital content creation tools: for example, the typewriter has
given way to dedicated word processors and, more recently, to desktop computers
running word processing software.
Digital formats and tools have largely displaced analog formats and tools in
many markets, such as word processing, electronic spreadsheets, desktop
publishing, graphics, and electronic and mechanical design. Because of more
challenging technical and cost hurdles in handling digital forms of film, video
and audio signals, markets that rely on these media types have begun to migrate
to digital formats and tools only in recent years.
As technical advances in digital media content creation tools have made this
migration possible, users have become able to create more complex content that
may incorporate several elements of digital media. For example, many video games
now include live action video, detailed 3D graphics, and high quality audio, all
created, manipulated, and played back in digital form. Feature films, such as
Forrest Gump or Jurassic Park, integrate sophisticated computer-generated
special effects into traditional live action shots.
The Company participates currently in three end-user markets in which there
are well-established analog, or tape-based, content creation processes and which
are transitioning to digital, or disk-based, content creation tools. These three
markets are: (i) video and film editing and special effects; (ii) broadcast news
production; and (iii) music production and film and video audio post-production.
The Company believes that the emergence of the Internet and of intranets is
creating a fourth market for digital media content creation tools in
corporations and institutions that can use the Internet and intranets to
distribute information enriched by the addition of digital media content to
their employees and customers.
Avid's video and film editing and special effects markets consist of
professional users who produce video and film material, such as commercial
spots, feature films, entertainment and documentary programming, industrial
videos, and music videos. These users are typically employed in independent
production or post-production companies, which are firms that rent out
production and post-production equipment and professionals on a project basis.
Professional users are also found in television facilities, film studios, and
large corporations that perform digital media production and post production
in-house. Avid's television broadcast news market is comprised of over-the-air
and cable broadcast companies that originate news programming. This market
includes national and international broadcasters, such as the British
Broadcasting Corporation (BBC), the Cable News Network (CNN), and the National
Broadcasting Company (NBC), as well as network affiliates, local independent
television stations, and local and regional cable operators who produce news
programming.
Avid's music production and post-production market is comprised of professional
music recording studios, project studios, radio broadcasters, and home studios.
Music recording and project studios operate in the same manner as the
independent video and film production and post production firms, as described
above. This market also includes audio production and post-production in video
and film.
STRATEGY
Avid's objective is to be the leading provider of audio and video technology for
creating digital media content used to entertain and inform. The Company's
strategy is comprised of four key elements:
Focus on Audio and Video Content Creation Tools:
The Company focuses its activities on markets where digital media content
creation takes place. The Company has addressed its initial efforts to the
professional video and film editing markets, including primarily film and
television studios and independent production and post-production firms.
The Company has extended its target markets to the music and audio
production and post-production markets, through the acquisition of
Digidesign in 1995, and the broadcast news production market, through the
introduction of Avid-developed digital news editing products and through
the acquisition in 1994 of SofTECH and the newsroom systems division of
Basys Automation Systems, Inc. ("Basys"), both of which offered broadcast
newsroom computer systems. In March 1995, Avid expanded its position in
the feature film and video production and post-production through the
acquisitions of Elastic Reality and Parallax Software, developers of
special effects software.
Expand Presence in Existing Markets:
The Company believes that it has established unit and revenue market share
leadership positions in the professional video and film digital editing
system markets, the digital audio workstation market, and the markets for
digital news editing and broadcast newsroom computer systems. The Company
plans to strengthen these positions by enhancing its existing products, by
developing and introducing new products that satisfy a broader range of
customer needs in these markets, through internal development, joint
development with third parties or acquisition, and by providing reliable
customer services and support.
Target New Content Creation Markets:
A growing number of corporations and institutions are using the Internet
and intranets as additions to their means of everyday communications with
employees and customers. The Company believes that many business
communications needs, including employee and customer training, new
product introduction, and employee communications, can be enriched by
integrating digital media elements, including video and audio. As a
result, the Company intends to target users in corporations, government
institutions, and small businesses who, if offered digital media content
creation tools appropriate to their skill levels, price constraints, and
other business requirements, may use digital media presentations more
widely in their daily operations.
Drive and Support Open Industry Standards:
The Company designs its products so that they are based on and can
co-exist with major industry-wide standards, including computer platforms,
operating systems, networking protocols, data compression, and digital
media handling formats. In addition, in response to growing customer
demand for open standards that enable the seamless integration of analog
and digital media tools from different vendors, the Company has undertaken
an initiative to establish the Open Media Framework Interchange ("OMFI")
as an industry standard media file interchange format to facilitate the
transfer of various media types, such as video, audio, animation, film,
and graphics, among various systems and applications used in the media
production processes. The Company has published the OMFI file format and
is seeking to promulgate it as an industry standard. Hundreds of vendors
and end users endorse the OMFI standard and more than 35 vendors are
supporting the OMFI standard in their products.
PRODUCTS
The Company's products may be divided into six categories: video and film
editing products, audio products, digital news gathering (DNG) systems, newsroom
computer systems, graphics and special effects products, and storage systems. A
description follows of the major products and product families in each of these
categories.
Video and Film Editing
Media Composer:
The Media Composer system is Avid's original product offering and still accounts
for a substantial majority of its revenues. Since its initial shipment in
December 1989, more than 12,000 Media Composer systems have been sold. The
Company believes that the Media Composer product line holds a greater unit
market share than any other digital non-linear editing system in professional
video editing markets. The Media Composer product line now includes four models
(the Media Composer Off-line, 1000, 4000, and 8000), which provide various
levels of capability and functionality. The Media Composer is a disk-based
digital, nonlinear editing system designed primarily for use by professional
film and video editors. The Media Composer system converts visual and audio
source material on tape to a digital format and stores the converted material on
a range of hard disk storage devices. Once digitized, the stored media can be
previewed, edited, and played back. The Media Composer family of products is
used to create high-quality productions such as television shows and
commercials, feature films, music videos, corporate videos, and other
non-broadcast finished videos.
Film Composer:
The Film Composer system is a 24 frames per second ("fps") editing system for
projects that originate and finish on film. Film footage can be converted to
video signals for editing, but because video runs at 30 fps and film at 24 fps,
a standard 30 fps video editing system will not yield an accurate 24 fps film
cut list from which to cut a master. The Film Composer includes software that
determines which frames on the videotape are actual frames from the film source
material and allows the creation of a frame accurate cut list. The Film Composer
software also includes special features to meet the specific needs of film
editors. The Company believes that Film Composer holds a greater unit market
share than any other digital non-linear editing system in professional film
editing markets.
MCXpress for Macintosh:
MCXpress for Macintosh is a digital, nonlinear video editing system designed to
meet the needs of professional media entrepreneurs involved with video and
multimedia production for CD-ROM and Internet distribution. MCXpress for
Macintosh is based on Avid's Media Composer software, providing a familiar user
interface and editing feature set appropriate for this category of user. This
attribute also allows digital media files to be shared between MCXpress for
Macintosh and Media Composer and for the MCXpress for Macintosh to be
upgradeable to the Media Composer family of systems.
MCXpress for Windows NT:
MCXpress for Windows NT is a digital, nonlinear video editing system designed
for the same market as MCXpress for Macintosh, but is targeted to users who
prefer Windows NT-based computers. MCXpress for Windows NT offers professional
picture quality and editing features, support for multiple media delivery
options, including MPEG-1 and AVI output, integration with third-party Windows
applications, a built-in titling tool, and a plug-in effects architecture.
Avid Cinema:
Avid Cinema is a desktop editing product designed for people who have no
previous video editing experience. Avid Cinema, which consists of a PC board and
nonlinear video editing software, is targeted at users in home, school, and
corporate environments. A simple interface guides users through the process of
making their own, near-VHS-quality movies to save to videotape, put in a slide
presentation, or post on a web page. These movies can include video, transition
effects, narration, titles, and music. Avid Cinema employs Apple's QuickTime
technology and allows users to save QuickTime files for various distribution
formats.
Audio
Pro Tools:
Pro Tools is a multi-track random access digital audio workstation developed by
Digidesign for the professional music, audio post-production, and radio
production markets. Pro Tools features include audio recording, advanced
waveform editing, mixing, signal processing, and automation. Pro Tools is an
open architecture in which more than 100 Digidesign Development Partners provide
additional solutions that expand the functionality of Digidesign's systems,
enhancing their appeal to customers. Pro Tools software is compatible across a
range of Digidesign hardware platforms, from high-end Pro Tools III down through
PT Project and Audiomedia III. Pro Tools PowerMix software runs without
Digidesign hardware on Power-PC Macintosh computers using host audio
capabilities. More than 12,000 Pro Tools systems have been sold since the
product's introduction in 1991. The Company believes that Pro Tools holds a
greater unit market share than any other digital audio workstation product in
professional audio markets.
AudioVision:
AudioVision is a high performance digital audio workstation designed
specifically to meet the needs of the audio post-production professional working
with film and video. AudioVision is directly compatible with projects
originating on Avid's Media Composer and Film Composer systems. Typical
applications include sound editing for feature film and television programming,
ADR (automatic dialogue replacement), and commercial spot production.
AudioVision allows the user to record, edit, or process sound in sync with
Avid-format digital video. AudioVision includes project management and database
tools, integrated DSP and the ability to edit audio and video together. The
system offers a high level of interchange with other Avid systems, including Pro
Tools.
Digital News Gathering
NewsCutter:
NewsCutter is a disk-based digital, nonlinear video editing system designed to
meet the demands of television news production. NewsCutter enables broadcast
news editors to quickly edit hard news, features, and news series. The user
interface for NewsCutter has been designed for fast, easy editing to meet the
time-critical demands of daily news deadlines. Based on the same core technology
as the Media Composer system, the NewsCutter system offers a range of editing
and effects features, including dissolves, wipes and graphics, and character
generation. NewsCutter can operate as a standalone editing system or as a client
sharing a central library of audio and video media on a server.
AirPlay MP:
AirPlay MP is a disk-based random access insertion and playback system that
provides television broadcasters and cable operators with the ability to
transmit high-quality short form video to air directly from disk, including
short form news, promos, station IDs, and commercials. Television news programs
typically have numerous short form segments, many of which have been
pre-recorded and edited. Operators traditionally have had to manage multiple
tape decks to play back such segments in the desired sequence during the
program. For news applications, AirPlay MP is designed to reduce on-air errors
by simplifying the process of inserting the correct story at the correct time.
For commercial playback, AirPlay MP is used to air spots automatically in the
slots sold to advertisers. Because of the random access capability of AirPlay
MP, spot placements can be changed quickly and easily. AirPlay MP shares media
compatibility with both NewsCutter and Media Composer so that news stories
prepared on NewsCutter and commercial and promotional spots prepared on Media
Composer can be played back on AirPlay without resorting to tape.
Avid MediaServer:
The Avid MediaServer is a workgroup video production server that provides
simultaneous access to a central computer-based library of video and audio media
files. Based on the Silicon Graphics family of servers, Avid MediaServer
supports multiple editing and/or playback workstations. The Avid MediaServer
system is designed to allow television broadcasters to capture electronic news
feeds, edit stories, and play them to air all in a computer-based environment.
AvidNet:
AvidNet is a local area network ("LAN") configuration that provides high speed
communications interconnection between Avid's news production and playback
systems. The Company believes that the industry standard ATM (Asynchronous
Transfer Mode) networking technology, upon which AvidNet is based, supports
uninterrupted video playback with high image quality. AvidNet is designed to
connect Avid's editing and playback products either to the Avid MediaServer or
directly to one another. AvidNet can be used as part of Avid's DNG system, where
it links the news editing, playback and recording systems to the Avid
MediaServer, or as part of a production solution, linking AirPlay MP and Media
Composer.
CamCutter:
The CamCutter system generally refers to a field-based, cuts-only
non-linear editing system, which enables users to capture, edit and play digital
media. Through an OEM arrangement Avid provides CamCutter systems to Ikegami
Tsushinki Co., Ltd., a developer of professional video cameras for the broadcast
industry, for incorporation into its "Editcam" cameras. Integrating the
CamCutter system with Ikegami's camera design produces a hand-held field
production system that allows video and four channels of audio to be captured
directly to a ruggedized, removable disk drive, known as FieldPak, rather than
conventional video tape, and its media is compatible with versions of Avid's
NewsCutter, MediaServer and AirPlay products.
Newsroom Computer Systems
Avid entered the newsroom computer systems ("NRCS") market through the
acquisition in 1994 of the newsroom division of Basys and of SofTECH Systems,
both of which developed and sold NRCS products. Newsroom computer systems are
the management information systems of television newsrooms. The NRCS
computerizes the process of getting news programming on the air. However, unlike
traditional corporate management information systems ("MIS"), the application of
computing technology in an NRCS is customized around the process of news
production and transmission: story assignment and resource scheduling, story
research, story creation and collaboration, and the automation of on-air
operations. Journalists use the NRCS to access wire stories, schedule, script
and edit the text portions of news stories, and send and receive mail and
messages. Producers use the NRCS to assign journalists and crews to stories, to
review journalistic work-in-progress, to manage and drive on-air devices such as
character generators, still image systems, and videotape machines, and to manage
the creation, flow, and timing of the newscast.
Avid NewsView:
Avid NewsView is a Novell-based solution targeted at small to mid-market news
stations. The client workstations run on DOS or Windows-based PCs. It is sold
primarily in North America.
Avid NetStation:
Avid NetStation is a UNIX-based system designed for larger stations and
network-level facilities. The clients are either VT interfaces, DOS, or
Windows-based PCs connected via local- and wide-area networks. NetStation has
extensive non-English language support and is well suited for wide area
networks. It is sold worldwide. The Company believes that Avid NetStation holds
a greater unit market share than any other NRCS in the large broadcaster
markets.
Graphics and Special Effects
Media Illusion:
Media Illusion is Avid's digital compositing, layering and special effects
software solution running on Silicon Graphics computers. It provides
comprehensive nonlinear editing, fast interactive processing, and numerous tools
for complex multi-stage compositing and image treatment. Media Illusion is used
by professionals in both video and film post-production.
Matador:
Matador is a two-dimensional ("2D") post-production paint software solution.
Matador provides the user with painting, image treatment, rotoscoping, tracking,
and multi-layered 2D animation in a single, resolution independent system. The
Company believes that Matador holds a greater unit market share than any other
paint software in professional film and video special effects markets.
Elastic Reality:
Elastic Reality is a software solution that provides tools for performing 2D and
3D hierarchical animation, character animation, warping and morphing of shapes
and images, color correction and matte making, and compositing. Elastic Reality
is based on Avid's proprietary "shape-to-shape" morphing interface. The Company
believes that Elastic Reality holds a greater unit market share than any other
morphing and warping software in professional film and video special effects
markets.
Jester:
Jester is Avid's cartoon ink and paint package designed to accelerate cartoon
production by painting the cartoon frame by frame and coloring areas
automatically.
Storage Systems
Avid offers a family of media storage solutions for use with Avid's systems.
