AVID TECHNOLOGY, INC.
Avid Technology Park
One Park West
Tewksbury, MA 01876
March 30, 2000
OFIS Filer Support
SEC Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Re: Avid Technology, Inc.
File No. 0-21174
Annual Report on Form 10-K
--------------------------
Ladies and Gentlemen:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Avid Technology, Inc. is the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
This filing is being effected by direct transmission to the Commission's
EDGAR System.
Very truly yours,
/s/ Ethan E. Jacks
Ethan E. Jacks
General Counsel
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, 1999
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.)
Avid Technology Park, One Park West, Tewksbury, MA 01876
(Address of principal executive offices) (Zip Code)
(978) 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 v 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 $499,711,083 based on the closing price of the
Common Stock on the NASDAQ National Market on March 27, 2000.
The number of shares outstanding of the registrant's Common Stock as of March
27, 2000, was 24,546,561.
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 7, 2000....... III
PART I
ITEM 1. BUSINESS
Avid Technology, Inc. ("Avid" or the "Company") develops, markets, sells and
supports a wide range of software and systems for creating and manipulating
digital media content. 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. 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 by use of traditional
analog tape-based systems. To complement these systems, Avid develops and sells
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.
Additionally, Avid develops and sells digital audio systems for the professional
audio market. 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 communication departments.
In August 1998, Avid acquired the common stock of Softimage Inc. ("Softimage")
as well as certain assets related to its business. Softimage is a leading
developer of three-dimensional ("3D") animation, video production,
two-dimensional ("2D") cel animation (a cel in 2D cel animation consists of
layers of 2D artwork changed on a frame-by-frame basis creating an illusion of
motion) and compositing software solutions and technologies.
In January 1999, Avid and Tektronix formally organized a 50/50 owned and funded
newsroom computer system joint venture, AvStar Systems LLC ("AvStar"). The joint
venture is dedicated to providing the next generation of newsroom computer
systems products by combining both companies' newsroom computer systems
technology and certain personnel. Tektronix transferred its interest in AvStar
to a third party, Grass Valley Group, Inc., in September 1999.
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
Star Wars: Episode I, The Phantom Menace and The Matrix, integrate sophisticated
computer-generated special effects into traditional live action shots.
The Company participates currently in two principal 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. Both
of these markets are increasingly using the Internet to both collaborate and to
distribute video and audio content. These two markets are (i) video and film
editing and effects and (ii) professional audio.
2
Avid's video and film editing and effects market consists of professional users,
over-the-air and cable broadcast companies and users in the corporate office,
government, and education. Professional users produce video and film material,
such as feature films, commercial spots, entertainment and documentary
programming, industrial videos, and music videos. Professional users also
include professional character animators and video game developers. 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 certain large corporations that perform
digital media production and post-production in-house. Over-the-air and cable
broadcast companies originate news programming, and include 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. Users in corporations and
various other institutions use digital media content tools to distribute
information enriched by the addition of digital media content to their customers
and employees.
Avid's professional audio 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 mission is to be the leading provider of rich media creation tool and
services used to entertain and inform the world. The Company's strategy consists
of four key elements:
Maintain a Leading Position in Existing Markets:
The Company continues to focus on markets where digital media content-creation
already takes place, and management believes that the Company enjoys a
leadership position in each of these primary markets. These include professional
video and film editing, including film and television studios and independent
production and post-production firms, the music and audio production and
post-production markets, and 3D animation. 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 through
acquisitions; and by providing excellent customer service, support and training.
Play a Major Role in Internet Publishing and Distribution:
The Company believes that the Internet is one of the most important new content
distribution channels, from corporate markets up to the highest-end
post-production. In mid-1999, the Company released Avid Unity MediaNet, a shared
storage solution with the ability to serve many simultaneous, high-quality video
and audio streams at low cost to users, giving it the potential to be an
important component of the edge server Internet infrastructure. Edge servers
enable the distribution of massive amounts of rich content - including streaming
audio and video, large downloadable files, and application services - through
the Internet. The Company's plans for future growth include providing a
comprehensive editing and publishing solution for this emerging Internet
broadcast market that will provide rich content-creation capabilities. As an
important first step to specifically serve this market, the Company has entered
into an arrangement with International Business Machines ("IBM") to deliver a
turnkey DV-based video editing and publishing solution, Avid Xpress DV, which
began shipping during the first quarter of 2000. Avid Xpress DV on the IBM
Intellistation will initially include Avid Xpress DV video content-creation
software, Internet-based video hosting and distribution services from IBM Global
Services and IBM's Intellistation M Pro workstation. The Company's plans are to
enable Internet publishing across its entire product line. Upcoming releases of
Media Composer 10.0, Symphony 3.0 and NewsCutter are expected to include
Internet streaming capabilities.
Additionally, the Company recently launched a new Internet web site, the Avid
Production Network (AvidProNet.com), which will provide interactive information
and services to new media and post-production professionals. It is the Company's
goal for this site to become the online gathering place of choice for the
community of digital content-creation professionals, and a definitive source of
industry information and services, including content-hosting, remote viewing and
stock footage availability.
Extend Technology to Market Sectors That Are Still Primarily Analog-based:
The Company believes that it has established unit and revenue market share
leadership positions in the professional video and film digital editing markets,
the digital audio market, and the markets for broadcast digital news editing. To
strengthen these positions and further increase overall market share, the
Company is specifically targeting those market sectors that are currently mainly
analog-based. As an example, the Company believes that expansion opportunity
exists in television online editing, which is the final piece of the
post-production process that today is still mainly tape-based. The Company
believes that because digital solutions address the needs of this editing
process, tape will be replaced by digital solutions. Market sectors that are
mainly analog-based, and which the Company intends to aggressively pursue, also
include broadcast news, corporate and industrial video and audio mixing,
mastering and tracking.
3
Promote Interoperability of Avid Products and Develop Open and Integrated
Workflow Solutions:
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. Avid
has been a leader in defining and developing the Advanced Authoring Format,
(AAF), a multimedia file format that enables content creators to easily exchange
digital media and metadata across platforms, and between systems and
applications. Derived from Avid's OMFI technology and the work of the EBU/SMPTE
Taskforce (a taskforce comprised of members from the European Broadcasting Union
and the Society of Motion Picture and Television Engineers) on the exchange of
material in a digital environment, the AAF simplifies project management, saves
time, and preserves valuable metadata that was often lost when transferring
media between applications in the past. In February, 2000, the AAF Association,
Inc., a broadly-based trade association with the charter to promote the
development and adoption of AAF throughout the media industry, was formed. The
founding members of the AAF Association are: Avid, BBC, CNN/Turner, Discreet
Logic, Matrox Electronics Systems, LTD., Microsoft, Pinnacle Systems, Quantel (a
subsidiary of Carlton Communications PLC), Sony, US National Imaging & Mapping
Agency, and Four Media Company (4MC).
To address workflow and productivity demands in a digital environment, the
Company released Avid Unity MediaNet in 1999. Avid Unity MediaNet is a set of
open networking and central storage technologies which connects editors,
artists, sound-designers and effects specialists throughout a digital facility
to the same network, significantly improving workflow and increasing
productivity.
PRODUCTS
The following lists the Company's products within the two principal markets in
which they are sold. A description follows of the major products and product
families in each of these categories.