Storage systems are used to add media editing or playback capacity, improve
image quality, support workgroup media sharing, and protect media from loss due
to hardware failure. Avid purchases disk, tape and optical drives, and storage
enclosure sub-systems from third-party manufacturers, integrates them, enhances
their performance, tests and certifies them for use with Avid systems, and
packages them in various configurations. These storage systems range in capacity
from four gigabytes to one terabyte (1,000 gigabytes).
SALES AND SERVICE
Avid sells its products through a combination of direct and indirect sales
channels. In the past, the Company has emphasized its direct channel, relying on
indirect channels, including independent distributors, value-added re-sellers
("VARs") and dealers, to supplement its direct sales activities or to serve
geographic markets in which the Company had no direct sales and service
presence. In late 1996, the Company altered its distribution strategy to place
increasing emphasis on its indirect sales channels to become the primary means
of distribution, emphasizing broader market coverage and clearer delineation
from Avid's direct sales channel and direct sales management. Avid's direct
field sales and telesales organizations now focus on approximately 250 strategic
accounts which are large volume purchasers, which require significant pre-sales
and post-sales customer services and which have the potential to work with Avid
in developing new product or market opportunities.
As a result of these changes, the Company expects to increase its support of top
customers while also increasing the proportion of revenues generated through its
indirect channels.
The Company maintains sales offices in 32 cities in 17 countries and has
relationships with more than 500 distributors, VARs and dealers throughout the
world.
Pro Tools III and other Digidesign-developed products are sold generally through
dealers and distributors. Because this channel tends to focus on music-related
products, there is, currently, little overlap between this channel and Avid's
video, film and broadcast market sales channels.
Avid restructured its customer service function in 1996 to provide improved
service and a broader array of service offerings to its customer base. Avid
currently provides direct customer support through regional telephone support
centers and field service representatives in major markets. Support offerings
include up to 24-hour, seven day per week options for both telephone support and
on site representation, hardware replacement and software upgrades.
Customer training is provided directly by Avid and through a network of 37
authorized third-party Avid training centers in 10 countries.
MANUFACTURING AND SUPPLIERS
Avid's manufacturing operations consist primarily of the testing of
subassemblies and components purchased from third parties, the duplication of
software and the configuration, assembly and testing of board sets, software,
related hardware components, and complete systems. Avid relies on independent
contractors to manufacture components and subassemblies to Avid's
specifications. Avid's systems undergo testing and quality assurance at the
final assembly stage.
The Company is dependent upon sole source suppliers for certain key components
used in its products. Products purchased by the Company from sole source vendors
include computers from Apple and SGI; video compression chips manufactured by
C-Cube Microsystems; a small computer systems interface ("SCSI") accelerator
board from ATTO Technology; a 3D digital video effects board from Pinnacle
Systems; and application specific integrated circuits ("ASIC") from AMI and LSI
Logic. The Company purchases these sole source components pursuant to purchase
orders placed from time to time. The Company also manufactures certain circuit
boards under licenses from Truevision, Inc. The Company generally does not carry
significant inventories of sole source components and has no guaranteed supply
arrangements. These purchasing arrangements can result in delays in obtaining
products from time to time. No assurance can be given that sole source suppliers
will devote the resources necessary to support the enhancement or continued
availability of such components or that any such supplier will not encounter
financial difficulties. While the Company believes that alternative sources of
supply for its sole source components could be developed, its business and
results of operations could be materially adversely affected if it were to
encounter an interruption in its sources of supply.
Avid has manufacturing facilities in Tewksbury, Massachusetts, Dublin, Ireland
and Palo Alto and Menlo Park, California.
RESEARCH AND DEVELOPMENT
Avid's research and development efforts currently are focused on 1) the
development or enhancement of digital media content creation tools that operate
on Apple computers on which the Company has traditionally relied, as well as on
Unix-based and Windows-based computers; 2) the development of hardware and
software enhancements and additions to its existing video, film and audio
editing systems, and digital news gathering and newsroom computer systems that
lower Avid's costs; 3) the development of hardware and software enhancements and
additions to its existing video, film and audio editing systems, and digital
news gathering and newsroom computer systems to meet additional needs of the
professional production, post-production, and broadcast news markets; 4)
AvidNews, a next generation newsroom computer system intended to integrate
standard text-based newsroom computer system functionality with nonlinear video
and audio functionality; and 5) the development of new media storage solutions.
The Company undertakes research and development activities in Tewksbury, Palo
Alto, Madison, Wisconsin, and London, England.
COMPETITION
The markets for Avid's products are highly competitive and subject to rapid
change. Competition is fragmented with a large number of suppliers providing
different types of products to different markets.
In the video and film production and post-production markets, Avid encounters
competition primarily from vendors that offer similar digital editing products
based on standard computer platforms, including Amtel, Discreet Logic, D/VISION,
Fast America, ImMix (a subsidiary of Scitex America), Lightworks USA (a
subsidiary of Tektronix), Media 100 (formerly known as Data Translation, Inc.),
Quantel (a subsidiary of Carlton Communications PLC), and Softimage (a
subsidiary of Microsoft). Avid also competes with vendors, such as Sony,
Matsushita, and Tektronix, that generally have offered analog-based products.
Avid expects that competition from these vendors will increase to the extent
that such vendors develop and introduce digital media products, as well as new
versions of their analog products. Panasonic (a subsidiary of Matsushita) has
recently introduced a digital nonlinear editing system.
In the broadcast news market, Avid competes primarily with vendors such as Sony,
Matsushita, Tektronix (including primarily its subsidiaries Lightworks USA, The
Grass Valley Group and NewStar), Quantel, Associated Press, and BTS (a
subsidiary of Philips). Avid expects that competition from these vendors will
increase to the extent such vendors develop and introduce digital or new
analog-based products. Sony has recently announced a new digital tape format
that Avid believes may provide continuing competition in the broadcast news
market. Panasonic has also recently announced a new digital tape format. The
Company also competes in certain segments of this market with other providers of
digital media products, including Media 100 and ImMix.
In the music production and post-production markets, the Company competes
primarily with traditional analog tape-based system suppliers, including AMS,
Fritz Studer, Otari, Sony, Tascam, and Yamaha; digital tape-based system
suppliers, including Alesis, Tascam, and other disk-based digital audio
production system suppliers, including Sonic Solutions. In addition, companies
such as Creative Technology currently provide low cost (under $500) digital
audio playback cards targeted primarily at the personal computer game market.
There can be no assurance that these companies will not introduce products that
are more directly competitive with the Company's products.
In the market for graphics and special effects products, Avid competes primarily
with Adobe, Alias Research (a subsidiary of Silicon Graphics), Chyron, Discreet
Logic, Quantel, and Softimage.
The Company may face competition in any or all of these markets in the future
from computer manufacturers, such as Digital Equipment, Hewlett-Packard, IBM,
and Silicon Graphics, as well as from software vendors, such as Microsoft,
Oracle, and Sybase. All of these companies have announced their intentions to
enter some or all of the Company's target markets, including specifically the
broadcast news and special effects market. In addition, certain developers of
shrink-wrapped digital media software products, such as Adobe and Macromedia,
either offer or have announced video and audio editing products which may
compete with certain of the Company's products.
The primary competitive factors in all of the Company's markets are
price/performance, functionality, product quality, reputation, product line
breadth, access to distribution channels, customer service and support, brand
name awareness, and ease of use.
EMPLOYEES
The Company employed 1,663 people as of December 31, 1996.
ITEM 2. PROPERTIES
The Company's principal administrative, sales and marketing, research and
development, support, and manufacturing facilities are located in three
buildings adjacent to one another in an office park located in Tewksbury,
Massachusetts. The Company's leases on such buildings expire in February 2010.
The Company also leases a facility in Dublin, Ireland for the manufacture and
distribution of its products and in Palo Alto, California, which houses
Digidesign headquarters and certain other research and development operations.
In September 1995, the Company's United Kingdom subsidiary entered into a
15-year lease in London, England, and consolidated the offices of the former
Parallax Software with the Company's London sales staff.
The Company also maintains sales and marketing support offices in leased
facilities in various other locations throughout the world.
See Note K - "Commitment and Contingencies" in the Notes to Consolidated
Financial Statements for information concerning the Company's obligations under
all operating leases as of December 31, 1996.
In addition, the Company anticipates no difficulty in retaining occupancy of any
of its manufacturing, office or sales and marketing support facilities through
lease renewals prior to expiration or through month-to-month occupancy, or in
replacing them with equivalent facilities.
ITEM 3. LEGAL PROCEEDINGS
DATA TRANSLATION, INC.
On June 7, 1995, the Company filed a patent infringement complaint in the United
States District Court for the District of Massachusetts against Data
Translation, Inc., a Marlboro, Massachusetts-based company. Avid is seeking
judgment against Data Translation that, among other things, Data Translation has
willfully infringed Avid's patent number 5,045,940, entitled "Video/Audio
Transmission System and Method." Avid is also seeking an award of treble damages
together with prejudgment interest and costs, Avid's costs and reasonable
attorneys' fees, and an injunction to prohibit further infringement by Data
Translation. The litigation has been temporarily stayed pending a decision by
the U.S. Patent and Trademark Office on a reissue patent application based on
the issued patent.
CLASS ACTION SHAREHOLDER LITIGATION
In December 1995, six purported shareholder class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company and certain of its underwriters and officers and directors as
defendants. On July 31, 1996, the six actions were consolidated into two
lawsuits: one brought under the 1934 Securities Exchange Act (the "`34 Act
suit") and one under the 1933 Securities Act (the "`33 Act suit"). Principal
allegations contained in the two complaints include claims that the defendants
violated federal securities laws and state common law by allegedly making false
and misleading statements and by allegedly failing to disclose material
information that was required to be disclosed, purportedly causing the value of
the Company's stock to be artificially inflated. The `34 Act suit was brought on
behalf of all persons who bought the Company's stock between July 26, 1995 and
December 20, 1995. The `33 Act suit was brought on behalf of persons who bought
the Company's stock pursuant to its September 21, 1995 public offering. Both
complaints seek unspecified damages for the decline of the value of the
Company's stock during the applicable period. A motion to dismiss both the `34
Act and the `33 Act suit was filed on October 18, 1996. Plaintiffs filed
oppositions to both motions on December 13, 1996. The defendants' Reply Briefs
were filed and the Court heard oral argument on all pending motions on January
28 and 29, 1997. Both motions have been taken under advisement by the court.
Although the Company believes that it and the other defendants have meritorious
defenses to the allegations made by the plaintiffs and intends to contest these
lawsuits vigorously, an adverse resolution of this litigation could have a
material adverse effect on the Company's consolidated financial position or
results of operations in the period in which the litigation is resolved. A
reasonable estimate of the Company's potential loss for damages cannot be made
at this time. No costs have been accrued for this possible loss contingency.
COMBINED LOGIC COMPANY
On March 11, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, the suit was transferred to the United States
District Court for the Southern District of New York on motion by the Company.
The complaint alleges infringement by Avid of U.S. patent number 4,258,385,
issued in 1981, and seeks injunctive relief, treble damages and costs, and
attorneys' fees. The Company believes that it has meritorious defenses to the
complaint and intends to contest it vigorously. However, an adverse resolution
of this litigation could have an adverse effect on the Company's consolidated
financial position or results of operations in the period in which the
litigation is resolved.
DATA TRANSLATION, INC.
On April 23, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the District of Massachusetts
by Data Translation, Inc., of Marlboro, Massachusetts. The complaint alleges
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief, treble damages and costs, and attorneys' fees. The Company believes that
it has meritorious defenses to the complaint and intends to defend it
vigorously. However, an adverse resolution of this litigation could have an
adverse effect on the Company's consolidated financial position or results of
operations in the period in which the litigation is resolved.
OTHER
The Company also receives inquiries from time to time with regard to additional
possible patent infringement claims. These inquiries are generally referred to
counsel and are in various stages of discussion. If any infringement is
determined to exist, the Company may seek licenses or settlements. In addition,
from time to time as a normal incidence of the nature of the Company's business,
various claims, charges, and litigation are asserted or commenced against the
Company arising from or related to contractual or employee relations or product
performance. Management does not believe these claims would have a material
adverse effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended December 31, 1996.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is (i) the name and age of each present executive officer of the
Company; (ii) the position(s) presently held by each person named; and (iii) the
principal occupation held by each person named for at least the past five years.
EXECUTIVE OFFICER AGE POSITION(S)
William J. Miller 51 Chairman of the Board, President
and Chief Executive Officer
William L. Flaherty 49 Senior Vice President of Finance
and Chief Financial Officer
David R. Froker 41 Senior Vice President and
General Manager of Digidesign
C. Edward Hazen 45 Senior Vice President of Business
Development and Corporate Treasurer
Clifford A. Jenks 45 Senior Vice President of
Worldwide Sales and Marketing
Rose G. O'Donnell 53 Senior Vice President of
Engineering
David E. Olson 47 Senior Vice President of Worldwide
Operations; Chief Operating Officer
of Digidesign Division
Judith M. Oppenheim 55 Senior Vice President of Human
Resources and Corporate Services
Eric C. Peters 45 Senior Vice President and Chief
Technology Officer
__________________
WILLIAM J. MILLER. Mr. Miller joined the Company in April 1996 and has been
Chairman, Chief Executive Officer and President since September 1996. From April
1996 to September 1996, Mr. Miller was Chairman and Chief Executive Officer.
Prior to that time, Mr. Miller was Chief Executive Officer of Quantum
Corporation (1992-1995).
WILLIAM L. FLAHERTY. Mr. Flaherty joined the Company in September 1996 and has
been Senior Vice President of Finance and Chief Financial Officer since January
1997. He was Vice President of Finance and Chief Financial Officer from
September 1996 to January 1997. Prior to joining Avid, Mr. Flaherty was Senior
Vice President, Finance and Chief Financial Officer (February - September 1996),
and Vice President, Finance and Chief Financial Officer (1993 - February 1996),
of Gibson Greetings Corp., and was Vice President and Treasurer of FMR Corp.,
the parent company of Fidelity Investments Group (1989-1992).
DAVID R. FROKER. Mr. Froker has been Senior Vice President and General Manager
of Digidesign since January 1997. Mr. Froker was General Manager of Digidesign
from March 1996 to January 1997. Prior to that time, he was Vice President,
Business Development of Digidesign, Inc. (1994-1995). He was Product Group
Manager at Amdahl (1988-1993).
C. EDWARD HAZEN. Mr. Hazen has been Senior Vice President of Business
Development and Corporate Treasurer since January 1997. He was Vice President,
Finance and Treasurer from January 1996 to January 1997, Vice President, Chief
Financial Officer and Treasurer From November 1995 to January 1996, and Vice
President and Treasurer from 1993 to 1996. Mr. Hazen was a Managing Director of
Robertson, Stephens & Company (1987-1993).
CLIFFORD A. JENKS. Mr. Jenks joined the Company in October 1996 and has been
Senior Vice President of Worldwide Sales and Marketing since January 1997. He
was Vice President Worldwide Sales and Marketing from October 1996 to January
1997. Mr. Jenks was Chief Operating Officer of Zenith Data Systems (1992-1996),
and Vice President Sales and Marketing Operations of Apple Computer, Inc.
(1989-1992).
ROSE G. O'DONNELL. Ms. O'Donnell has been Senior Vice President of Engineering
since January 1997. She was Vice President, Engineering from November 1994 to
January 1997. Ms. O'Donnell was General Manager of the Technology Division of
Hewlett-Packard (1989-1994).
DAVID E. OLSON. Mr. Olson has been Senior Vice President of Worldwide Operations
of the Company and Chief Operating Officer of Digidesign since January 1997. He
was Vice President of Worldwide Operations for Avid from June 1996 to January
1997. Mr. Olson was Vice President of Operations at Digidesign, Inc. from August
1991 to June 1996.
JUDITH M. OPPENHEIM. Ms. Oppenheim has been Senior Vice President of Human
Resources and Corporate Services since January 1997. She was Vice President of
Human Resources from November 1992 to January 1997. Ms. Oppenheim was Vice
President, Human Resources at The Forum Corporation (1989-1992).
ERIC C. PETERS. Mr. Peters has been Senior Vice President and Chief Technology
Officer since January 1997. He was Vice President, Technology and Chief
Technology Officer from August 1988 to January 1997.
There is no family relationship among the named officers.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the NASDAQ National Market under the
symbol AVID. The table below shows the high and low bid prices of the Common
Stock during the fiscal years ended December 31, 1996 and 1995.
1996 HIGH LOW
---- ------- ------
First Quarter $22.750 $16.375
Second Quarter 25.875 17.875
Third Quarter 20.500 12.375
Fourth Quarter 16.250 10.125
1995 HIGH LOW
---- ------- ------
First Quarter $34.000 $23.000
Second Quarter 40.500 28.250
Third Quarter 47.750 37.250
Fourth Quarter 48.750 16.750
The approximate number of holders of record of the Company's Common Stock at
March 17, 1997, was 640. This number does not include shareholders for whom
shares were held in a "nominee" or "street" name.
The Company has never declared or paid cash dividends on its capital stock and
currently intends to retain all available funds for use in the operation of its
business. The Company therefore does not anticipate paying any cash dividends in
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected condensed consolidated financial data
for Avid Technology, Inc. In January 1995, Avid Technology, Inc. (Avid)
completed a merger with Digidesign, Inc. (Digidesign) that was accounted for as
a pooling of interests. All financial data presented herein have been restated
to include the combined financial results of Avid and Digidesign as though the
merger had occurred retroactively. Prior to the merger, Digidesign had a March
31 fiscal year end. Effective with the merger, Digidesign's fiscal year end was
changed from March 31 to December 31 to conform with Avid's year end. The
results of Digidesign's operations for the twelve-month periods ended December
31, 1994, March 31, 1994, 1993 and 1992 are included in the Company's 1994,
1993, 1992 and 1991 results, respectively. Accordingly, Digidesign's operations
for the three months January through March 1994 are included in the Company's
results for both of the years ended December 31, 1993 and December 31, 1994.
Revenues, net income and earnings per share for Digidesign for the three months
ended March 31, 1994 were $8,510,000, $1,078,000 and $0.14 respectively. Net
income for this period has been reported as an adjustment to consolidated 1994
retained earnings. In March 1995, the Company acquired Elastic Reality, Inc., a
developer of digital image manipulation software, Parallax Software Limited and
3 Space Software Limited, together developers of paint and compositing software.
The Company's previous years' financial statements have not been restated to
include operations of Parallax Software Limited, 3 Space Software Limited and
Elastic Reality, Inc. as they were not material to the Company's consolidated
operations and financial condition. Costs associated with these mergers,
approximately $5,456,000, were charged to operations in 1995. In addition, the
Company acquired certain other businesses which were accounted for as purchases;
the results of such acquisitions have been included in the Company's financial
statements since the respective dates of acquisition. The selected consolidated
financial data below should be read in conjunction with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere in
this filing.
CONSOLIDATED STATEMENTS OF INCOME DATA:
In thousands (except per share data) For the year ended
December 31,
---------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------
Net revenues...................... $429,009 $406,650 $233,633 $134,366 $69,020
Cost of revenues.................. 238,808 198,841 108,057 60,939 29,333
---------------------------------------------
Gross profit.................... 190,201 207,809 125,576 73,427 39,687
---------------------------------------------
Operating expenses:
Research and development........ 69,405 53,841 28,223 16,396 8,276
Marketing and selling........... 127,006 107,780 61,366 38,960 21,279
General and administrative...... 24,203 18,085 12,575 7,801 3,335
Nonrecurring costs.............. 28,950 5,456 3,750
---------------------------------------------
Total operating expenses...... 249,564 185,162 102,164 66,907 32,890
---------------------------------------------
Operating income (loss)........... (59,363) 22,647 23,412 6,520 6,797
Other income and expense, net..... 3,416 1,380 1,675 1,791 152
---------------------------------------------
Income (loss) before income taxes. (55,947) 24,027 25,087 8,311 6,949
Provision for (benefit from)
income taxes.................... (17,903) 8,588 7,294 2,209 2,504
---------------------------------------------
Net income (loss)................. $(38,044) $15,439 $17,793 $6,102 $4,445
=============================================
Net income (loss) per
common share.................... $(1.80) $0.77 $0.99 $0.40 $0.38
=============================================
Weighted average common and common
equivalent shares outstanding.... 21,163 20,165 17,921 15,216 11,805
=============================================
CONSOLIDATED BALANCE SHEET DATA:
In thousands (except per share data) As of December 31,
---------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------
Working capital.................. $145,320 $162,260 $86,513 $91,473 $21,780
Total assets..................... 300,979 331,604 182,174 132,355 43,104
Long-term debt, less current
portion........................ 1,186 2,945 2,369 545
Redeemable convertible
preferred stock.................. 30,897
Total stockholders'
equity (deficit)............... 213,415 247,966 127,887 106,732 (901)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The text of this document may include forward-looking statements. Actual results
may differ materially from those described herein, depending on such factors as
are described herein, including under "Certain Factors That May Affect Future
Results."
The Company was founded in 1987 to develop and market digital video editing
systems for the production and post production markets. The Company shipped its
first product, the Avid/1 Media Composer system, in the fourth quarter of 1989.
The Company is currently selling Media Composer system version 6.5. In 1992, the
Company began shipping its AudioVision product to the digital audio editing
segment of the post production market, and in 1993 introduced Film Composer for
the film editing market and a line of disk-based capture, editing, and playback
products for the broadcast news industry. In 1994, the Company acquired two
businesses, SofTECH Systems, Inc. and the newsroom systems division of Basys
Automation Systems, Inc., to expand its presence in the newsroom computer
systems market. In January 1995, the Company completed its merger with
Digidesign, Inc. ("Digidesign"). The Digidesign merger added digital audio
production software and related application lines. Pro Tools, the most
significant product line acquired in the merger, is marketed to audio
professionals. The Media Composer and Pro Tools product lines, together with
add-on software, storage devices, and associated maintenance fees, have
accounted for a substantial majority of the Company's revenues to date. In March
1995, the Company acquired Elastic Reality, Inc., a developer of digital image
manipulation software, and Parallax Software Limited and 3 Space Software
Limited, together developers of paint and compositing software, all of whose
products are sold primarily to the film and video production and post-production
markets. In March 1996 and in May 1996, the Company began shipments of the Media
Composer and Pro Tools product lines, respectively, for use on PCI-based
computers. In June 1996, the Company began selling MCXpress for Macintosh and
for Windows NT. The Company began shipping Version 6.5 for its Media Composer
family of systems in December 1996.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statements of operations as a percentage of net revenues for the periods
indicated:
For the year ended December 31,
--------------------------------
1996 1995 1994
--------------------------------
Net revenues......................... 100.0% 100.0% 100.0%
Cost of revenues..................... 55.7% 48.9% 46.3%
--------------------------------
Gross profit....................... 44.3% 51.1% 53.7%
--------------------------------
Operating Expenses:
Research and development........... 16.2% 13.2% 12.1%
Marketing and selling.............. 29.6% 26.5% 26.2%
General and administrative......... 5.6% 4.4% 5.4%
Nonrecurring costs................. 6.7% 1.4%
--------------------------------
Total operating expenses......... 58.1% 45.5% 43.7%
--------------------------------
Operating income (loss).............. (13.8)% 5.6% 10.0%
Other income and expense, net........ 0.8% 0.3% 0.7%
--------------------------------
Income (loss) before income taxes.... (13.0)% 5.9% 10.7%
Provision for (benefit from)
income taxes....................... (4.1)% 2.1% 3.1%
================================
Net income (loss).................... (8.9)% 3.8% 7.6%
================================
Net Revenues
The Company's net revenues have been derived mainly from the sales of disk-based
digital, nonlinear media editing systems and related peripherals, licensing of
related software, and sales of software maintenance contracts. Net revenues
increased by $22.3 million (5.5%) to $429.0 million in the year ended December
31, 1996 from $406.7 million in 1995. Net revenues for the year ended December
31, 1995 of $406.7 million increased by $173.0 million (74.1%) from $233.6
million in 1994. The increase in net revenues during 1996 and 1995 was primarily
the result of worldwide growth in unit sales of the Media Composer product line
and of digital audio products and to a lesser extent, to the increase in sales
of other products. In March 1996 and in May 1996, the Company began shipments of
the Media Composer and Pro Tools product lines, respectively, for use on
PCI-based computers. In June 1996, the Company began selling MCXpress for
Macintosh and for Windows NT. The Company began shipping Version 6.5 for its
Media Composer family of systems in December 1996. To date, product returns of
all products have been immaterial.
International sales (sales to customers outside North America) accounted for
approximately 49.5% of the Company's 1996 net revenues compared to approximately
46.7% for 1995 and 43.3% for 1994. International sales increased by 11.7% in
1996 compared to 1995 and 87.9% in 1995 compared to 1994. The increase in
international sales in 1996 was attributable primarily to higher unit sales of
Media Composer and Pro Tools product lines in Europe. The increase in
international sales in 1995 compared to 1994 was primarily due to continued
sales growth in Europe and Japan, in addition to the sales growth in locations
where the Company established new sales subsidiaries in 1995, which included
Singapore and Australia, and the March 1995 acquisition of Parallax Software
Limited.
Gross Profit
Cost of revenues consists primarily of costs associated with the acquisition of
components; the assembly, test, and distribution of finished products;
provisions for inventory obsolescence; warehousing; shipping; and post-sales
customer support costs. The resulting gross profit fluctuates based on factors
such as the mix of products sold, the cost and proportion of third-party
hardware included in the systems sold by the Company, the distribution channels
through which products are sold, the timing of new product introductions, the
offering of product upgrades, price discounts and other sales promotion programs
and sales of aftermarket hardware products. Gross margin decreased to 44.3% in
1996 compared to 51.1% in 1995 and from 53.7% in 1994. The decrease in 1996
largely reflects the effects of upgrading Media Composer systems for use on
PCI-based computers, an increase in manufacturing overhead associated with
higher facility, information system and customer support costs allocated to
costs of revenues. In addition, the Company's decrease in gross margin in 1996
resulted from increased provisions for inventory obsolescence, the fourth
quarter non-cash charge of $5.6 million related principally to spare parts which
are no longer required to support the Company's business, and the recognition of
approximately $6.2 million of revenue from the sale of certain server-based
broadcast products at a relatively low gross margin. The decrease in gross
margin in 1995 compared to 1994 was primarily due to a further increased
proportion of sales of lower margin systems in the second half of 1995,
increased sales of third party hardware to the Company's distributors, expansion
of the Company's manufacturing infrastructure, growth in the company's
post-sales support organizations, and increased proportion of hardware
associated with additional functionality in certain of the Company's systems.
The Company expects that gross margins during 1997 to be slightly above 1996
levels, but will continue to be lower than 1995 and 1994 gross margins.
Research and Development
Research and development expenses increased $15.6 million (28.9%) from 1995 to
1996 and increased $25.6 million from 1994 to 1995. These increases were
primarily due to the continued development of new and existing products. The
1995 expenses are net of $2.9 million of payments received during 1995 under
certain development agreements with third parties. Research and development
expenses increased as a percentage of net revenues to 16.2% in 1996 from 13.2%
in 1995 and 12.1% in 1994 due to significant resources required to develop and
maintain various existing products, including the PCI versions of the Media
Composer and Pro Tools products, MCXpress product lines, newsroom computer
systems, video processing hardware, and the CamCutter product. The Company
capitalized software development costs of approximately, net of write-offs, $1.5
million, $3.6 million and $1.1 million in 1996, 1995, and 1994, respectively.
This represents 2.1%, 6.2% and 3.8% of total research and development costs
during 1996, 1995, and 1994, respectively. These costs will be amortized into
cost of revenues over the estimated life of the related products, generally 12
to 24 months. Amortization, net of write-offs totaled approximately $2.9
million, $1.2 million, and $466,000 in 1996, 1995, and 1994, respectively. The
capitalized software development costs are associated primarily with
enhancements to Media Composer software and also development of software to be
used in other products.
Marketing and Selling
Marketing and selling expenses increased by $19.2 million (17.8%) from 1995 to
1996 and increased by $46.4 million (75.6%) from 1994 to 1995. The increase in
sales and marketing in 1996 and 1995 was primarily due to expansion of the
Company's field sales operations and the opening of field sales offices
domestically and internationally during the later part of 1995. Marketing and
selling expenses increased as a percentage of net revenues to 29.6% in 1996 and
26.5% in 1995 compared to 26.2% in 1994.
General and Administrative
General and administrative expenses increased $6.1 million from 1995 to 1996 and
$5.5 million from 1994 to 1995. General and administrative expenses increased as
a percentage of net revenues to 5.6% in 1996 compared to 4.4% in 1995 and 5.4%
in 1994. These increased expenses were primarily due to increased staffing and
associated costs necessary to support the Company's growth. In addition, 1996
general and administrative expenses increased due to increased legal expenses
associated with various litigation matters to which the Company is a party and
certain severance and recruiting costs.
Nonrecurring Costs
During the first quarter of 1996, the Company recorded charges for nonrecurring
costs consisting of $7.0 million for restructuring charges related to February
1996 staffing reductions of approximately 70 employees primarily in the U.S.,
the Company's concurrent decision to discontinue certain products and
development projects, and $13.2 million for product transition costs in
connection with the transition from NuBus to PCI bus technology in certain of
its product lines. As of December 31, 1996, the Company had completed the
related restructuring actions. Included in the $7.0 million for restructuring
charges were approximately $5.0 million of cash payments and $2.0 million of
non-cash charges. In the third quarter of 1996, the Company recorded a
nonrecurring charge of $8.8 million associated primarily with the Company's
decision not to release the Avid Media Spectrum product line. In the first
quarter of 1995, the Company acquired Digidesign, Inc., Parallax Software
Limited, 3 Space Software Limited and Elastic Reality, Inc. In connection with
these acquisitions, the Company recorded merger costs of approximately $5.5
million, of which $3.9 million represented direct transaction expenses and $1.6
million consists of various restructuring charges.