Video and Film Editing and Effects
Media Composer for Macintosh and Windows NT:
The Media Composer product is Avid's original product offering and still
accounts for a significant portion of its revenues. 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 is a computer-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. The Media Composer product line now
includes three models (the Media Composer Off-line, 1000 and 9000) which provide
various levels of capability and functionality.
Symphony:
The Avid Symphony product line offerings are online editing and finishing
systems targeted at high-end post production such as primetime television
programs and national commercials. They are designed to finish high-end
editorial projects offlined on Media Composer and traditionally finished in a
linear suite. The Avid Symphony line uses the Windows NT operating system and
delivers all of the proven Media Composer editing functionality plus higher end
finishing tools such as advanced scene-to-scene color correction and 24P
Universal Mastering. The Avid Symphony line includes two models: Avid Symphony
and Avid Symphony Universal.
Film Composer for Macintosh and Windows NT:
The Film Composer product 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 different speeds- 30 fps in
the United States, and at 25 fps in other countries- a standard 30 or 25 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.
4
SOFTIMAGE DS:
The SOFTIMAGE DS product is a comprehensive, nonlinear production system for
creating, editing and finishing such short-form, effects-intensive projects as
commercials and music videos. It combines a rich set of tools for video and
audio editing, compositing, effects generation, image treatment and project
management, all seamlessly integrated within a unified architecture and common
user interface. With SOFTIMAGE DS, digital artists have access to a
comprehensive toolset with uncompressed capabilities, combined with a choice of
third-party hardware platforms. SOFTIMAGE DS runs on the Windows NT platform.
Avid Xpress for Macintosh and Windows NT:
The Avid Xpress product is a digital, nonlinear video editing system designed to
meet the needs of media professionals and video/film educators involved with
video and multimedia production for a variety of distribution mediums including
videotape, CD-ROM and the Internet. Avid Xpress has a streamlined user interface
and editing model targeted for this category of user.
NewsCutter DV:
Avid's NewsCutter DV product is a computer-based digital, nonlinear video
editing system designed to meet the demands of television news production. The
NewsCutter DV system uses the popular DVCPro media compression format and is
built on a Windows NT-based computer platform. NewsCutter DV enables broadcast
news editors to edit news, features, and news series. The user interface for
NewsCutter DV 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 DV system offers a range of editing and effects
features, including dissolves, wipes and graphics, and character generation.
NewsCutter DV can operate as a stand-alone editing system or in a news
production workgroup with a playback system.
SOFTIMAGE 3D:
The SOFTIMAGE 3D product is a complete, end-to-end 3D production system designed
to meet the needs of feature film, commercials, and game development markets.
With continuing innovations in organic modeling techniques, character animation,
and high-quality rendering, SOFTIMAGE 3D has revolutionized animation production
and established a suite of tools that encompasses the entire 3D-production
process. SOFTIMAGE 3D runs on the Windows NT and SGI IRIX platforms.
Elastic Reality:
Avid's Elastic Reality product 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.
Storage Systems:
Avid offers a family of media storage solutions for use with its 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 drives, tape 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 nine gigabytes to well over five terabytes (5,000 gigabytes).
Avid Unity MediaNet:
Avid Unity MediaNet is a set of open networking and central storage technologies
based on an advanced media file system that enables real-time, simultaneous
sharing of high-bandwidth media. Avid Unity MediaNet connects editors, artists,
sound-designers and effects specialists throughout a digital facility to the
same network, significantly improving workflow, raising productivity and
enhancing creativity by eliminating many of the routine, mechanical tasks
associated with managing today's part linear, part nonlinear post-production
process. Included in Avid Unity MediaNet are advanced media transfer utilities
and the very latest in server-assisted shared storage and networking
technologies, providing support for a wide range of applications and platforms.
The Avid Unity MediaNet technology is also being applied as a scalable Internet
content delivery server, delivering tens of thousands of unique streams of rich
content to end users on demand.
5
Professional Audio
Pro Tools:
The Pro Tools product is a multi-track, nonlinear digital audio workstation
which runs on Power Macintosh and Windows NTbased personal computers. Pro Tools
is developed by Digidesign for the professional music, film, television, radio,
multimedia, DVD and Internet production markets. Pro Tools features include
audio recording, editing, signal processing and automated mixing. Pro Tools
provides an open architecture in which more than 100 Digidesign Development
Partners provide additional solutions that expand the functionality of the
system, enhancing its appeal to customers.
ProControl:
ProControl is a modular hardware control surface that adds high-quality tactile
recording, mixing and editing capabilities to ProTools systems. ProControl
connects via ethernet, and interacts with Pro Tools software via patented
DigiFader moving faders, 25 high resolution, 8 character scribble strips and
dedicated switch and encoder controls. ProControl serves as a comprehensive
front-end for Pro Tools' mixing, editing and DSP (digital signal processing),
and can serve as the only mix controller in the user's work environment.
AVoption:
The AVoption product is a high performance software/hardware option for Pro
Tools systems which has been designed to meet the needs of the audio
post-production professional working with film and video. AVoption is compatible
with projects originating on certain Avid Media Composer and Film Composer
systems. AVoption enables the user to record, edit and process sound in sync
with broadcast-quality, Avid-format, nonlinear digital video. AVoption includes
DigiTranslator, which is a software utility that provides users with a high
level of media and metadata interchange with other Avid systems, such as Media
Composer, FilmComposer, Avid Xpress and Symphony.
SALES AND SERVICE
Avid sells its products through a combination of direct and, to a greater
extent, indirect sales channels. Since late 1996, the Company has increasingly
emphasized its indirect channel, including independent distributors, value-added
resellers ("VARs") and dealers, providing for broad market coverage. As a result
of the shifting of emphasis to the indirect sales channel, the Company has
increased its support of top customers, while the proportion of revenues
generated through its indirect channels has been increased.
The Company maintains sales offices in 36 cities in 15 countries and has
relationships with more than 500 distributors, VARs and dealers throughout the
world.
Pro Tools|24 and other Digidesign-developed products are generally sold 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 and film market sales channel.
Avid currently provides both direct and indirect customer support. Direct
support is provided through regional telephone support centers and field service
representatives in major markets and indirect support is provided by VARs and
distributors and other authorized providers. 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 91
authorized third-party Avid training centers in 27 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 on a number of suppliers as sole source vendors of
certain key components of its products and systems. Products purchased by the
Company or its VARs and distributors from sole source vendors include computers
from Apple, SGI, IBM, and Intergraph. Components purchased by the Company from
sole source vendors include: video compression chips manufactured by C-Cube
Microsystems; a small computer systems interface ("SCSI") accelerator board from
6
ATTO Technology; a 3D digital video effects board from Pinnacle Systems;
application specific integrated circuits ("ASICS") from Chip Express and LSI
Logic; digital signal processing integrated circuits from Motorola; a fibre
channel adapter card from JNI; a fibre channel storage array from the Clariion
division of EMC; and a PCI expansion chassis from Magma Inc. The Company
purchases these sole source components pursuant to purchase orders placed from
time to time. The Company also manufactures certain circuit boards under license
from a subsidiary of Pinnacle Systems. The Company generally does not carry
significant inventories of these sole source components and has no guaranteed
supply arrangements. 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
technical, operating or financial difficulties that might imperil the Company's
supply of such sole source components. While the Company believes that
alternative sources of supply for sole source components could be developed, or
systems redesigned to permit the use of alternative components, its business and
results of operations could be materially affected if it were to encounter an
untimely or extended 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 are focused on the development of
digital media content-creation tools and workgroup solutions that operate on
Windows NT-based, IRIX-based and Apple computers. This includes the development
and enhancement of best-in-class video, film, 3D animation and audio editing
systems to meet the needs of professionals in the television, film, music,
broadcast news production, and industrial post-production markets, and of
end-users in the educational and corporate markets. As these digital tools
proliferate, all-digital production cycles are becoming possible. Avid's
research and development efforts therefore also include networking and storage
initiatives to deliver standards-based media transfer and media asset management
tools, as well as standalone and network-attached media storage systems for
workgroups. Increasingly, Avid is designing its systems to be Internet-enabled
with technology for encoding and streaming media to the Internet. The Company
undertakes research and development activities in Tewksbury, Massachusetts; Palo
Alto, California; Santa Monica, California; and Montreal, Canada.