Interest and Other Income, Net
Interest and other income, net consists primarily of interest income, other
income and interest expense. Interest and other income, net for 1996 increased
$2.0 million from 1995 and decreased $295,000 in 1995 compared to 1994. For the
year ended December 31, 1996, interest and other income, net increased primarily
due to higher cash and investment balances in 1996 compared to 1995. In
addition, 1996 other income increased from 1995 due to the spin-out of certain
technologies which resulted in equity income, a gain on sale of a product line,
and royalties received during the year. The 1995 decrease in interest and other
income, net was principally related to higher interest expense incurred in 1995
and lower cash balances prior to the Company's offering of Common Stock in
September 1995.
Provision for (Benefit from) Income Taxes
The Company's effective tax rate was 32%, 36%, and 29%, respectively for 1996,
1995, and 1994. The 1996 and 1994 effective tax rates are different than the
Federal statutory rate of 35% primarily due to the impact of the Company's
foreign subsidiaries. The 1995 effective tax rate of 36% is greater than the
Federal statutory rate primarily due to non-deductible merger costs. The 1995
provision included taxes of $8.7 million at an effective rate of 32% on $27.5
million of earnings before merger charges. The 1995 provision also included a
tax benefit of $640,000 on merger costs of $5.5 million, of which $1.6 million
were tax deductible.
LIQUIDITY AND CAPITAL RESOURCES
The Company funded its operations to date through private sales of equity
securities and public offerings of equity securities in 1993 and 1995 which
generated net proceeds to the Company of approximately $67 million and $88
million, respectively, as well as through cash flows from operations. As of
December 31, 1996, the Company's principal sources of liquidity included cash,
cash equivalents, and marketable securities totaling approximately $94.0
million.
The Company's operating activities generated cash of $40.9 million in 1996
compared to using cash of $19.3 million in 1995. Cash was generated during the
twelve months ended December 31, 1996 primarily from reductions in accounts
receivable and inventory. In 1996, the decrease in accounts receivable was
primarily due to improved collections while the reduction in inventory resulted
from improved stock turns and the write-off of inventory no longer required to
support the Company's business.
The Company purchased $28.2 million of property and equipment and other assets
during 1996, compared to $42.4 million in 1995. These purchases included
primarily the purchase of equipment for hardware and software for the Company's
information systems and equipment to support research and development
activities.
The Company had an equipment-financing arrangement with a bank which expired on
March 31, 1996. In 1995, the Company entered into an unsecured line of credit
agreement with a group of banks which provided for up to $50,000,000 in
revolving credit. The original expiration date of June 30, 1996 has been
extended to June 28, 1997. Under the terms of the agreement, as amended in June
1996, the Company may borrow up to $35,000,000. The Company must pay a quarterly
commitment fee calculated based on the debt service ratio of the Company and
ranges from .25% to .40% on the $35,000,000 line. The interest rate to be paid
on any outstanding borrowings is contingent upon the financial performance of
the Company and ranges from LIBOR plus 1.25% to LIBOR plus 1.75%. Additionally,
the Company is required to maintain certain financial ratios and covenants over
the life of the agreement, including a restriction on the payment of dividends.
The Company has in certain prior periods been in default of certain financial
covenants. On these occasions the defaults have been waived by the banks. There
can be no assurance that the Company will not default in future periods or that,
if in default, it will be able to obtain such waivers. The Company had no
borrowings against the line and was not in default of any financial covenants as
of December 31, 1996. The Company believes existing cash and marketable
securities, internally generated funds and available borrowings under its bank
credit line will be sufficient to meet the Company's cash requirements,
including capital expenditures, at least through the end of 1997. In the event
the Company requires additional financing the Company believes that it would be
able to obtain such financing; however, there can be no assurance that it would
be successful in doing so, or that it could do so on terms favorable to the
Company.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
The Company's gross margin has fluctuated, and may continue to fluctuate, based
on factors such as the mix of products sold, cost and the proportion of
third-party hardware included in the systems sold by the Company, the
distribution channels through which products are sold, the timing of new product
introductions, the offering of product and platform upgrades, price discounts
and other sales promotion programs, the volume of sales of aftermarket hardware
products, the costs of swapping or fixing products released to the market with
errors or flaws, provisions for inventory obsolescence, allocations of overhead
costs to manufacturing and customer support costs to cost of goods, sales of
third-party computer hardware to its distributors, and competitive pressure on
selling prices of products. The Company's systems and software products
typically have higher gross margins than storage devices and product upgrades.
Gross profit varies from product to product depending primarily on the
proportion and cost of third-party hardware included in each product. The
Company, from time to time, adds functionality and features to its systems. If
such additions are accomplished through the use of more, or more costly,
third-party hardware, and if the Company does not increase the price of such
systems to offset these increased costs, the Company's gross margins on such
systems would be adversely affected.
The Company has recently initiated steps designed to shift an increasing
proportion of its sales through indirect channels such as distributors and
resellers. The Company expects that this shift will result in an increase in the
number of software and circuit board "kits" sold through indirect channels in
comparison with turnkey systems consisting of CPUs, monitors, and peripheral
devices including accompanying software and circuit boards sold by the Company
through its direct sales force to customers. Therefore, to the extent the
Company increases its sales through indirect channels, its revenue per unit sale
will be less than it would have been had the same sale been made directly by the
Company. In the event the Company is unable to increase the volume of sales in
order to offset this decrease in revenue per sale or is unable to reduce its
costs associated with such sales, profits could be adversely affected.
In 1995, the Company shipped server-based, all-digital broadcast newsroom
systems to a limited number of beta sites. These systems incorporate a variety
of the Company's products, as well as a significant amount of hardware purchased
from third parties, including computers purchased from Silicon Graphics, Inc.
("SGI"). Because some of the technology and products in these systems were new
and untested in live broadcast environments, the Company provided greater than
normal discounts to these initial customers. In addition, because some of the
technology and products in these systems were new and untested in live broadcast
environments, the Company has incurred unexpected delays and greater than
expected costs in completing and supporting these initial installations to
customers' satisfaction. As a result, the Company expects that it will report,
in the aggregate, a loss on these sales, when all revenues and costs are
recognized. In 1996, the Company recognized approximately $3.3 million in
revenues from three of these initial installations and approximately $3.6
million of related costs. In future quarters, the Company expects to recognize
an additional $5.0 million in revenues associated with the remaining initial
installations. The Company has provided a reserve for estimated costs in excess
of anticipated revenues. Revenues and costs are recognized upon acceptance of
the systems by customers. The Company is unable to determine whether and when
the systems will be accepted. There can be no assurance that the remaining
initial installations will be accepted by customers or that the Company will not
incur further costs in completing the installations. If customers do not accept
these systems, the Company could face additional costs associated with reducing
the value of the inventory included in the systems. The Company's overall gross
margin percentage will be reduced in any quarter or quarters in which the
remaining initial installations are recognized or written off. In 1996, the
Company installed additional server-based, all-digital broadcast newsroom
systems at other customer sites. The Company believes that such installations,
when and if fully recognized as revenue on customer acceptance, would be
profitable. However, the Company is unable to determine whether and when the
systems will be accepted. In any event, the Company believes that because of the
high proportion of third-party hardware, including computers and storage
devices, included in such systems, that the gross margins on such sales would be
lower than the gross margins generally on the Company's other systems.
The Company's operating expense levels are based, in part, on its expectations
of future revenues. In recent quarters, 40% or more of the Company's revenues
for a quarter have been recorded in the third month of the quarter. Further, in
many cases, quarterly operating expense levels cannot be reduced rapidly in the
event that quarterly revenue levels fail to meet internal expectations.
Therefore, if quarterly revenue levels fail to meet internal expectations, the
Company's operating results would be adversely affected and there can be no
assurance that the Company would be able to operate profitably. Reductions of
certain operating expenses, if incurred, in the face of lower than expected
revenues could involve material one-time charges associated with reductions in
headcount, trimming product lines, eliminating facilities and offices, and of
writing off certain assets.
The Company has significant deferred tax assets in the accompanying balance
sheets. The deferred tax assets reflect the net tax effects of tax credit and
operating loss carryforwards and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
The Company has expanded its product line to address the digital media
production needs of the television broadcast news market and the emerging market
for multimedia production tools, including the corporate and industrial user
market. The Company has limited experience in serving these markets, and there
can be no assurance that the Company will be able to develop such products
successfully, or that such products will achieve widespread customer acceptance.
A significant portion of the Company's future growth will depend on customer
acceptance in these and other new markets. Any failure of such products to
achieve market acceptance, additional costs and expenses incurred by the Company
to improve market acceptance of such products, or the withdrawal from the market
of such products or of the Company from such new markets could have a material
adverse effect on the Company's business and results of operations.
The Company's products operate primarily only on Apple computers. Apple has
recently been suffering business and financial difficulties. In consideration of
these difficulties, there can be no assurance that customers will not delay
purchases of Apple-based products, or purchase compatible products based on
non-Apple computers, that Apple will continue to develop and manufacture
products suitable for the Company's existing and future markets or that the
Company will be able to secure an adequate supply of Apple computers, the
occurrence of any of which could have a material adverse effect on the Company's
business and results of operations.
The Company has from time to time developed new products, or upgraded existing
products that incorporate advances in enabling technologies. The Company
believes that further advances will occur in such enabling technologies,
including microprocessors, computers, operating systems, bus architectures,
storage devices, and digital media formats. The Company may be required, based
on market demand, to upgrade existing products or develop other products that
incorporate these further advances. In particular, the Company believes that it
will be necessary to develop additional products which operate using the Windows
NT operating system. There can be no assurance that customers will not defer
purchases of existing Apple-based products in anticipation of the release of
NT-based products, that the Company will be successful in developing NT-based or
other new products or that they will gain market acceptance, if developed. Any
deferral by customers of purchases of existing Apple-based products, failure by
the Company to develop such products in a timely way or to gain market
acceptance for them could have a material adverse effect on the Company's
business and results of operations.
The markets for digital media editing and production systems are intensely
competitive and subject to rapid change. The Company encounters competition in
the film, video and audio production and post-production, television broadcast
news, and multimedia tools markets, including the corporate and industrial user
market. Many current and potential competitors of the Company have substantially
greater financial, technical and marketing resources than the Company. Such
competitors may use these resources to lower their product costs and thus be
able to lower prices to levels at which the Company could not operate
profitably. Further, such competitors may be able to develop products comparable
or superior to those of the Company or adapt more quickly than the Company to
new technologies or evolving customer requirements. Accordingly, there can be no
assurance that the Company will be able to compete effectively in its target
markets or that future competition will not adversely affect its business and
results of operations.
The Company is involved in various legal proceedings, including patent and
securities litigation; an adverse resolution of any such proceedings could have
a material adverse effect on the Company's business and results of operations.
See Item 3. "LEGAL PROCEEDINGS," and Note K to Consolidated Financial
Statements.
AVID TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
AVID TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
Report of Independent Accountants................................ 23
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994............................... 24
Consolidated Balance Sheets as of December 31, 1996 and 1995..... 25
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994......................... 26
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994............................... 27
Notes to Consolidated Financial Statements....................... 28
Consolidated Financial Statement Schedule for the years ended
December 31, 1996, 1995 and 1994 included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts F-1
Schedules other than that listed above have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Avid Technology, Inc.:
We have audited the consolidated balance sheets of Avid Technology, Inc. as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. We also audited the financial statement
schedule of Avid Technology, Inc. listed in Item 14(d) of this Form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Avid Technology,
Inc. as of December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1997
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Year Ended December 31,
-----------------------------------
1996 1995 1994
------- ------- -------
Net revenues $429,009 $406,650 $233,633
Cost of revenues 238,808 198,841 108,057
------- ------- -------
Gross profit 190,201 207,809 125,576
Operating expenses:
Research and development 69,405 53,841 28,223
Marketing and selling 127,006 107,780 61,366
General and administrative 24,203 18,085 12,575
Nonrecurring costs 28,950 5,456
------- ------- -------
Total operating expenses 249,564 185,162 102,164
------- ------- -------
Operating income (loss) (59,363) 22,647 23,412
Interest and other income 3,786 2,216 1,801
Interest expense (370) (836) (126)
------- ------- -------
Income (loss) before income taxes (55,947) 24,027 25,087
Provision for (benefit from) income taxes (17,903) 8,588 7,294
------- ------- -------
Net income (loss) $(38,044) $15,439 $17,793
======== ======= =======
Net income (loss) per common share $(1.80) $0.77 $0.99
Weighted average common and common
equivalent shares outstanding 21,163 20,165 17,921
The accompanying notes are an integral part of the consolidated financial
statements.
AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
1996 1995
ASSETS ------------ -----------
Current assets:
Cash and cash equivalents $75,795 $32,847
Marketable securities 17,248 17,543
Accounts receivable, net of allowances of $7,519
and $6,472 in 1996 and 1995, respectively 86,187 107,859
Inventories 28,359 63,387
Deferred tax assets 15,852 13,006
Prepaid expenses 6,310 4,907
Other current assets 1,947 3,404
------------ ------------
Total current assets 231,698 242,953
Marketable securities 997 30,102
Property and equipment, net 49,246 48,992
Long-term deferred tax assets 15,538 -
Other assets 3,500 9,557
------------ ------------
Total assets $300,979 $331,604
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $25,332 $29,836
Current portion of long-term debt 1,726 1,781
Accrued compensation and benefits 9,085 7,192
Accrued expenses 21,844 13,595
Income taxes payable 3,258 6,171
Deferred revenues 25,133 22,118
------------ ------------
Total current liabilities 86,378 80,693
------------ ------------
Long-term debt, less current portion 1,186 2,945
Commitments and contingencies (Note K)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value, 50,000,000 shares
authorized; 21,338,369 and 20,935,145 shares
issued and outstanding at December 31, 1996
and 1995, respectively 213 209
Additional paid-in capital 212,474 208,918
Retained earnings 1,451 39,495
Cumulative translation adjustment (724) (700)
Net unrealized gains on marketable securities 1 44
------------ -----------
Total stockholders' equity 213,415 247,966
------------ -----------
Total liabilities and stockholders'equity $300,979 $331,604
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
AVID TECHNOLOGY, INC.
Consolidated Statements of Stockholders' Equity
(in thousands, except per share data)
Net
Unrealized Gains
Additional Cumulative (Losses) on Total
Common Stock Paid-in Retained Translation Marketable Stockholders'
Shares Amount Capital Earnings Adjustment Securities Equity
----------------------------------------------------------------------------------------------
Balances at December 31, 1993....... 15,956,988 $160 $103,357 $4,205 $(990) $106,732
Exercise of stock options
and related tax benefits........... 468,365 5 3,812 3,817
Sale of common stock under
Employee Stock Purchase Plan....... 19,991 405 405
Stock issued in connection
with acquisition................... 100,000 1 11 12
Adjustment for duplicate period
due to pooling of interests........ (1,078) (1,078)
Translation adjustment.............. 412 412
Net unrealized losses on
marketable securities.............. $(206) (206)
Net income.......................... 17,793 17,793
----------------------------------------------------------------------------------------------
Balances at December 31, 1994........ 16,545,344 166 107,585 20,920 (578) (206) 127,887
Exercise of stock options and
related tax benefits............... 741,313 7 11,899 11,906
Sale of common stock under
Employee Stock Purchase Plan....... 50,744 1 1,203 1,204
Stock issued in connection
with acquisitions................. 1,522,744 14 85 3,136 3,235
Sale of common stock in a
public offering, net of issuance
costs of $560...................... 2,075,000 21 88,146 88,167
Translation adjustment.............. (122) (122)
Net unrealized gains on
marketable securities.............. 250 250
Net income.......................... 15,439 15,439
----------------------------------------------------------------------------------------------
Balances at December 31, 1995....... 20,935,145 209 208,918 39,495 (700) 44 247,966
Exercise of stock options........... 260,055 3 1,185 1,188
Sale of common stock under
Employee Stock Purchase Plan....... 143,169 1 2,371 2,372
Translation adjustment.............. (24) (24)
Net unrealized losses on
marketable securities.............. (43) (43)
Net loss............................ (38,044) (38,044)
----------------------------------------------------------------------------------------------
Balances at December 31, 1996....... 21,338,369 $213 $212,474 $1,451 $(724) $1 $213,415
==============================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Year Ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(38,044) $15,439 $17,793
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Adjustment for duplicate period due to pooling of interests (1,078)
Depreciation and amortization 29,641 19,539 10,980
Provision for accounts receivable allowances 6,627 3,006 2,007
Deferred income taxes (18,384) (8,158) (820)
Tax benefit of stock option exercises 6,023 1,978
Provision for product transition costs and nonrecurring
inventory write-offs, non-cash portion 18,750
Provision for other nonrecurring costs, non-cash portion 7,048
Loss (gain) on disposal of equipment 1,410 (80) (4)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 13,836 (51,877) (22,445)
Inventories 14,479 (31,648) (11,606)
Prepaid expenses and other current assets 147 1,271 (5,537)
Accounts payable (3,819) 11,559 10,817
Income taxes payable (3,206) 1,747 2,079
Accrued expenses 9,107 7,062 3,191
Deferred revenues 3,356 6,825 6,253
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 40,948 (19,292) 13,608
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (2,295) (3,570) (1,057)
Purchases of property, equipment and other assets (28,219) (42,410) (22,859)
Purchases of marketable securities (29,430) (68,911) (30,096)
Proceeds from sales of marketable securities 58,786 50,152 29,950
Payments for acquisitions, net of cash acquired (2,150)
Proceeds from disposal of equipment 1,550 423 13
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 392 (64,316) (26,199)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 3,702
Payments of long-term debt (2,000) (2,148) (1,182)
Proceeds from issuance of common stock 3,560 95,353 2,256
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,560 93,205 4,776
Effects of exchange rate changes on cash and cash equivalents 48 (5) 216
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 42,948 9,592 (7,599)
Cash and cash equivalents at beginning of year 32,847 23,255 30,854
-------- -------- --------
Cash and cash equivalents at end of year $75,795 $32,847 $23,255
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
FOR THE YEAR ENDED 1996:
Acquisition of equipment under capital lease obligations, $186
FOR THE YEAR ENDED 1995:
Acquisition of equipment under capital lease obligations, $2,719
Issuance of common stock in connection with acquisitions, $99
The accompanying notes are an integral part of the consolidated financial
statements.
AVID TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND OPERATIONS
Avid Technology, Inc. ("Avid" or "the Company") develops, markets, sells, and
supports a wide range of disk-based systems for creating and manipulating
digital media content. Avid's digital, nonlinear video and film editing systems
are designed to improve the productivity of video and film editors by enabling
them to edit moving pictures and sound in a faster, easier, more creative, and
more cost-effective manner than traditional analog tape-based systems. Avid also
develops and sells digital editing systems and newsroom computer systems for
creating content in the television broadcast news market and digital news
gathering ("DNG") systems for delivering news content to air. Avid develops and
sells digital audio systems for the music and audio production and
post-production markets. Avid's products are used worldwide in production and
post-production facilities; film studios; network, affiliate, independent and
cable television stations; recording studios; advertising agencies; government
and educational institutions; and corporate video departments. The Company's
digital editing systems have accounted for the majority of the Company's
revenues to date.
As described in Note O, in January 1995, Avid effected a merger with Digidesign,
Inc. (Digidesign). Digidesign designs, assembles, markets, and supports random
access digital audio production software and related application-specific
hardware components, some of which are used in Avid products. The merger has
been accounted for as a pooling of interests and the historical consolidated
financial statements of Avid Technology, Inc. for all periods prior to the
acquisition presented herein have been restated to include the financial
position, results of operations and cash flows of Digidesign.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated. Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
The Company's preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates included in these financial statements
include accounts receivable and sales allowances, inventory valuation and income
tax valuation allowances. Actual results could differ from those estimates.
Translation of Foreign Currencies
The functional currency of the Company's foreign subsidiaries is the local
currency, except for the Irish manufacturing branch and Avid Technology Sales
Ltd. in Ireland, whose functional currencies are the U.S. dollar. The assets and
liabilities of the subsidiaries whose functional currencies are other than the
U.S. dollar are translated into U.S. dollars at the current exchange rate in
effect at the balance sheet date. Income and expense items are translated using
the average exchange rate during the period. Cumulative translation adjustments
are reflected as a separate component of stockholders' equity. Foreign currency
transaction gains and losses are included in results of operations.
The Company enters into foreign exchange forward contracts to hedge the effect
of certain asset and liability positions of its foreign subsidiaries. Gains and
losses associated with currency rate changes on the contracts are recorded in
results of operations, offsetting losses and gains on the related assets and
liabilities. The cash flows related to the gains and losses of foreign currency
forward contracts are classified in the statements of cash flows as part of cash
flows from operations. The market risk exposure from forward contracts is
assessed in light of the underlying currency exposures and is limited by the
term of the Company's contracts, generally one month. Credit risk from forward
contracts is minimized through the placement of contracts with multiple
financial institutions. Forward contracts are revalued monthly by comparing
contract rates to month-end exchange rates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or fewer to be cash equivalents. Cash
equivalents consist primarily of taxable and tax-exempt money market funds,
bankers' acceptances, short-term time deposits, short-term government
obligations, and commercial paper.
Marketable Securities
Marketable securities, consisting primarily of state and municipal bonds and
commercial paper, represent investment of funds available for sale to fund the
operations of the Company. Certain of these marketable securities have a
maturity in excess of one year and are classified as long-term investments in
marketable securities. The Company has classified its debt securities as
"available for sale," and reports them at fair value, with unrealized gains and
losses excluded from earnings and reported as an adjustment to stockholders'
equity.
Inventories
Inventories, principally purchased components, are stated at the lower of cost
(determined on a first-in first-out basis) or market value. Inventory in the
digital media market, including the Company's inventory, is subject to rapid
technological change or obsolescence; therefore utilization of existing
inventory may differ from the Company's estimates.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful life of the asset. Leasehold
improvements are amortized over the shorter of the useful life of the
improvement or the remaining term of the lease. Expenditures for maintenance and
repairs are expensed as incurred. Upon retirement or other disposition of
assets, the cost and related accumulated depreciation are eliminated from the
accounts and the resulting gain or loss is reflected in income. A significant
portion of the property and equipment is subject to rapid technological
obsolescence; as a result, the depreciation and amortization periods could
ultimately shorten to reflect the change in future technology.
Revenue Recognition
Revenue is recognized upon product shipment, provided that no significant vendor
obligations remain outstanding and the resulting receivable is deemed
collectible by management. In instances where product ships with the commitment
to provide a future upgrade or extended installation services, the Company will
defer the revenue related to the upgrade or installation. In addition, the
Company may offer rebates on certain products from time to time which are
accounted for as offsets to revenues upon shipment. Maintenance revenue is
recognized ratably over the term of the maintenance agreement. Service revenue,
principally training, is recognized as the services are provided. Included in
accounts receivable allowances are sales allowances provided for expected
returns and credits and an allowance for bad debts.
Warranty Expense
The Company provides a warranty reserve at the time of sale for the estimated
costs to repair or replace defective hardware products.
Research and Development Costs
Research and development costs are expensed as incurred except for costs of
internally developed or externally purchased software that qualify for
capitalization. Capitalized costs are amortized using the straight-line method
upon general release, over the expected life of the related products, generally
12 to 24 months. The straight-line method generally results in approximately the
same amount of expense as that calculated using the ratio that current period
gross product revenues bear to total anticipated gross product revenues. The
Company evaluates the net realizable value of capitalized software on an ongoing
basis, relying on a number of business and economic factors which could result
in shorter amortization periods.
Income Taxes
The Company utilizes the asset and liability approach of accounting for income
taxes, pursuant to which deferred income taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Tax credits are treated as reductions of
income taxes in the year in which the credits are utilized for income tax
purposes. U.S. taxes have not been provided for undistributed earnings of
foreign affiliates which have been permanently reinvested in those operations.
Valuation allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Computation of Net Income (Loss) Per Common Share
Net income per common share is based upon the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are included in the per share calculations where the effect of their
inclusion would be dilutive. Net loss per common share is based upon the
weighted average number of common shares outstanding during the period. Common
equivalent shares result from the assumed exercise of outstanding stock options,
the proceeds of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method. Fully diluted net
income per share is not materially different from the reported primary net
income per share for all periods presented.
C. MARKETABLE SECURITIES
Gross realized and unrealized gains and losses for the years ended December 31,
1996 and 1995 were immaterial. The amortized cost, including accrued interest,
and fair value of marketable securities as of December 31, 1996 and 1995 are as
follows (in thousands):
Gross Gross
Unrealized Unrealized Fair
Amortized Holding Holding Value
Cost Gains Losses
-------- ------------- ---------- ------
1996
Federal, State, and Municipal
Obligations...................... $11,465 $1 $3 $11,463
Commercial paper................. 6,779 3 6,782
-------- ------- ------- -------
$18,244 $4 $3 $18,245
======== ======= ======= =======
1995
Federal, State, and Municipal
Obligations...................... $47,601 $51 $7 $47,645
======= ======= ======= =======
The maturities of marketable securities held at December 31, 1996, are as
follows (in thousands):
Fair
Amortized Cost Value
--------------- ---------------
Within one year.................... $17,247 $17,248
After one year, within five years.. 997 997
--------------- ---------------
$18,244 $18,245
=============== ===============
D. INVENTORIES
Inventories consist of the following (in thousands):
DECEMBER 31,
1996 1995
-------- --------
Raw materials........................ $19,182 $55,690
Work in process...................... 870 1,355
Finished goods....................... 8,307 6,342
--------- ---------
$28,359 $63,387
========= =========
E. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized purchased and internally developed software costs, included in other
assets at December 31, 1996 and 1995, consist of the following (in thousands):
DECEMBER 31,
1996 1995
-------- -------
Capitalized software development costs. $6,322 $4,856
Less accumulated amortization.......... 4,595 1,744
-------- -------
$1,727 $3,112
======== ========
Computer software costs capitalized during 1996, 1995, and 1994 amounted to
approximately $2,295,000, $3,570,000, and $1,057,000, respectively. Amortization
of computer software costs during those periods was approximately $3,185,000,
$1,220,000, and $466,000, respectively. During 1996, as part of the nonrecurring
costs, described in Note N, capitalized software costs of $829,000 and
accumulated amortization of $334,000 were written off.
F. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
Depreciable DECEMBER 31,
LIFE 1996 1995
--------- ------------ ---------
Computer and video equipment........ 3 to 5 years $68,171 $61,085
Office equipment.................... 3 to 5 years 4,233 4,601
Furniture and fixtures.............. 3 to 5 years 6,915 4,800
Leasehold improvements.............. 3 to 10 years 12,962 10,404
-------- --------
92,281 80,890
Less accumulated depreciation and amortization 43,035 31,898
-------- --------
$49,246 $48,992
======== ========
As of December 31, 1996 and 1995 included in property and equipment is
approximately $6,607,000 and $6,421,000 of equipment under capital leases.
G. LONG TERM DEBT
Capital Leases
As of December 31, 1996, future minimum lease payments under capital leases were
as follows (in thousands):
YEAR AMOUNT
----- --------
1997...................................... $1,846
1998...................................... 831
1999...................................... 412
--------
Total minimum lease payments.............. 3,089
Less amounts representing interest........ 177
--------
Present value of minimum lease payments... 2,912
Less current portion of long-term debt.... 1,726
--------
$1,186
========
Total cash payments for interest in 1996, 1995, and 1994 were approximately
$311,000, $741,000, and $98,000, respectively.
Capital Leases
During November 1994 and January 1995, the Company entered into equipment
financing arrangements with a bank for aggregate borrowings of up to
$10,000,000, at various interest rates (ranging from 4.6% to 8.1%) determined at
the borrowing date. This equipment financing arrangement expired in March 1996
and was not renewed. As of December 31, 1996 and 1995, $2,912,000 and
$4,726,000, respectively were outstanding as capital leases under these
arrangements. Borrowings are collateralized by certain assets of the Company.
Line of Credit
In 1995, the Company entered into an unsecured line of credit agreement with a
group of banks which provided for up to $50,000,000 in revolving credit. The
original expiration date of June 30, 1996 has been extended to June 28, 1997.
Under the terms of the agreement, as amended in June 1996, the Company may
borrow up to $35,000,000. The Company must pay a quarterly commitment fee,
calculated based on the debt service ratio of the Company and ranges from .25%
to .40% on the $35,000,000 line. The interest rate to be paid on any outstanding
borrowings is contingent upon the financial performance of the Company and
ranges from LIBOR plus 1.25% to LIBOR plus 1.75%. Additionally, the Company is
required to maintain certain financial ratios and covenants over the life of the
agreement, including a restriction on the payment of dividends. The Company had
no borrowings against this facility as of December 31, 1996.
Two of the Company's European subsidiaries have unsecured overdraft facilities
that permit aggregate borrowings of $200,000 and DM800,000. No borrowings were
outstanding under these facilities as of December 31, 1996.
H. INCOME TAXES
Income (loss) before income taxes and the components of the income tax provision
for the years ended December 31, 1996, 1995, and 1994 are as follows (in
thousands):
1996 1995 1994
--------- --------- ---------
Income (loss) before income taxes:
United States........................ $(61,242) $5,582 $16,386
Foreign.............................. 5,295 18,445 8,701
---------- -------- ---------
Total income (loss) before income taxes $(55,947) $24,027 $25,087
========== ========= ========
Provisions for (benefit from)
income taxes
Current tax expense:
Federal.............................. $(3,235) $7,433 $5,072
Foreign.............................. 3,189 5,487 1,961
State................................ (16) 1,094 1,034
--------- --------- --------
Total current........................ (62) 14,014 8,067
Deferred tax benefit:
Federal.............................. (15,820) (4,968) (628)
Foreign.............................. - (32) (76)
State................................ (2,021) (426) (69)
--------- ---------- ---------
Total deferred....................... (17,841) (5,426) (773)
--------- ---------- ---------
Total income tax provision (benefit) $(17,903) $8,588 $7,294
========= ========== ========
Cash payments for income taxes in 1996, 1995, and 1994 were approximately
$4,911,000, $7,927,000, and $3,754,000 respectively.
The cumulative amount of undistributed earnings of subsidiaries which is
intended to be permanently reinvested and for which income taxes have not been
provided totaled $29,579,000 at December 31, 1996.