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 editing and effects markets, Avid encounters competition
primarily from vendors that offer similar digital production and post-production
editing products based on standard computer platforms. Avid also competes with
vendors that offer editing and effects products for originators of broadcast
news. These companies include Discreet Logic, Kinetix (a subsidiary of
Autodesk), Media 100 (formerly known as Data Translation, Inc.), Apple
Computers, Quantel (a subsidiary of Carlton Communications PLC), Alias/Wavefront
(a subsidiary of Silicon Graphics), Panasonic (a subsidiary of Matsushita) and
Sony. Avid also competes with vendors that generally have offered analog-based
products, such as Sony and Matsushita. Avid expects that competition from these
vendors will increase to the extent that such vendors develop and introduce
digital media products.
In the professional audio markets, the Company competes primarily with
traditional analog and digital recording and/or mixing system suppliers
including Alesis, Euphonix, Mackie, and Yamaha as well as other disk-based
digital audio system suppliers including Fairlight, Roland, Steinberg,
Studio/Audio/Video (SADie), and others. 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.
The Company may face competition in any or all of these markets in the future
from computer manufacturers, such as Compaq, Apple, Accom, Hewlett-Packard, IBM,
and Silicon Graphics, as well as from software vendors, such as 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 sectors of the video and film editing and 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.
7
The primary competitive factors in all of the Company's market sectors 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 1,591 people as of December 31, 1999.
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 June 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.
Additionally, the Company leases a facility in Montreal, Canada, which houses
certain administrative, research and development, and support operations.
In September 1995, the Company's United Kingdom subsidiary entered into a
15-year lease in London, England. The Company has vacated this property due to
the 1999 corporate restructuring actions. The Company has currently sublet half
of this property and is actively pursuing subletting the remaining space. The
Company also maintains sales and marketing support offices in leased facilities
in various other locations throughout the world.
See Note L - "Commitments and Contingencies" in the Notes to Consolidated
Financial Statements for information concerning the Company's obligations under
all operating leases as of December 31, 1999.
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 dismissed without prejudice (with leave to
refile) pending a decision by the U.S. Patent and Trademark Office on a reissue
patent application based on the issued patent.
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. No costs have been accrued for this possible loss
contingency.
8
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,
as a normal incidence of the nature of the Company's business, various claims,
charges, and litigation have been asserted or commenced against the Company
arising from or related to contractual or employee relations or product
performance. Management does not believe these claims will 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, 1999.
9
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 L. Flaherty 52 Acting Chief Executive Officer,
Senior Vice President of Finance,
Chief Financial Officer and
Treasurer
David Krall 39 President and Chief Operating
Officer
David R. Froker 44 Senior Vice President and General
Manager of Digidesign
Charles L. Smith 39 Vice President of Worldwide Sales
and Marketing
Michael J. Rockwell 33 Chief Technology Officer
Judith M. Oppenheim 58 Senior Vice President of Human
Resources and Corporate Services
Carol L. Reid 52 Vice President and Corporate
Controller
Ethan E. Jacks 46 Vice President of Business
Development, General Counsel
and Corporate Secretary
- --------------------
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 and Treasurer since December 1997, and was appointed acting Chief Executive
Officer in October 1999. 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 Inc., and was Vice President and Treasurer
of FMR Corp., the parent company of Fidelity Investments Group (1989-1992).
DAVID KRALL. Mr. Krall was appointed President and Chief Operating Officer of
the Company in October 1999. Prior to such appointment Mr. Krall had been Chief
Operating Officer of Digidesign since July 1998. He was Vice President of
Engineering at Digidesign from June 1996 to July 1998 and Director of Program
Management at Digidesign from May 1995 to June 1996.
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 May 1996 to January 1997. Prior to that he was Vice President Product
Marketing at Digidesign from September 1995 to May 1996. He was Vice President,
Business Development of Digidesign, Inc. from May 1994 to September 1995. From
November 1988 to July 1993 he held various positions in Product Marketing and
Business Strategy for Amdahl, a maker of mainframe computers and storage
peripherals.
CHARLES L. SMITH. Mr. Smith is currently Avid's Vice President of Worlwide Sales
and Marketing, appointed in November 1999. Mr. Smith was Vice President, Sales
and Marketing at Digidesign from October 1996 to November 1999. Mr. Smith was
also Digidesign's Vice President of International Sales from August 1995 to
October 1996, and he was Managing Director Digidesign UK from May 1993 to August
1995.
10
MICHAEL J. ROCKWELL. Mr. Rockwell was appointed Chief Technology Officer of Avid
in February 2000. Mr. Rockwell joined Avid in November 1999 from Digidesign,
where he was the Chief Architect for Software Engineering from January 1997 to
November 1999. Prior positions with Digidesign were Director of Application
Development from March 1995 to January 1997 and Director of Multi-Media Products
from April 1994 to March 1995.
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).
CAROL L. REID. Ms. Reid joined the Company in November 1998 as Vice President
and Corporate Controller. Prior to that time, she was Vice President of Internal
Audit for Digital Equipment Corporation from January 1998 to November 1998 and
Assistant Treasurer/Director of Digital Equipment Corporation from October 1994
to January 1998.
ETHAN E. JACKS. Mr. Jacks joined the Company in March 1999 as Vice President of
Business Development and General Counsel. Prior to that time he was a Vice
President and General Counsel for Molten Metal Technology, Inc. from November
1991 to October 1998. Mr. Jacks was also engaged in the private practice of law
for eleven years, including as a partner in McDermott, Will & Emery from 1990 to
1991.
There are no family relationships among the named officers.
11
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 sales prices of the Common
Stock for each calendar quarter the fiscal years ended December 31, 1999 and
1998.
1999 High Low
---- ---- ---
First Quarter $34.250 $17.000
Second Quarter $22.000 $12.500
Third Quarter $18.938 $12.000
Fourth Quarter $15.438 $10.000
1998 High Low
---- ---- ---
First Quarter $41.250 $26.000
Second Quarter $47.750 $28.375
Third Quarter $38.875 $18.625
Fourth Quarter $27.000 $11.063
The approximate number of holders of record of the Company's Common Stock at
March 27, 2000, was 621. 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.