Deferred tax assets are comprised of the following (in thousands):
December 31,
--------------------
1996 1995
------- --------
Net foreign operating loss carry-forwards....... $222
Allowances for accounts receivable.............. $1,406 1,681
Difference in accounting for:
Revenue....................................... 2,440 1,629
Costs and expenses............................ 6,764 2,826
Inventories................................... 4,650 4,422
Purchased technology.......................... 324 605
Deferred intercompany profit.................... 589 582
Federal tax return carryforwards................ 15,538 1,316
Other........................................... (321) (55)
Valuation allowance............................. (222)
-------- --------
Net deferred tax assets....................... $31,390 $13,006
======== ========
For U.S. Federal Income Tax purposes at December 31, 1996, the Company has tax
credit carryforwards of approximately $3,700,000 which will expire between 1997
and 2011 and a net operating loss carryforward of approximately $33,500,000
which will expire in 2011. Deferred tax assets reflect the net tax effects of
the tax credit and operating loss carryforwards and temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Although realization is
not assured, management believes it is more likely than not that all of the
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced. At December 31, 1995, the Company placed a
valuation allowance against certain of its foreign deferred tax assets due to
the uncertainty surrounding their realization.
A reconciliation of the Company's income tax provision (benefit) to the
statutory federal tax rate follows:
1996 1995 1994
------- -------- ------
Statutory rate ............................. (35%) 35% 35%
Nondeductible merger costs ................. 6
Tax Credits ................................ (1) (3) (3)
Foreign taxes and losses not benefited ..... 4 (2) (4)
State taxes, net of federal benefit ........ (2) 2 2
Municipal bond interest .................... (2) (1)
Foreign sales corporation .................. (1) (2)
Other ...................................... 2 1 2
----- ----- ------
(32%) 36% 29%
===== ===== =====
Consolidated results of operations include results of manufacturing operations
in Ireland. Income from the sale of products manufactured or developed in
Ireland is subject to a 10% Irish tax rate through the year 2010. The favorable
Irish tax rate resulted in tax benefits of approximately $1,300,000 in 1995 and
$1,400,000 in 1994. The 1996 Irish tax benefit was immaterial to the results of
operations. The 1995 and 1994 per share tax benefits were $0.06 and $0.07,
respectively.
I. CAPITAL STOCK
Preferred Stock
The Company is authorized to issue up to one million shares of Preferred Stock,
$.01 par value per share. Each such series of Preferred Stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges, and liquidation
preferences as shall be determined by the Board of Directors.
In February 1996, the Board of Directors approved a Shareholder Rights Plan. The
rights were distributed in March 1996 as a dividend at the rate of one right for
each share of Common Stock outstanding. No value has been assigned to these
rights. The rights may be exercised to purchase shares of a new series of $.01
par value junior participating preferred stock or to purchase a number of shares
of the Company's Common Stock which equals the exercise price of the right, $115
divided by one-half of the then-current market price, upon occurrence of certain
events, including the purchase of 20% or more of the Company's Common Stock by a
person or group of affiliated or associated persons. The rights expire on
February 28, 2006, and may be redeemed by the Company for $.01 each at any time
prior to the tenth day following a change in control and in certain other
circumstances.
Common Stock
In January 1995, the Company increased its authorized number of shares of Common
Stock to 50,000,000. Effective with the merger between Avid and Digidesign, all
issued and outstanding shares of Digidesign Common Stock were converted into the
right to receive Avid Common Stock at an exchange ratio of .79.
In September 1995, the Company issued 2,000,000 shares of its Common Stock
through a public offering. The Company issued an additional 75,000 shares in
October 1995 as the underwriters exercised a portion of their over-allotment
option. Proceeds to the Company totaled approximately $88,167,000, net of
expenses and underwriters' commissions associated with the offering.
J. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLANS
1991 Profit Sharing Plan
The Company has a profit sharing plan under section 401(k) of the Internal
Revenue Code covering substantially all U.S. employees. The plan allows
employees to make contributions up to a specified percentage of their
compensation. The Company may, upon resolution by the Board of Directors, make
discretionary contributions to the plan. No discretionary contributions had been
made as of December 31, 1995. Effective January 1, 1996, the Company began
contributing 33% of up to the first 6% of an employee's salary contributed to
the plan by the employee. The Company's contributions to this plan totaled
$946,000 in 1996.
In addition, the Company has various retirement plans covering certain European
employees. Certain of the plans require the Company to match employee
contributions up to a specified percentage as defined by the plans. The Company
made contributions of approximately $400,000, $302,000, and $123,000 in 1996,
1995, and 1994, respectively.
1997 Profit Sharing Plan
In January 1997, the Board of Directors approved the 1997 Profit Sharing Plan
(the Plan). The Plan, effective January 1, 1997, covers substantially all
employees of the Company and its participating subsidiaries, other than those
employees covered by other incentive plans. The Plan provides that the Company
contribute a varying percentage of salary (0% to 10%) based on the Company's
achieved target of return on invested capital in 1997, as defined by the Plan.
STOCK PLANS
1989 Stock Option Plan
The 1989 Stock Option Plan (the "1989 Plan") allows for the issuance of
incentive and non-qualified stock options to purchase the Company's Common
Stock. Incentive stock options may not be granted at less than the fair market
value of the Company's Common Stock at the date of grant and are exercisable for
a term not to exceed ten years. For holders of 10% or more of the total combined
voting power of all classes of the Company's stock, options may not be granted
at less than 110% of the fair market value of the Common Stock at the date of
grant, and the option term may not exceed 5 years. In connection with the
establishment of the 1993 Stock Incentive Plan, the 1989 Plan was amended to
provide that, subject to certain exceptions, no further options or awards could
be issued thereunder.
1991 Stock Option Plan
Digidesign had an employee stock option plan whereby an aggregate of 1,500,000
shares of common stock were reserved for issuance. Effective upon the
acquisition by Avid, the stock option agreements were assigned to Avid and Avid
registered the 670,884 shares, equivalent to the number of options outstanding,
taking into effect the exchange ratio of .79 shares of Avid Common Stock for
each share of Digidesign Common Stock. Under the plan, options may be granted to
employees, directors, consultants, and advisors to the Company. Incentive stock
options may be granted at prices not lower than fair market value, as
established by the Board of Directors on the date of grant. Non-qualified stock
options may be granted at not less than 85% of fair market value, as established
by the Board of Directors on the date of grant. Avid has not granted any options
under this plan. The options expire in a maximum of ten years and may be either
incentive stock options or non-qualified stock options, determined at the
discretion of the Board of Directors. Options are immediately exercisable,
subject to a right of repurchase which generally lapses as to 25% of the subject
shares on the first anniversary of the vesting commencement date, and as to an
additional 2.083% for each succeeding full month of continuous employment.
1993 Stock Incentive Plan
Under the 1993 Stock Incentive Plan (the "1993 Plan"), a maximum of 800,000
shares of Common Stock may be issued upon exercise of incentive stock options or
non-qualified stock options, or in connection with awards of restricted stock
grants, stock appreciation rights or performance shares. The terms of the
incentive stock options granted under this plan are substantially the same as
for those granted under the 1989 Plan. The options generally vest ratably over a
four-year period.
1993 Director Stock Option Plan
The 1993 Director Stock Option Plan (the "Director Plan"), as amended April 12,
1996, provides for the grant of options to purchase up to a maximum of 220,000
shares of Common Stock of the Company to non-employee directors of the Company,
at an exercise price equal to the fair market value of the stock on the date of
grant. Certain options vest immediately whereas other options vest ratably over
a four-year period from the date of grant.
1994 Stock Option Plan
The 1994 Stock Option Plan, as amended on February 12, 1996, allows for the
issuance of incentive and non-qualified options to purchase up to a maximum of
2,400,000 shares of the Company's Common Stock. The terms of the options granted
under this plan are essentially the same as for those granted under the 1989
Plan.
1997 Stock Incentive Plan
In February 1997, the Board of Directors approved the 1997 Stock Incentive Plan.
This plan, which is subject to shareholder approval, covers employees,
consultants, and directors of the Company, and allows for the issuance of
incentive and non-qualified stock options and restricted stock grants to
purchase the Company's Common Stock. An aggregate of 1,000,000 shares of Common
Stock are reserved for issuance under the plan including up to 500,000 shares of
restricted stock which may be issued pursuant to the plan.
Employee Stock Purchase Plan
On July 31, 1996, the 1993 Employee Stock Purchase Plan (the "1993 Purchase
Plan") expired and was replaced with the 1996 Employee Stock Purchase Plan. The
1996 Employee Stock Purchase Plan authorizes the issuance of a maximum of
200,000 shares of Common Stock in semi-annual offerings at a price equal to the
lower of 85% of the closing price on the applicable offering commencement date
or 85% of the closing price on the applicable offering termination date.
The Company has seven stock-based compensation plans, which are described above.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which is effective for periods beginning after December 15, 1995.
SFAS No. 123 requires that companies either recognize compensation expense for
grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosures of net income and earnings per share in
the notes to the financial statements. The Company has adopted the pro forma
disclosure provisions of SFAS No. 123 effective in 1996 and has applied
Accounting Principles Board Opinion 25 "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for its plans. Accordingly,
no compensation expense has been recognized for the stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for the awards under these
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's net income (loss) and earnings per share would have been reduced to
the pro forma amounts indicated below:
1996 1995
--------------------------------- -----------------------------
Net Income Earnings per Net Income Earnings per
(Loss) Share Share
--------------- --------------- --------------- ------------
As Reported $(38,044) $(1.80) $15,439 $0.77
=============== =============== =============== ============
Pro Forma $(46,400) $(2.19) $10,889 $0.53
=============== =============== =============== ============
The fair value of each option granted during 1996 and 1995 is estimated on the
date of grant using the Black-Scholes option-pricing model utilizing the
following weighted-average assumptions: (1) zero-coupon U.S. government issues
with interest rates of 6.05% and 6.26%, for 1996 and 1995 respectively, (2)
expected option life from vesting of 17 months, (3) expected stock volatility of
58.31%, and (4) expected dividend yield of 0.0%.
The fair value of the employee stock purchase plans periods during 1996 and 1995
is estimated on the date of the purchase using the Black-Scholes option-pricing
model utilizing the following weighted average assumptions: (1) expected life of
6 months, (2) expected volatility of 58.31%, and (3) expected dividend yield of
0.0%. The risk-free interest rate used in determining the fair value of the
plans was determined to be the rate on a zero-coupon six month U.S. Government
issue on the first day of the offering period for each of the four plan periods.
These interest rates ranged from 4.97% to 6.21%. The amount of compensation
expense, net of income taxes related to the Employee Stock Purchase plans,
included in the pro forma net income (loss) and earnings per share detailed
above, is approximately $626,000 and $837,000 for 1996 and 1995 respectively.
Information with respect to options granted under all stock option plans is as
follows:
1996 1995 1994
------------------- -------------------- ---------
Wtd Avg. Wtd Avg.
Price Price
Shares Per Share Shares Per Share Shares
--------- --------- ---------- --------- ----------
Options outstanding at
beginning of year January 1, 2,986,595 $21.59 2,956,569 2,746,530
Granted 2,273,398 $17.01 1,105,040 $33.60 744,974
Exercised (260,055) $4.56 (741,313) $8.03 (399,082)
Canceled (1,452,582) $30.55 (333,701) $26.26 (135,853)
----------- ----------- -----------
Options outstanding at
end of year December 31, 3,547,356 $16.18 2,986,595 $21.59 2,956,569
========== ====== ========== ====== ==========
Options exercisable at
December 31, 1,237,924 999,602 622,014
========== ========== ==========
Options available for
future grant at December 31, 866,759 821,801 846,825
========== ========== ==========
Weighted average fair value of
options granted during the year $6.93 $15.59
========== ==========
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options
Options Outstanding Exercisable
- ------------------------------------------------------------------- -------------------------
Weighted-Average
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
- ------------------ ------------- -------------- --------------- ------------ ----------------
$0.0100 to $13.0000 782,724 6.26 $8.3925 635,078 $7.4797
$13.2500 to $15.1900 165,770 9.01 $14.2683 57,370 $15.0698
$15.6600 to $16.5000 1,389,293 9.16 $16.4836 45,980 $16.4147
$16.6875 to $19.6250 730,870 8.20 $18.5272 285,121 $17.6826
$19.7500 to $46.7500 478,699 8.03 $24.6290 214,375 $25.9562
--------- ---------
$0.0100 to $46.7500 3,547,356 8.16 $16.1179 1,237,924 $13.7129
========= ==== ======== ========= ========
On February 12, 1996, the Board of Directors authorized all option agreements
that granted options under the 1994 Stock Option Plan at an exercise price
greater or equal to $28.48 to be eligible to be exchanged for options with an
exercise price at the then fair market value of $16.50 per share and a first
vest date of February 21, 1997. This cancellation and reissuance of stock
options affected approximately 860,000 options.
K. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office space and certain equipment under non-cancelable
operating leases. The future minimum lease commitments under these
non-cancelable leases at December 31, 1996 are as follows (in thousands):
1997...................................... $12,019
1998...................................... 10,208
1999...................................... 8,613
2000...................................... 8,453
2001...................................... 4,616
Thereafter............................... 35,942
---------
Total..................................... $79,851
=========
The Company's two leases for corporate office space in Tewksbury, Massachusetts,
and the lease for the Company's Burbank, California sales and support office,
expiring September 2000, June 2010 and January 2007, respectively, all contain
renewal options to extend the respective terms for an additional 60 months.
The accompanying consolidated results of operations reflect rent expense on a
straight-line basis over the term of the leases. Total rent expense under
non-cancelable operating leases was approximately $11,425,000, $6,818,000, and
$3,612,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Purchase Commitments
During 1994, the Company entered into a development and manufacturing licensing
agreement with an unrelated company. Included in prepaid expenses at December
31, 1995 are approximately $500,000 of refundable prepaid purchases related to
this agreement. This agreement may be terminated by either party, as defined.
The Company currently buys certain key components used in its products from sole
source suppliers. These components are purchased through purchase orders placed
from time to time. The Company generally does not carry significant inventories
of these sole source components and has no guaranteed supply arrangements for
them. These purchasing arrangements can result in delays in obtaining products
from time to time. While the Company believes that alternative sources of supply
for its sole source components could be developed, its business and results of
operations could be adversely affected if it were to encounter an extended
interruption in its source of supply.
Accounts Sold with Recourse
The Company from time to time sells systems to unrelated financial institutions
which lease such systems to end-user customers. In certain of these
transactions, the Company accepts varying amounts of recourse from such
unrelated third-party lessors. At December 31, 1996 and 1995, the third party
lessors' uncollected balance of lease receivables with recourse totaled
approximately $22,565,000 and $10,700,000, respectively with approximately
$7,964,000 and $3,470,000, respectively of associated recourse to Avid. Included
in the Company's accrued expenses are provisions for estimated losses under such
recourse agreements. To date, the Company has experienced no significant
write-offs or returns under such recourse agreements.