12
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected condensed consolidated financial data
for Avid. Included in the Company's financial statements and selected financial
data are the results of operations of Softimage, which the Company acquired on
August 3, 1998. The Company accounted for this acquisition as a purchase and,
accordingly, the results of operations of Softimage are included as of the date
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 OPERATIONS DATA:
In thousands (except per share data)
For the Year ended December 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
Net revenues $452,555 $482,377 $471,338 $429,009 $406,650
Cost of revenues 205,877 190,249 221,553 238,808 198,841
---------- ---------- --------- ---------- ----------
Gross profit 246,678 292,128 249,785 190,201 207,809
---------- ---------- --------- ---------- ----------
Operating expenses:
Research and development 88,932 88,787 73,470 69,405 53,841
Marketing and selling 129,889 125,280 120,394 127,006 107,780
General and administrative 28,147 28,549 25,808 24,203 18,085
Restructuring and other costs 14,469 28,373 28,950 5,456
Amortization of acquisition-related intangible assets 79,879 34,204
---------- ---------- --------- ---------- ----------
Total operating expenses 341,316 305,193 219,672 249,564 185,162
---------- ---------- --------- ---------- ----------
Operating income (loss) (94,638) (13,065) 30,113 (59,363) 22,647
Other income and expense, net 3,459 8,636 8,125 3,416 1,380
---------- ---------- --------- ---------- ----------
Income (loss) before income taxes (91,179) (4,429) 38,238 (55,947) 24,027
Provision for (benefit from) income taxes 46,369 (796) 11,854 (17,903) 8,588
---------- ---------- --------- ---------- ----------
Net income (loss) ($137,548) ($3,633) $26,384 ($38,044) $15,439
========== ========== ========= ========== ==========
Net income (loss) per common share - basic ($5.75) ($0.15) $1.14 ($1.80) $0.81
========== ========== ========= ========== ==========
Net income (loss) per common share - diluted ($5.75) ($0.15) $1.08 ($1.80) $0.77
========== ========== ========= ========== ==========
Weighted average common shares outstanding - basic 23,918 23,644 23,065 21,163 19,010
========== ========== ========= ========== ==========
Weighted average common shares outstanding - diluted 23,918 23,644 24,325 21,163 20,165
========== ========== ========= ========== ==========
CONSOLIDATED BALANCE SHEET DATA:
In thousands
As of December 31,
---------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------
Working capital $70,344 $118,965 $186,474 $145,320 $162,260
Total assets 312,024 486,715 356,805 300,979 331,604
Long-term obligations 14,220 13,261 403 1,186 2,945
Total stockholders' equity 167,923 290,311 241,794 213,415 247,966
13
SUPPLEMENTAL PRO FORMA INFORMATION:
The following table presents pro forma operating income (loss), excluding the
impact of restructuring and other costs and amortization of acquisition-related
intangible assets.
In thousands (except per share data)
For the Year ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------
Pro forma operating income (loss),excluding restructuring
and other costs and amortization of acquisition-related
intangible assets ($290) $49,512 $30,113 ($30,413) $28,103
====== ======= ======= ========= =======
See Note S for supplemental pro forma calculations of operating income (loss)
(unaudited).
14
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."
Avid Technology, Inc. ("Avid" or the "Company") develops, markets, sells and
supports a wide range of software and systems for creating and manipulating
digital media content. 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. 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 by use of traditional
analog tape-based systems. To complement these systems, Avid develops and sells
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.
Additionally, Avid develops and sells digital audio systems for the professional
audio market. 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 communication departments.
In August 1998, the Company acquired the business of Softimage. The acquisition
was recorded as a purchase and, accordingly, the results of Softimage are
included in the Company's financial statements as of the acquisition date.
During the fourth quarter of 1999, the Company announced and implemented a
restructuring plan to strategically refocus the Company and bring operating
expenses in line with net revenues, with the goal of restoring long-term
profitability to the Company. The process included a reevaluation of the
Company's core competencies, technology plan and business model, and was
completed in tandem with development of the Company's fiscal 2000 operating
plan. The restructuring plan resulted in a charge of approximately $9.6 million
related to the termination of 209 employees or 11% of the Company's workforce
and the vacating of certain facilities, as well as the discontinuation of a
limited number of existing products. The savings from this plan are intended to
allow the Company to return to profitability as well as to fund new strategic
initiatives and further growth in the business.
On October 20, 1999, the Company announced the resignations of its Chairman and
Chief Executive Officer, William J. Miller, and its President and Chief
Operating Officer, Clifford A. Jenks. On an interim basis, Chief Financial
Officer and Treasurer William L. Flaherty has been named Acting Chief Executive
Officer. David Krall, who was Chief Operating Officer at Digidesign, Avid's
professional audio business, has been appointed Avid's President and Chief
Operating Officer. An independent director of the Company, Robert M. Halperin,
was elected Chairman of the Board of Directors on October 27, 1999. The Board of
Directors has initiated a search for a permanent Chief Executive Officer.
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,
--------------------------------
1999 1998 1997
--------------------------------
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 45.5% 39.4% 47.0%
--------- -------- --------
Gross profit 54.5% 60.6% 53.0%
--------- -------- --------
Operating expenses:
Research and development 19.7% 18.4% 15.6%
Marketing and selling 28.7% 26.0% 25.5%
General and administrative 6.2% 5.9% 5.5%
Restructuring and other costs 3.2% 5.9%
Amortization of acquisition-related intangible assets 17.7% 7.1%
--------- -------- --------
Total operating expenses 75.5% 63.3% 46.6%
--------- -------- --------
Operating income (loss) (21.0%) (2.7%) 6.4%
Other income and expense, net 0.8% 1.8% 1.7%
--------- -------- --------
Income (loss) before income taxes (20.2%) (0.9%) 8.1%
Provision for (benefit from) income taxes 10.2% (0.2%) 2.5%
--------- -------- --------
Net income (loss) (30.4%) (0.7%) 5.6%
========= ======== ========
15
Excluding restructuring and other costs of 3.2% of revenues and amortization of
acquisition-related intangible assets of 17.7% of revenues, pro forma operating
income (loss) was (0.1%) of 1999 revenues. Excluding restructuring and other
costs of 5.9% of revenues and amortization of acquisition-related intangible
assets of 7.1% of revenues, pro forma operating income (loss) was 10.3% of 1998
revenue.
Net Revenues
The Company's net revenues have been derived mainly from the sales of
computer-based digital, nonlinear media editing systems and related peripherals,
licensing of related software, and sales of related software maintenance
contracts. Net revenues decreased by $29.8 million (6.2%) to $452.6 million in
the year ended December 31, 1999 from $482.4 million in 1998. Net revenues for
the year ended December 31, 1998 of $482.4 million increased by $11.1 million
(2.3%) from $471.3 million in 1997. The decrease in net revenues during 1999 was
attributable to most product families, including Media Composer, Avid Xpress,
broadcast products, customer service, graphics and effects, and local storage
products. These declines were partially offset by increases in sales of Avid
Symphony, which was introduced in late 1998, Avid Unity MediaNet, Softimage DS,
Softimage 3D and Digidesign products. There was a significant decrease in
Macintosh-based unit sales which was only partially offset by the introduction
of Windows NT-based products. The increase in net revenues during 1998 as
compared to 1997 was primarily attributable to incremental revenue related to
product lines acquired in the Softimage transaction, increased unit sales of
Avid Xpress products for Macintosh and NT platforms, and increased sales of
Media Composer products, partially offset by decreases in sales of system
upgrades and Avid Cinema. During 1999, the Company introduced two new products,
Avid Unity MediaNet 1.0 and Digi 001. Additionally, the Company introduced
several version updates of existing products, including Media Composer 9.1 for
Windows NT, Media Composer XL 8.1 for the Macintosh, Avid Xpress 3.1 for Windows
NT, Avid Xpress 3.1 for the Macintosh, Avid NewsCutter 1.5, Avid Symphony 2.1,
Avid Unity MediaNet 1.1, Softimage DS 3.0, Pro Tools 5.0 and Pro Tools 5.0 LE
for Windows NT, Softimage 3D 3.8 SP2 and Media Illusion 6.0. During 1998, the
Company introduced numerous new products including Symphony, Media Composer
9000, Softimage DS 2.1, Avid Express for Windows NT, Pro Tools|24 Mix and
Marquee. To date, returns of all products have been immaterial.
Through 1999, the Company continued to shift an increasing proportion of its
sales through indirect channels, such as distributors and resellers. Net
revenues derived through indirect channels were greater than 85% of net revenue
for the year ended December 31, 1999, compared to greater than 70% of net
revenue for 1998 and 60% in 1997.
International sales (sales to customers outside the United States and Canada)
accounted for 51.3% of the Company's 1999 net revenues, compared to 49.3% for
1998 and 48.6% for 1997. International sales decreased by approximately $5.8
million or 2.4% in 1999 compared to 1998 and increased by approximately $8.7
million or 3.8% in 1998 compared to 1997. The slight decrease in international
sales for 1999 compared to 1998 reflected decreases in Europe and Latin America,
partially offset by increases in the Asia Pacific region. The increase in
international sales for 1998 compared to 1997 reflected an increase in Europe,
partly offset by lower sales in the Asia Pacific region.
Gross Profit
Cost of revenues consists primarily of costs associated with the procurement of
components; the assembly, test, and distribution of finished products;
warehousing; post-sales customer support costs; and provisions for inventory
obsolescence. 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 offering of product upgrades, price
discounts and other sales promotion programs, the distribution channels through
which products are sold, the timing of new product introductions, and sales of
aftermarket hardware products. Gross margin decreased to 54.5% in 1999 compared
to 60.6% in 1998, which had increased from 53.0% in 1997. The decrease during
1999 was primarily due to price reductions in certain product lines, as well as
by discounting and promotions offered. In addition, there was a shift in mix to
lower margin product families and lower priced models within product families.
The increase during 1998 as compared to 1997 was primarily due to lower vendor
material costs, improved service margins and a favorable product mix. Annualized
savings in cost of sales related to the 1999 restructuring actions are currently
expected to be approximately $4 million. The Company currently expects gross
margins during 2000 to be slightly lower than the 1999 levels, reflecting
continued competitive pricing pressure and growth in sales of lower priced,
lower margin products.
16
Research and Development
Research and development expenses increased by $145,000 (0.2%) in the year ended
December 31, 1999 compared to 1998 and increased by $15.3 million (20.8%) in the
year ended December 31, 1998 as compared to 1997. The increase in expenditures
in 1999 was primarily due to a full twelve months of Softimage costs compared to
five months of costs in 1998, as well as the creation of a new engineering
department to develop Avid Unity MediaNet, partially offset by reductions in
other personnel related expenditures and in discretionary spending. The
increased expenditures in 1998 as compared to 1997 were primarily due to five
months of incremental Softimage costs as well as additions to the Company's
engineering staff for the continued development of new and existing products.
Research and development expenses increased as a percentage of net revenues to
19.7% in 1999 from 18.4% in 1998 primarily due to the lower annual revenue in
1999. Research and development expenses increased as a percentage of net
revenues to 18.4% in 1998 from 15.6% in 1997 primarily due to the increases in
research and development expenses for 1998 noted above. The Company currently
expects to achieve annualized savings of research and development costs related
to the 1999 restructuring actions of approximately $4 million, which will likely
be used to fund new strategic initiatives in 2000.
Marketing and Selling
Marketing and selling expenses increased by $4.6 million (3.7%) in the year
ended December 31, 1999 compared to 1998 and increased by $4.9 million (4.1%) in
the year ended December 31, 1998 compared to 1997. The increased expenditures in
1999 were primarily due to a full twelve months of Softimage costs compared to
five months of costs in 1998, as well as significant increased expenditures in
the professional audio business related to new product launches during the year.
These increases were partially offset by reductions in personnel related
expenditures in the Company's video and film editing and effects business. The
increased expenditures in 1998 as compared to 1997 were primarily due to five
months of incremental Softimage costs as well as an increase in marketing
programs, offset by ongoing savings in selling expenses as a result of the shift
to an indirect sales model. Marketing and selling expenses increased as a
percentage of net revenues to 28.7% in 1999 from 26.0% in 1998 and from 25.5% in
1997. The increase in 1999 was related to the lower annual revenue in 1999
compared to 1998 and to the increases in marketing and selling expenses noted
above. The increase in 1998 was primarily due to the increases in selling and
marketing expenses noted above. The Company currently expects annualized savings
of selling and marketing costs related to the 1999 restructuring actions to be
approximately $8 million, which may be used to grow the business in 2000.
General and Administrative
General and administrative expenses decreased approximately $400,000 (1.4%) in
the year ended December 31, 1999 compared to 1998 and increased $2.7 million
(10.6%) in the year ended December 31, 1998 compared to 1997. The decrease in
expenses in 1999 is primarily related to personnel related costs, partially
offset by a full twelve months of Softimage costs in 1999 compared to five
months of costs in 1998. The increased expense in 1998 as compared to 1997 was
primarily due to five months of incremental Softimage costs as well as higher
compensation related costs. General and administrative expenses increased as a
percentage of net revenues to 6.2% in 1999 from 5.9% in 1998, and from 5.5% in
1997. The increase in 1999 was directly related to the lower annual revenue in
1999 compared to 1998. The increase in 1998 was primarily due to increases in
general and administrative expenses noted above. The Company currently expects
annualized savings of general and administrative costs related to the 1999
corporate restructuring actions to be approximately $2 million.
Restructuring and Other Costs
During the fourth quarter of 1999, the Company incurred and recorded a $9.6
million restructuring charge, a charge of $2.0 million related to the sale of
its Italian subsidiary and a charge of $2.9 million related to contractually
obligated employment costs for executive officers who resigned from the Company.
During 1998, the Company incurred other charges of $28.4 million relating to
in-process research and development in connection with the August 1998
acquisition of the business of Softimage.
17
In 1999, the Company announced and implemented a restructuring plan to
strategically refocus the Company and bring operating expenses in line with net
revenues, with the goal of restoring long-term profitability to the Company and
supporting the Company's new strategic initiatives. The process included a
reevaluation of the Company's core competencies, technology plans and business
model, and was completed in tandem with development of the Company's fiscal 2000
operating plan. The major elements of the resulting restructuring plan included
the termination of certain employees and the vacating of certain facilities. The
plan also provides for no further releases of a limited number of existing
product offerings, including stand-alone Marquee, Avid Cinema, Media Illusion
and Matador. In connection with this plan, the Company recorded a restructuring
charge of $9.6 million. The charge includes approximately $6.6 million for
severance and related costs for 209 employees on a worldwide basis, $2.4 million
for facility vacancy costs and approximately $600,000 of non-cash charges
relating to the disposition of certain fixed assets. The Company currently
expects that the 1999 restructuring actions will result in an expense reduction
of approximately $18.0 million (as disclosed above) on an annualized basis.