Research and Development Contracts
During 1995, the Company entered into research and development contracts with
third parties under which it received $4.3 million to be used in the development
of certain specified products. Approximately $2,900,000 was recorded as a
reduction of the related development costs during 1995. At December 31, 1995,
$1,400,000 was included in accrued expenses due to the status of related product
development and other terms of the underlying contracts. The Company granted to
such third parties, among other things, discounted pricing on the products
developed. At December 31, 1996 $179,000 remained in accrued expenses.
Contingencies
On June 7, 1995, the Company filed a patent infringement complaint in the United
States District Court for the District of Massachusetts against Data
Translation, Inc., a Marlboro, Massachusetts-based company. Avid is seeking
judgment against Data Translation that, among other things, Data Translation has
willfully infringed Avid's patent number 5,045,940, entitled "Video/Audio
Transmission System and Method." Avid is also seeking an award of treble damages
together with prejudgment interest and costs, Avid's costs and reasonable
attorneys' fees, and an injunction to prohibit further infringement by Data
Translation. The litigation has been temporarily stayed pending a decision by
the U.S. Patent and Trademark Office on a reissue patent application based on
the issued patent.
In December 1995, six purported shareholder class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company and certain of its underwriters and officers and directors as
defendants. On July 31, 1996, the six actions were consolidated into two
lawsuits: one brought under the 1934 Securities Exchange Act (the "`34 Act
suit") and one under the 1933 Securities Act (the "`33 Act suit"). Principal
allegations contained in the two complaints include claims that the defendants
violated federal securities laws and state common law by allegedly making false
and misleading statements and by allegedly failing to disclose material
information that was required to be disclosed, purportedly causing the value of
the Company's stock to be artificially inflated. The `34 Act suit was brought on
behalf of all persons who bought the Company's stock between July 26, 1995 and
December 20, 1995. The `33 Act suit was brought on behalf of persons who bought
the Company's stock pursuant to its September 21, 1995 public offering. Both
complaints seek unspecified damages for the decline of the value of the
Company's stock during the applicable period. A motion to dismiss both the `34
Act and the `33 Act suit was filed on October 18, 1996. Plaintiffs filed
oppositions to both motions on December 13, 1996. The defendants' Reply Briefs
were filed and the Court heard oral argument on all pending motions on January
28 and 29, 1997. Both motions have been taken under advisement by the court.
Although the Company believes that it and the other defendants have meritorious
defenses to the allegations made by the plaintiffs and intends to contest these
lawsuits vigorously, an adverse resolution of this litigation could have a
material adverse effect on the Company's consolidated financial position or
results of operations in the period in which the litigation is resolved. A
reasonable estimate of the Company's potential loss for damages cannot be made
at this time. No costs have been accrued for this possible loss contingency.
On March 11, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, the suit was transferred to the United States
District Court for the Southern District of New York on motion by the Company.
The complaint alleges infringement by Avid of U.S. patent number 4,258,385,
issued in 1981, and seeks injunctive relief, treble damages and costs, and
attorneys' fees. The Company believes that it has meritorious defenses to the
complaint and intends to contest it vigorously. However, an adverse resolution
of this litigation could have an adverse effect on the Company's consolidated
financial position or results of operations in the period in which the
litigation is resolved.
On April 23, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the District of Massachusetts
by Data Translation, Inc., of Marlboro, Massachusetts. The complaint alleges
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief, treble damages and costs and attorneys' fees. The Company believes that
it has meritorious defenses to the complaint and intends to defend it
vigorously. However, an adverse resolution of this litigation could have an
adverse effect on the Company's consolidated financial position or results of
operations in the period in which the litigation is resolved.
The Company also receives inquiries from time to time with regard to additional
possible patent infringement claims. These inquiries are generally referred to
counsel and are in various stages of discussion. If any infringement is
determined to exist, the Company may seek licenses or settlements. In addition,
from time to time as a normal incidence of the nature of the Company's business,
various claims, charges, and litigation are asserted or commenced against the
Company arising from or related to contractual or employee relations or product
performance. Management does not believe these claims would have a material
adverse effect on the financial position or results of operations of the
Company.
L. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist of temporary cash investments and trade receivables. The
Company places its excess cash in marketable investment grade securities. There
are no significant concentrations in any one issuer of debt securities.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer bases, and
their dispersion across different regions. The Company also maintains reserves
for potential credit losses and such losses have been within management's
expectations.
Forward Exchange Contracts
As of December 31, 1996 and 1995, the Company had approximately $24,738,000 and
$37,087,000, respectively of foreign exchange forward contracts outstanding,
denominated in various European and Asian currencies, the Canadian dollar and
the Australian dollar, as a hedge against its committed exposures. The following
table summarizes the December 31, 1996 currencies and approximate U.S. dollar
amounts involved; the Company is the seller with respect to each contract with
the exception of the Irish pound contract (in thousands):
Approximate
Local Currency U.S. Dollar
Amount Equivalent
----------------- ---------------
Australian Dollar 2,000 $1,589
Singapore Dollar 1,000 716
British Pound 1,000 1,711
Canadian Dollar 1,600 1,176
German Mark 11,000 7,084
Italian Lire 4,200,000 2,745
Irish Pound 900 1,489
French Franc 29,000 5,531
Japanese Yen 309,000 2,697
--------
$24,738
========
The forward exchange contracts generally have maturities of one month. Net gains
(losses) of approximately $968,000, $(687,000), and $107,000 resulting from
foreign exchange contracts were included in results of operations in 1996, 1995,
and 1994, respectively. The fair values of these forward exchange contracts as
of December 31, 1996 and 1995 approximate the contract amounts.
M. GEOGRAPHICAL INFORMATION
A summary of the Company's operations by geographical area for the years ended
December 31, 1996, 1995 and 1994 follows (in thousands):
1996 1995 1994
--------- -------- -------
Net revenues:
North America............................ $283,959 $283,474 $182,230
Asia Pacific and Latin America.......... 36,424 23,365 5,667
Europe................................... 153,311 131,014 64,180
Eliminations of transfers from North
America to other areas.................. (44,685) (31,203) (18,444)
---------- --------- ---------
Total net revenues................... $429,009 $406,650 $233,633
========== ========= ========
Operating income:
North America............................ $(63,451)(1) $11,111 $14,610
Asia Pacific and Latin America.......... (191)(1) 1,480 283
Europe................................... 4,991 (1) 16,732 8,316
Eliminations............................. (712) (6,676)(2) 203
---------- ---------- --------
Total operating income (loss) $(59,363) $22,647 $23,412
========== =========== ========
Identifiable assets:
North America............................ $158,846 $196,143 $112,122
Asia Pacific and Latin America.......... 15,965 20,408 4,294
Europe................................... 49,385 61,412 48,897
Eliminations............................. (17,257) (26,851) (35,030)
--------- --------- ---------
Total identifiable assets............ $206,939 $251,112 $130,283
Corporate assets................... 94,040 80,492 51,891
--------- --------- ---------
Total assets at December 31,.... $300,979 $331,604 $182,174
========= ========== =========
(1) Includes nonrecurring costs, as described in Note N, of $24,248,000,
$632,000, and $4,070,000 recorded in North America, Asia Pacific, Latin
America, and Europe, respectively in 1996.
(2) Includes expenses of $5,456,000 related to merger costs.
Sales outside North America included in North American operations were
approximately $22,477,000, $35,680,000, and $31,317,000 in 1996, 1995, and 1994,
respectively.
Transfers between geographic areas are accounted for at prices which, in
general, provide a profit after coverage of all manufacturing costs.
Identifiable assets are those assets of the Company that are identified with the
operations in each geographic area. Corporate assets are principally cash and
marketable securities.
N. NONRECURRING COSTS
In the first quarter of 1996, the Company recorded a nonrecurring charge of
$20,150,000. Included in this charge was $7,000,000 associated with
restructuring, consisting of approximately $5,000,000 of costs related to staff
reductions of approximately 70 employees, primarily in the U.S., and associated
write-offs of fixed assets, and $2,000,000 related to the decision to
discontinue development of certain products and projects. Included in this
$7,000,000 were approximately $4,976,000 of cash payments consisting of
$3,617,000 of salaries and related severance costs and $1,359,000 of other staff
reduction and discontinued development costs. The non-cash charges of $2,024,000
recorded during 1996 consists primarily of $1,459,000 for the write-off of fixed
assets. Also included in this $20,150,000 nonrecurring charge is $13,150,000
related to product transition costs associated with the transition from NuBus to
PCI bus technology in some of the Company's product lines. As of December 31,
1996, the Company had completed the related restructuring and product transition
actions.
In September 1996, the Company recorded a nonrecurring charge of $8,800,000,
associated primarily with the Company's decision not to release the Avid Media
Spectrum product line. This charge includes costs to write-off inventory, fixed
assets, capitalized software and various other costs associated with the
canceled product line. Approximately $7,200,000 of the charge relates to
non-cash items associated with the write-off of assets. As of December 31, 1996,
$6,600,000 of the charge had been recorded against the liability. The Company
expects that these restructuring actions will be completed by March 31, 1997.
As described in Note O, in connection with the 1995 acquisitions, the Company
incurred merger costs of approximately $5,456,000. Of this amount, approximately
$3,900,000 represents provision for direct transaction expenses, primarily
professional fees, and $1,600,000 consists of various restructuring charges.
O. ACQUISITIONS
In March 1995, the Company acquired Parallax Software Limited and 3 Space
Software Limited, developers of paint and compositing software, and Elastic
Reality, Inc., a developer of special effects software. These transactions,
which were accounted for as poolings of interest, were effected through the
exchange of approximately 1.5 million shares of the Company's Common Stock for
all of the issued and outstanding shares of these entities. The December 31,
1995, accompanying balance sheet and statement of stockholders' equity includes
a retained earnings adjustment for December 31, 1994, retained earnings of the
companies, as the Company's previous years' financial statements have not been
restated. The operations of Parallax Software Limited, 3 Space Software Limited
and Elastic Reality, Inc. are not material to the Company's consolidated
operations.
In January 1995, the Company completed a merger with Digidesign. The merger was
accounted for as a pooling of interests and was effected through the exchange of
approximately 6 million shares of the Company's Common Stock for all of the
issued and outstanding shares of Digidesign based on a merger exchange ratio of
.79 shares of Avid Common Stock for each share of Digidesign Common Stock. The
historical consolidated financial statements for all years prior to the
acquisition have been restated in the consolidated financial statements to
include the financial position, results of operations and cash flows of
Digidesign. Effective January 5, 1995, Digidesign's fiscal year end was changed
from March 31 to December 31 to conform with the Company's year end.
Digidesign's results of operations for the 12-month periods ending December 31,
1994, and March 31, 1994, have been included in the Company's 1994 and 1993
results, respectively. Accordingly, Digidesign's operations for the three months
ended March 31, 1994, are included in the Company's results for both of the
years ended December 31, 1994 and 1993 (when presented). Revenues and net income
for Digidesign for the three months ended March 31, 1994, were $8,510,000 and
$1,078,000, respectively. This net income amount has been reported as an
adjustment to consolidated retained earnings. Revenue and net income for the
individual entities was as follows:
1994
--------
Net revenues
Avid Technology, Inc. $203,668
Digidesign, Inc. 38,652
Adjustments (8,687)
--------
Combined $233,633
========
Net income
Avid Technology, Inc. $12,971
Digidesign, Inc. 5,047
Adjustments (225)
--------
Combined $17,793
========
The adjustments to the historical consolidated financial statements reflect
those necessary to eliminate the effects on the consolidated financial
statements of Digidesign sales to Avid.
On October 1, 1994, the Company acquired certain assets and assumed certain
liabilities of Basys Automation Systems (Basys), a manufacturer of newsroom
automation systems. Basys' revenues were approximately $19,600,000 the year
ended December 31, 1994. The effect of this acquisition on net income is
immaterial. This transaction was accounted for under the purchase method.
Accordingly, the results of Basys are included in the consolidated financial
statements from the acquisition date forward. The purchase price was equal to
fair value of the net assets acquired. Additionally, on October 1, 1994, the
Company acquired SofTECH Systems, Inc. (SofTECH), a developer of newsroom
automation software. This transaction, which was accounted for as a pooling of
interests, was effected through the exchange of shares of Common Stock of the
Company for all the issued and outstanding shares of SofTECH. The operations of
SofTECH are not material to the Company's consolidated operations. The aggregate
consideration for the Basys and SofTECH acquisitions was approximately
$5,000,000 in cash and stock.
P. QUARTERLY RESULTS (UNAUDITED)
This information has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all normal recurring
adjustments necessary for a fair presentation of such information.
In thousands, except per share data:
Quarters Ended
---------------------------------------------------------------------------------------------------
1996 1995
------------------------------------------------ -----------------------------------------------
Dec. Sept. Jun. Mar. Dec. Sept. Jun. Mar.
31 30 30 31 31 30 30 31
------------------------------------------------ ----------------------------------------------
Net revenues.................. $113,211 $114,664 $109,095 $92,039 $109,931 $114,377 $98,447 $83,895
Cost of revenues.............. 66,266(1) 60,670 59,416 52,456 54,722 56,408 47,143 40,568
------------------------------------------------ ----------------------------------------------
Gross profit.................. 46,945 53,994 49,679 39,583 55,209 57,969 51,304 43,327
------------------------------------------------ ----------------------------------------------
Operating expenses:
Research & development...... 17,583 17,569 16,637 17,616 15,657 12,834 13,141 12,209
Marketing & Selling......... 32,182 31,303 33,088 30,433 32,926 27,747 25,449 21,658
General & administrative.... 5,857 6,767 6,081 5,498 5,282 4,459 4,110 4,234
Nonrecurring costs.......... 8,800 20,150 5,456
----------------------------------------------- ----------------------------------------------
Total operating expenses...... 55,622 64,439 55,806 73,697 53,865 45,040 42,700 43,557
----------------------------------------------- -----------------------------------------------
Operating income (loss)....... (8,677) (10,445) (6,127) (34,114) 1,344 12,929 8,604 (230)
Other income, net............. 1,596 523 710 587 660 (53) 408 365
----------------------------------------------- -----------------------------------------------
Income (loss) before
income taxes................. (7,081) (9,922) (5,417) (33,527) 2,004 12,876 9,012 135
Provision for (benefit from)
income taxes................. (2,250) (3,164) (1,760) (10,729) 491 4,122 2,882 1,093
----------------------------------------------- -----------------------------------------------
Net income (loss)............. $(4,831) $(6,758) $(3,657) $(22,798) $1,513 $8,754 $6,130 $(958)
=============================================== ===============================================
Net income (loss)
per common share............. $(.23) $(.32) $(.17) $(1.08) $.07 $.43 $.31 $(.05)
=============================================== ===============================================
Weighted average common
and common equivalent
shares outstanding........... 21,306 21,224 21,104 21,019 22,196 20,344 19,989 18,129
=============================================== ===============================================
High common stock price....... $16.250 $20.500 $25.875 $22.750 $48.750 $47.750 $40.500 $34.000
Low common stock price........ $10.125 $12.375 $17.875 $16.375 $16.750 $37.250 $28.250 $23.000
(1) Includes a non-cash charge of $5.6 million related principally to spare
parts which are no longer required to support the Company's business.