These savings will likely be largely offset by incremental costs associated with
new strategic initiatives and the growth of the Company; however, there can be
no assurance that such expected savings will be realized. During 1999, the
Company made cash payments of $2.5 million related to these restructuring
activities. The majority of the remaining accrual balance at December 31, 1999
of $7.1 million is expected to be paid out during the first half of 2000. All
employees had been informed of their termination and related benefits as of
December 31, 1999.
In December 1999, the Company entered into an agreement to sell its Italian
subsidiary to a third party, which will establish the entity as a distributor of
Avid products. The sale was completed in the first quarter of 2000. The Company
incurred a loss of approximately $2.0 million relating to the sale, including a
reserve of $1.0 million for the Company's guarantee of the new entity's line of
credit with a bank which ends January 31, 2001. The sale of the subsidiary is
expected to reduce the Company's operating expenses, while maintaining a
productive and profitable presence in the Italian marketplace.
In 1999, in connection with the resignation of two executive officers, the
Company incurred and recorded a charge of $2.9 million for the termination
benefits as specified in the employment contracts of the officers. During 1999,
cash payments of approximately $200,000 were made and, at December 31, 1999, the
related accrual was approximately $2.7 million. The Company currently expects to
make cash payments of $1.5 million and $1.2 million in 2000 and 2001,
respectively, related to these obligations.
In connection with the August 1998 acquisition of the business of Softimage, the
Company allocated $28.4 million to in-process research and development.
In-process research and development represented development projects in areas
that had not reached technological feasibility and had no alternative future
use. Accordingly, its value of $28.4 million was expensed as of the acquisition
date and was reflected as a special charge to operations in 1998. The amounts
allocated to acquired in-process research and development were based on results
of an independent appraisal. The values of in-process research and development
were determined using a risk-adjusted, discounted cash flow approach.
In-process research and development projects identified at the acquisition date
included next-generation three-dimensional modeling, animation and rendering
software, and new graphic, film and media management capabilities for
effects-intensive, on-line finishing applications for editing. A description of
each project follows:
o Next Generation Three-Dimensional Modeling, Animation and Rendering
Software. The efforts required to develop this project into a commercially
viable product principally relate to completion of the animation and
real-time playback architecture, completion and integration of architectural
software components, validation of the resulting architecture, and
finalization of the feature set. As of the acquisition date, the Company
assessed that the overall project was 81% complete and calculated a value of
$25.7 million for this in-process research and development. The estimated
costs to complete this project as of the acquisition date were $5.1 million.
The Company has incurred approximately $10.2 million on this project through
December 31, 1999 and currently expects to incur additional costs of $2.6
during fiscal year 2000. Total development costs to complete this project are
higher than originally anticipated due to challenges encountered in the
development process which have caused a significant delay in the release of
the product. This project is expected to be completed during the first half
of 2000, at which time the Company expects to begin to benefit economically.
However, risk is associated with the completion of any project, and the
Company cannot be assured that the project will meet with either
technological or commercial success. If this project is not successfully
developed or commercially viable, the sales and profitability of the Company
may be adversely affected in future periods.
o New Graphics, Film and Media Management Capabilities for Effects-Intensive,
On-line Finishing. The efforts required to develop this project into a
commercially viable product related principally to the rebuilding of the
framework architecture, the rewriting of software code of the compositing
engine to accommodate significant new features, and the rewriting of software
code of the titling component. As of the acquisition date, the Company had
18
assessed that the overall project was 6% complete and calculated a value of
$2.7 million for this in-process research and development. The estimated
costs to complete this project as of the acquisition date were $3.8 million.
The project was completed in December 1999 at a cost of approximately $7.8
million. Development costs were higher than originally anticipated due to the
addition of features and functionality, which expanded the scope of the
original project.
The value of in-process research and development, specifically, was determined
by estimating the costs to develop the in-process projects into commercially
viable products, estimating the resulting net cash flows from such projects,
discounting the net cash flows back to their present values, and adjusting that
result to reflect each project's stage of completion. The expected cash flows of
the in-process projects were adjusted to reflect the contribution of completed
and core technologies. At the time of acquisition, total revenues from these
in-process projects were forecasted to peak in 2002 and then to decline from
2002 to 2004 as new products were expected to be introduced by the Company.
These revenue forecasts were based on management's estimate of market size and
growth, expected trends in technology, and the expected timing of new product
introductions. A discount rate of 21% was used for valuing the in-process
research and development. The discount rate was higher than the Company's
implied weighted average cost of capital due to the inherent uncertainties
surrounding the successful development of the in-process research and
development and the related risk of realizing cash flows from products that have
not yet reached technological feasibility, among other factors.
Amortization of Acquisition-related Intangible Assets
In connection with the August 1998 acquisition of the business of Softimage, the
Company allocated $88.2 million to intangible assets consisting of completed
technologies, work force and trade name and $127.8 million to goodwill. Included
in the operating results for 1999 and 1998 is amortization of these intangible
assets and goodwill of $79.9 million and $34.2 million, respectively. (See Notes
P and R to the Consolidated Financial Statements). During 1999, a balance sheet
purchase accounting adjustment was recorded which decreased goodwill by
approximately $6.8 million. The balance of the intangible assets, including
goodwill, was $95.1 million at December 31, 1999. Approximately $66.5 million is
expected to be amortized in 2000 with the remaining $28.6 million expected to be
amortized through July 2001.
The amounts allocated to identifiable tangible and intangible assets were based
on results of an independent appraisal. The values of completed technologies
were determined using a risk-adjusted, discounted cash flow approach. As of the
acquisition date, total revenues from the completed technologies were forecasted
to peak in 1999 and to decline through 2001. The Company discounted the net cash
flows of the completed technologies to their present value using a discount rate
of 16%.
Other Income and Expense, Net
Other income and expense, net, consists of interest income, other income and
interest expense. Other income and expense, net, of $3.5 million for 1999,
consisting primarily of interest income, decreased approximately $5.2 million
from 1998 which, in turn, increased $511,000 from 1997. For the years ended
December 31, 1999 and December 31, 1998, other income and expense, net, changed
primarily due to the lower cash and investment balances during the period.
Provision for (Benefit from) Income Taxes
The Company's effective tax rate was 51%, (18%), and 31%, respectively, for
1999, 1998, and 1997. The tax rate for 1999 includes the impact of establishing
a full valuation allowance against U.S.-related deferred tax assets. Based on
the level of U.S.-related deferred tax assets as of December 31, 1999 and the
level of historical U.S. taxable income, management has determined that the
uncertainty regarding the realization of these assets is sufficient to warrant
the establishment of a valuation allowance. Excluding the impact of the
valuation allowance, the Company's effective tax rate would have been (41%) for
1999. This differs from the Federal statutory rate of (35%) due primarily to
state taxes and the U.S. Federal Research Tax Credit. The tax rate for 1998
includes a benefit of $8.2 million related to the pre-tax charge of $28.4 for
in-process technology associated with the Company's acquisition of Softimage. At
that time, a portion of the charge was not deductible for U.S. Federal tax
purposes. Excluding the charge and related tax benefit, the Company's effective
tax rate would have been 31% for 1998. The 1998 effective tax rate, excluding
the charge and related tax benefit of 31%, and 1997 effective tax rate of 31%
are different from the Federal statutory rate of 35% due primarily to the
Company's foreign subsidiaries, which are taxed in the aggregate at a lower
rate, and the U.S. Federal Research Tax Credit.
19
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date through both private and public
sales of equity securities as well as through cash flows from operations. As of
December 31, 1999, the Company's principal sources of liquidity included cash,
cash equivalents, and marketable securities totaling approximately $72.8
million.
With respect to cash flow, net cash provided by operating activities was $6.9
million in 1999 compared to $68.2 million in 1998 and $111.2 million in 1997.
During 1999, net cash provided by operating activities primarily reflects net
income after adjustment for depreciation and amortization and changes in
deferred taxes, as well as decreases in accounts receivable. This was offset by
reductions in income taxes payable and accrued expenses. During 1998, net cash
provided by operating activities primarily reflects net income after adjustment
for the charge for in-process research and development in connection with the
acquisition of Softimage and depreciation and amortization. During 1997 net cash
provided by operating activities primarily reflects net income adjusted for
depreciation, as well as increases in accounts payable and income taxes payable
and reductions in inventory. In 1997, the increase in accrued expenses was
primarily due to provisions for profit sharing, while the reduction in inventory
resulted from improved inventory turnover.
The Company purchased $24.9 million of property and equipment and other assets
during 1999, compared to $15.9 million and $15.7 million in 1998 and 1997,
respectively. These purchases were primarily of hardware and software for the
Company's information systems and equipment to support research and development
activities. The Company also utilized cash of $78.4 million in its acquisition
of Softimage in 1998. Additionally, the Company made a payment of $8.0 million
in 1999 against the note issued to Microsoft in connection with the acquisition
of Softimage. The note issued to Microsoft Corporation in connection with the
acquisition is due and payable in June 2003. (See Note P to the Notes to
Consolidated Financial Statements).
In 1995, the Company entered into an unsecured line of credit agreement with a
group of banks which provided for up to $35.0 million in revolving credit. The
line of credit agreement was terminated by the Company in November 1999. The
Company believes existing cash, cash equivalents, marketable securities and
internally generated funds will be sufficient to meet the Company's cash
requirements, including capital expenditures, for at least the next twelve
months. 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.
On October 23, 1997, February 5, 1998 and October 21, 1998, the Company
announced that the Board of Directors had authorized the repurchase of up to 1.0
million, 1.5 million and 2.0 million shares, respectively, of the Company's
common stock. Purchases have been and will be made in the open market or in
privately negotiated transactions. The Company has used and plans to continue to
use any repurchased shares for its employee stock plans. During 1997, the
Company repurchased a total of 1.0 million shares at a cost of $28.8 million,
which completed the program announced in October 1997. During 1998, the Company
repurchased approximately 2.0 million additional shares of common stock at a
cost of $61.8 million, which completed the program announced during February
1998 and initiated the program announced in October 1998. These purchases
include the repurchase of 500,000 shares from Intel Corporation ("Intel"). Intel
originally purchased approximately 1.6 million shares of Avid common stock in
March 1997. During 1999, the Company repurchased a total of 1.2 million shares
of common stock at a cost of $19.7 million, under the program announced in
October 1998. As of December 31, 1999, there are approximately 300,000 shares
remaining authorized for repurchase.
YEAR 2000 READINESS DISCLOSURE
In 1998, the Company established a worldwide program to address its software and
hardware product and customer concerns, its internal business systems, including
technology infrastructure and embedded technology systems, and the compliance of
its suppliers. This program was designed to minimize the possibility of
significant Year 2000 interruptions. Possible worst case scenarios include the
interruption of significant parts of the Company's business as a result of
critical business systems failures or failures experienced by suppliers,
resellers, or customers. Any such interruption could have a material adverse
impact on future results. Since the possibility of such interruptions could not
be eliminated, the Company engaged a significant number of cross-functional
resources with technical, business, legal, and financial expertise as part of
its program.
20
By December 31, 1999, the Company had generally completed its overall planned
Year 2000 Program activities. This program included the following phases:
identification, assessment, testing, remediation, and contingency planning, and
encompassed the Company's past and current products, the Company's internal
business systems, and the Company's mission critical third party suppliers and
service providers (such as inventory suppliers, equipment suppliers, financial
institutions, landlords, and resellers). Details of the program were most
recently provided in the Company's third quarter 1999 Form 10-Q. A few tasks
that remained for completion in December 1999 were reviewed and ultimately
reclassified as unnecessary since they posed little to no significant risk to
the Company or were adequately covered by existing contingency plans.
To date, the Company has experienced only a few minor effects on its internal
business systems attributable to the Year 2000 date change, none of which had a
material impact on the Company. So far as the Company is currently aware, only
one product exhibited an isolated and minor processing error during the leap
year change, which was quickly corrected, is not expected to recur, and had no
material impact on the product, customers, or the Company. The Company has also
received no reports to date of adverse effects from the Year 2000 date change on
its third party service providers.
Because the program is complete, the office overseeing the program has ceased
its operations. If any Year 2000 issues arise, the Company expects to handle
them as part of the Company's normal operations. As calendar year 2000
progresses, the Company expects to continue monitoring pertinent information
relating to the Company's Year 2000 readiness as a whole, and to its products,
internal business systems and third party suppliers in particular. Any
subsequent information could require the Company to take additional steps to
ensure the Year 2000 readiness of Company.
The costs of the Year 2000 readiness program were primarily costs of existing
internal resources and expertise combined, with small incremental external
spending for resources such as consultants or updates. The entire cost of the
program was approximately $3.8 million. Although the Company does not, as a
general practice, track internal personnel costs, the Company included estimates
of such costs in the above program cost estimate. Costs for business system
replacements or upgrades unrelated to Year 2000 issues were not included in this
estimate. No future material product readiness costs are anticipated.
Based on the Company's ongoing evaluation of internal information and other
systems, as well as the currently available information about third parties, the
Company remains confident and does not anticipate significant business
interruptions relating to Year 2000 issues that would have a material impact on
the Company. Nevertheless, the possibility remains that the Company could be
effected by as-yet unreported or undiscovered Year 2000 issues affecting its
products, internal business systems, or third party suppliers. The Company
acknowledges that it is not in a position to evaluate or resolve all potential
Year 2000 scenarios, such as those involving third parties, and therefore
remains uncertain as to whether or to what extent the Company may actually be
affected by any particular Year 2000 issue. If the Company's contingency plans
prove to be inadequate, if business interruptions occur or last for an extended
period of time, if third party products or suppliers are adversely affected, if
alternatives are not available at reasonable costs, or if a significant Year
2000 issue should go undetected, the Company could also face a material adverse
impact on its future results.
EUROPEAN MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their sovereign currencies and the
euro. As of that date, the participating countries agreed to adopt the euro as
their common legal currency. However, the legacy currencies will also remain
legal tender in the participating countries for a transition period between
January 1, 1999 and January 1, 2002. During this transition period, public and
private parties may elect to pay or charge for goods and services using either
the euro or the participating country's legacy currency.
The Company began conducting certain business transactions in the euro on
January 1, 1999, and will change its functional currencies for the effected
countries to the euro by the end of the three-year transition period. The
conversion to the euro has not had and is not expected to have a significant
operational impact or a material financial impact on the results of operations,
financial position, or liquidity of the Company's European businesses.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133." SFAS 137 defers the
implementation of SFAS 133 by one year. SFAS 133, as amended by SFAS 137, is
effective for fiscal quarters beginning after January 1, 2001 for the Company,
and its adoption is not expected to have a material impact on the Company's
financial position or results of operations.
21
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
Company does not expect the application of SAB 101 to have a material impact on
the Company's financial position or results of operations.