The Company's quarterly operating results fluctuate as a result of a number of
factors including, without limitation, the timing of new product introductions,
marketing expenditures, promotional programs, and periodic discounting due to
competitive factors. The Company's operating results may fluctuate in the future
as a result of these and other factors, including the Company's success in
developing and introducing new products, its products and customer mix and the
level of competition which it experiences. The Company operates with a
relatively small backlog. Quarterly sales and operating results therefore
generally depend on the volume and timing of orders received during the quarter.
The Company's expense levels are based in part on its forecasts of future
revenues. If revenues are below expectations, the Company's operating results
may be adversely affected. Accordingly, there can be no assurance that the
Company will be profitable in any particular quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "EXECUTIVE
OFFICERS OF THE COMPANY" in Part I hereof, and the remainder is contained in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
June 4, 1997 (the "1997 Proxy Statement") under the caption "Election of
Directors" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 1997 Proxy Statement
under the captions "Director's Compensation" and "Executive Compensation" and is
incorporated herein by reference. Information relating to any delinquent filings
of Forms 3, 4 and 5 of the Company is contained in the Company's 1997 Proxy
Statement under the caption "Reports under Section 16(a) of the Exchange Act."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 1997 Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the Company's 1997 Proxy Statement
under the caption "Certain Transactions," and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements are included in Item 8:
- Report of Independent Accountants
- Consolidated Statements of Operation for the years ended December 31,
1996, 1995 and 1994.
- Consolidated Balance Sheets as of December 31, 1996 and 1995.
- Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994.
- Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
- Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule is included in Item
14(d):
Schedule II - Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
(a) 3. LISTING OF EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Amendment of the Third Amended and Restated Certificate
of Incorporation of the Registrant (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on May 15, 1995, File No. 0-21174).
3.2 Third Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant's Registration
Statement on Form S-8 as filed with the Commission on June 9, 1993,
File No. 33-64126).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to the Registrant's Registration Statement on Form S-1 as
declared effective by the Commission on March 11, 1993, File No.
33-57796).
3.4 Certificate of Designations establishing Series A Junior Participating
Preferred Stock (the "Certificate of Designations") (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed with
the Commission on April 1, 1996).
3.5 Certificate of Correction to the Certificate of Designations
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on April 1, 1996).
4.1 Specimen Certificate representing the Registrant's Common Stock
(incorporated by reference to the Registrant's Registration Statement
on Form S-1 as declared effective by the Commission on March 11, 1993,
File No. 33-57796).
4.2 Rights Agreement, dated as of February 29, 1996, between the
Registrant and The First National Bank of Boston, as Rights Agent
(incorporated by reference to the Registrant's Current Report on Form
8-K as filed with the Commission on March 8, 1996, File No. 0-21174).
10.1 Lease Agreement, dated as of April 20, 1992, by and between the
Registrant and Metropolitan Life Insurance Company (incorporated by
reference to the Registrant's Registration Statement on Form S-1 as
declared effective by the Commission on March 11, 1993, File No.
33-57796).
10.2 Second Amendment dated as of March 17, 1994 to Lease dated as of April
20, 1992 as amended by the First Amendment thereto dated September 21,
1992 between Metropolitan Life Insurance Company and Avid Technology,
Inc. (incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q as filed with the Commission on May 13, 1994, File No.
0-21174).
10.3 Lease dated September 29, 1995 between Allied Dunbar Insurance PLC and
Avid Technology Limited (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.4 Lease dated August 30, 1995 between Syntex (U.S.A.) Inc. and Avid
Technology, Inc. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.5 Lease between MGI Andover Street, Inc. and Avid Technology, Inc. dated
March 21, 1995 (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on May 15,
1995, File No. 0-21174).
10.6 Amended and Restated lease dated as of June 7, 1996 between MGI One
Park West, Inc. and Avid Technology, Inc. (incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on August 14, 1996, File No. 0-21174).
10.7 Amended and Restated Revolving Credit Agreement among Avid Technology,
Inc., The First National Bank of Boston, as agent, NationsBank of
Texas, N.A., BayBank and ABN AMRO Bank N.V. dated as of July 1, 1995
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q as filed with the Commission on August 9, 1995, File No.
0-21174).
10.8 First Amendment dated September 30, 1995 to Amended and Restated
Revolving Credit Agreement by and among Avid Technology, Inc., The
First National Bank of Boston, as agent, NationsBank of Texas, N.A.,
BayBank and ABN AMRO Bank N.V. (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on November 14 , 1995, File No. 0-21174).
10.9 Second Amendment dated as of February 28, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.10 Third Amendment dated as of May 8, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.11 Fourth Amendment dated as of June 28, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.12 Fifth Amendment dated as of July 1, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.13 Form of Distribution Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective
by the Commission on March 11, 1993, File No. 33-57796).
10.14 Form of Purchase and License Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
10.15 Form of Software Only License Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.16 1989 Stock Option Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective
by the Commission on March 11, 1993, File No. 33-57796).
#10.17 1993 Stock Option Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective
by the Commission on March 11, 1993, File No. 33-57796).
#10.18 1993 Director Stock Option Plan, as amended (incorporated by
reference to the Registrant's Proxy Statement as filed with the
Commission on April 27, 1995, File No. 02-1174).
#10.19 1993 Executive Compensation Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.20 1993 Employee Stock Purchase Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on June 9, 1993, File No. 33-64130).
#10.21 1994 Stock Option Plan, as amended (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on October 27, 1995, File No. 33-98692).
#10.22 Digidesign, Inc. 1991 Stock Option Plan (incorporated by reference
to Registrant's Registration Statement on Form S-8 as filed with the
Commission on January 6, 1995, File No. 33-88318).
#10.23 1995 Executive Variable Compensation Program (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on May 15, 1995, File No. 0-21174).
#10.24 1993 Director Stock Option Plan, as amended (incorporated by
reference to the Registrant's Registration Statement on Form S-8 as
filed with the Commission on July 25, 1996, File No. 333-08821).
#10.25 1994 Stock Option Plan, as amended (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on July 25, 1996, File No. 333-08823).
#10.26 1996 Employee Stock Purchase Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on July 25, 1996, File No. 333-08825).
#10.27 Employment Agreement between the Company and William J. Miller
(incorporated by reference to the Registrant's quarterly Report on
Form 10-Q as filed with the Commission on November 14, 1996, File No.
0-21174).
#10.28 Employment Agreement between the Company and William L. Flaherty
(incorporated by reference to the Registrant's quarterly Report on
Form 10-Q as filed with the Commission on November 14, 1996, File No.
0-21174).
#10.29 Employment agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's quarterly Report on
Form 10-Q as filed with the Commission on November 14, 1996, File No.
0-21174).
10.30 Agreement and Plan of Merger, dated as of October 25, 1994, among
Avid Technology, Inc., Avid Technology Merger Co., Inc. and
Digidesign, Inc. (incorporated by reference to Registrant's Current
Report on Form 8-K as filed with the Commission on October 31, 1994,
File No. 0-21174).
*11 Statement Regarding Supplemental Computation of Per Share Earnings.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants
__________________
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.
(b) REPORTS ON FORM 8-K
For the fiscal quarter ended December 31, 1996, the Company filed no Current
Reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AVID TECHNOLOGY, INC.
(Registrant)
By: /S/ WILLIAM J. MILLER By: /S/ WILLIAM L. FLAHERTY
William J. Miller William L. Flaherty
Chairman of the Board, Senior Vice President of Finance
President and Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer)
Date: MARCH 20, 1997 Date: MARCH 20, 1997
------------------------------ --------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
/S/ CHARLES T. BRUMBACK Director MARCH 15, 1997
- ------------------------ ---------------
Charles T. Brumback
/S/ WILLIAM E. FOSTER Director MARCH 20, 1997
- ------------------------ --------------
William E. Foster
/S/ PETER C. GOTCHER Director MARCH 17, 1997
- ------------------------ --------------
Peter C. Gotcher
/S/ ROBERT M. HALPERIN Director MARCH 20, 1997
- ------------------------ --------------
Robert M. Halperin
/S/ WILLIAM S. KAISER Director MARCH 20, 1997
- ------------------------ --------------
William S. Kaiser
/S/ PAUL A. MAEDER Director MARCH 17, 1997
- ------------------------ --------------
Paul A. Maeder
/S/ WILLIAM J. WARNER Director MARCH 20, 1997
- ------------------------ --------------
William J. Warner
AVID TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULES
AVID TECHNOLOGY, INC.
SCHEDULE II - SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995 and 1994
Additions
--------------------------------
Description Balance at Charged to
beginning costs and Charged to Balance at
of period expenses other accounts Deductions end of period
- ------------------------ ----------- -------------- ---------------- ------------- ---------------
Allowance for doubtful accounts
December 31, 1996 $6,011,617 $5,599,130 $792,927 $(5,444,431)(a) $6,959,243
December 31, 1995 2,307,817 4,304,775 179,578 (780,553)(a) 6,011,617
December 31, 1994 953,281 1,675,780 162,954(c) (484,198)(a) 2,307,817
Sales returns and allowances
December 31, 1996 $460,595 $283,478(b) $(184,473)(a) $559,600
December 31, 1995 846,936 35,837(b) (422,178)(a) 460,595
December 31, 1994 316,763 $834,709(b) (304,536)(a) 846,936
Inventory valuation allowance
December 31, 1996 $9,780,463 $22,925,413 $(24,333,416)(a) $8,372,460
December 31, 1995 5,462,514 10,089,567 $972,371 (6,743,989)(a) 9,780,463
December 31, 1994 2,563,018 4,392,608 535,624(c) (2,028,736)(a) 5,462,514
(a) Amount represents write-offs net of recoveries.
(b) Sales returns provisions are charged directly against revenue.
(c) Amount represents allowances acquired in business combination.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Amendment of the Third Amended and Restated Certificate
of Incorporation of the Registrant (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on May 15, 1995, File No. 0-21174).
3.2 Third Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant's Registration
Statement on Form S-8 as filed with the Commission on June 9, 1993,
File No. 33-64126).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to the Registrant's Registration Statement on Form S-1 as
declared effective by the Commission on March 11, 1993, File No.
33-57796).
3.4 Certificate of Designations establishing Series A Junior Participating
Preferred Stock (the "Certificate of Designations") (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed with
the Commission on April 1, 1996).
3.5 Certificate of Correction to the Certificate of Designations
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on April 1, 1996).
4.1 Specimen Certificate representing the Registrant's Common Stock
(incorporated by reference to the Registrant's Registration Statement
on Form S-1 as declared effective by the Commission on March 11, 1993,
File No. 33-57796).
4.2 Rights Agreement, dated as of February 29, 1996, between the
Registrant and The First National Bank of Boston, as Rights Agent
(incorporated by reference to the Registrant's Current Report on Form
8-K as filed with the Commission on March 8, 1996, File No. 0-21174).
10.1 Lease Agreement, dated as of April 20, 1992, by and between the
Registrant and Metropolitan Life Insurance Company (incorporated by
reference to the Registrant's Registration Statement on Form S-1 as
declared effective by the Commission on March 11, 1993, File No.
33-57796).
10.2 Second Amendment dated as of March 17, 1994 to Lease dated as of April
20, 1992 as amended by the First Amendment thereto dated September 21,
1992 between Metropolitan Life Insurance Company and Avid Technology,
Inc. (incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q as filed with the Commission on May 13, 1994, File No.
0-21174).
10.3 Lease dated September 29, 1995 between Allied Dunbar Insurance PLC and
Avid Technology Limited (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.4 Lease dated August 30, 1995 between Syntex (U.S.A.) Inc. and Avid
Technology, Inc. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.5 Lease between MGI Andover Street, Inc. and Avid Technology, Inc. dated
March 21, 1995 (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on May 15,
1995, File No. 0-21174).
10.6 Amended and Restated lease dated as of June 7, 1996 between MGI One
Park West, Inc. and Avid Technology, Inc. (incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on August 14, 1996, File No. 0-21174).
10.7 Amended and Restated Revolving Credit Agreement among Avid Technology,
Inc., The First National Bank of Boston, as agent, NationsBank of
Texas, N.A., BayBank and ABN AMRO Bank N.V. dated as of July 1, 1995
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q as filed with the Commission on August 9, 1995, File No.
0-21174).
10.8 First Amendment dated September 30, 1995 to Amended and Restated
Revolving Credit Agreement by and among Avid Technology, Inc., The
First National Bank of Boston, as agent, NationsBank of Texas, N.A.,
BayBank and ABN AMRO Bank N.V. (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on November 14 , 1995, File No. 0-21174).
10.9 Second Amendment dated as of February 28, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.10 Third Amendment dated as of May 8, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.11 Fourth Amendment dated as of June 28, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.12 Fifth Amendment dated as of July 1, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.13 Form of Distribution Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective
by the Commission on March 11, 1993, File No. 33-57796).
10.14 Form of Purchase and License Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
10.15 Form of Software Only License Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.16 1989 Stock Option Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective
by the Commission on March 11, 1993, File No. 33-57796).
#10.17 1993 Stock Option Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective
by the Commission on March 11, 1993, File No. 33-57796).
#10.18 1993 Director Stock Option Plan, as amended (incorporated by
reference to the Registrant's Proxy Statement as filed with the
Commission on April 27, 1995, File No. 02-1174).
#10.19 1993 Executive Compensation Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.20 1993 Employee Stock Purchase Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on June 9, 1993, File No. 33-64130).
#10.21 1994 Stock Option Plan, as amended (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on October 27, 1995, File No. 33-98692).
#10.22 Digidesign, Inc. 1991 Stock Option Plan (incorporated by reference
to Registrant's Registration Statement on Form S-8 as filed with the
Commission on January 6, 1995, File No. 33-88318).
#10.23 1995 Executive Variable Compensation Program (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on May 15, 1995, File No. 0-21174).
#10.24 1993 Director Stock Option Plan, as amended (incorporated by
reference to the Registrant's Registration Statement on Form S-8 as
filed with the Commission on July 25, 1996, File No. 333-08821).
#10.25 1994 Stock Option Plan, as amended (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on July 25, 1996, File No. 333-08823).
#10.26 1996 Employee Stock Purchase Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on July 25, 1996, File No. 333-08825).
#10.27 Employment Agreement between the Company and William J. Miller
(incorporated by reference to the Registrant's quarterly Report on
Form 10-Q as filed with the Commission on November 14, 1996, File No.
0-21174).
#10.28 Employment Agreement between the Company and William L. Flaherty
(incorporated by reference to the Registrant's quarterly Report on
Form 10-Q as filed with the Commission on November 14, 1996, File No.
0-21174).
#10.29 Employment agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's quarterly Report on
Form 10-Q as filed with the Commission on November 14, 1996, File No.
0-21174).
10.30 Agreement and Plan of Merger, dated as of October 25, 1994, among
Avid Technology, Inc., Avid Technology Merger Co., Inc. and
Digidesign, Inc. (incorporated by reference to Registrant's Current
Report on Form 8-K as filed with the Commission on October 31, 1994,
File No. 0-21174).
*11 Statement Regarding Supplemental Computation of Per Share Earnings.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants
__________________
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.