22
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 core video editing market predominantly uses Avid products and
future growth in this market is limited. Accordingly, the Company has expanded
its product line to address the digital media production needs of the television
broadcast news market, online film and video finishing market and the emerging
market for multimedia production tools, including the corporate 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,
that such products will achieve widespread customer acceptance, or that the
Company will be able to develop distribution and support channels to serve these
markets. 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, any additional costs and expenses incurred by the
Company to improve market acceptance of such products and to develop new
distribution and support channels, 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 plans for future growth in the Internet broadcast market depends
on increased use of the Internet for the creation, use, manipulation and
distribution of media content, from corporate markets to the highest-end
post-production. Such uses of the Internet are currently at an early stage of
development and the future evolution of the Internet in the media broadcast
market is not clear. Because a significant portion of the Company's business
strategy depends on its Internet initiative, its business may suffer if
commercial use of the Internet fails to grow in the future.
As another component of its Internet initiative, the Company recently launched
the Avid Production Network site to provide interactive information and services
to new media and post-production professionals. The Company's plans for the Avid
Production Network include content-hosting, remote reviewing and stock footage
availability. Because materials may be posted on, and/or downloaded and
subsequently distributed to others from the Avid production network site, the
Company may be subject to claims for defamation, negligence, copyright or
trademark infringement, personal injury, or other theories based on the nature,
content, publication and distribution of such materials.
As a result of the Internet's popularity and increasing use, new laws and
regulations may be adopted. These laws and regulations may cover issues such as
privacy, distribution and content. The enactment of any additional laws or
regulations may impede the growth of the Internet, and the Company's
Internet-related business and could place additional financial burdens on the
Company's business.
The Company's gross margin fluctuates based on various factors. Such factors
include the mix of products sold, the 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 of customer support costs to cost of goods, sales of
third-party computer hardware to 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 sells most of its products and services through indirect channels
such as distributors and resellers. Resellers and distributors typically
purchase software and "kits" from the Company and other turnkey components from
other vendor sources in order to produce complete systems for resale. As the
majority of the Company's sales are through the indirect channel model, it has a
significant dependence on its resellers and their third party component
suppliers. Any disruption to its resellers or their suppliers may adversely
affect the Company's revenue and gross margin.
The Company's operating expense levels are based, in part, on its expectations
of future revenues. 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 upon which expense levels are based, the Company's
operating results may be adversely affected and there can be no assurance that
the Company would be able to operate profitably.
23
The Company's success depends in large part upon the services of a number of key
employees. The loss of the services of one or more of these key employees could
have a material adverse effect on the Company. The Company's success will also
depend in significant part upon its ability to continue to attract highly
skilled personnel to fill a number of vacancies. Effective October 20, 1999,
William J. Miller resigned as Chairman and Chief Executive Officer of the
Company. William L. Flaherty, the Company's Chief Financial Officer and
Treasurer, has assumed the role of Acting Chief Executive Officer while the
Company's Board of Directors conducts a search for a new Chief Executive
Officer. There can be no assurance that the Company's Board of Directors will be
successful in its search for a new Chief Executive Officer or in attracting
and/or retaining key employees generally.
Certain of the Company's products operate only on specific computer platforms.
The Company currently relies on Apple Computer, Inc., IBM and Intergraph as the
sole manufacturers of such computer platforms. There can be no assurance that
the respective manufacturers will continue to develop, manufacture, and support
such computer platforms suitable for the Company's existing and future markets
or that the Company will be able to secure an adequate supply of computers on
the appropriate platforms, the occurrence of any of which could have a material
adverse effect on the Company's business and results of operations.
The Company is dependent on a number of suppliers as sole source vendors of
certain key components of its products and systems. Components purchased by the
Company from sole source vendors include 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; application specific integrated circuits ("ASICS") from Chip Express
and LSI Logic; digital signal processing integrated circuits from Motorola; a
fibre channel adapter card from JNI; a fibre channel storage array from the
Clariion division of EMC; and a PCI expansion chassis from Magma Inc. The
Company purchases these sole source components pursuant to purchase orders
placed from time to time. The Company also manufactures certain circuit boards
under license from a subsidiary of Pinnacle Systems. The Company generally does
not carry significant inventories of these sole source components and has no
guaranteed supply arrangements. 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 technical, operating or financial difficulties that might imperil the
Company's supply of such sole source components. While the Company believes that
alternative sources of supply for sole source components could be developed, or
systems redesigned to permit the use of alternative components, its business and
results of operations could be materially affected if it were to encounter an
untimely or extended interruption in its sources of supply.
The markets for digital media editing and production systems are intensely
competitive and subject to rapid change. The Company encounters competition in
the video and film editing and effects and professional audio markets. Many
current and potential competitors of the Company have substantially greater
financial, technical, distribution, support, 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.
A significant portion of the Company's business is conducted in currencies other
than the U.S. dollar. Changes in the value of major foreign currencies relative
to the value of the U.S. dollar, therefore, could adversely affect future
revenues and operating results. The Company attempts to reduce the impact of
currency fluctuations on results through the use of forward exchange contracts
that hedge foreign currency-denominated third-party and intercompany net
receivables or payable balances. The Company has generally not hedged
transactions with external parties, although it periodically reevaluates its
hedging practices.
The Company is involved in various legal proceedings, including patent
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 L to Consolidated Financial Statements.
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market Risk
The Company's primary exposures to market risk are the effect of fluctuations in
interest rates earned on its cash equivalents and marketable securities and the
effect of volatility in currencies on asset and liability positions of its
international subsidiaries that are denominated in foreign currencies.
Foreign Exchange Risk
The Company derives greater than 50% of its revenues from customers outside the
United States. This business is, for the most part, transacted through
international subsidiaries and generally in the local currency. This
circumstance exposes the Company to risks associated with changes in foreign
currency that can impact revenues, net income (loss) and cash flow. The Company
enters into foreign exchange forward contracts to hedge the foreign exchange
exposure of certain forecasted receivables and payables 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 success of the hedging program depends
on forecasts of transaction activity in the various currencies. To the extent
that these forecasts are over- or understated during the periods of currency
volatility, the Company could experience unanticipated currency gains or losses.
At December 31, 1999, the Company had $31.7 million of foreign exchange forward
contracts outstanding, denominated in various European, Asian and Canadian
currencies, as a hedge against forecasted foreign denominated receivables and
payables. Net gains of $2.9 million resulting from forward exchange contracts
were included in the results of operations in 1999, which offset net losses on
the related asset and liabilities of $2.7 million. A hypothetical 10 percent
change in foreign currency rates would not have a material impact on the
Company's results of operations because the impact on the forward contracts as a
result of a 10 percent change would offset the impact on the asset and liability
positions of the Company's foreign subsidiaries.
Interest Rate Risk
At December 31, 1999, the Company held $43.7 million in cash equivalents and
marketable securities, consisting of short-term government obligations, state
and municipal bonds, and commercial paper. Cash equivalents and marketable
securities are classified as "available for sale" and are recorded on the
balance sheet at market value, with any unrealized gain or loss recorded in
comprehensive income (loss). A hypothetical 10 percent increase in interest
rates would not have a material impact on the fair market value of these
instruments due to their short maturity.
25
AVID TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
26
AVID TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
Report of Independent Accountants................................ 28
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997............................... 29
Consolidated Balance Sheets as of December 31, 1999 and 1998..... 30
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997............................... 31
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997............................... 32
Notes to Consolidated Financial Statements....................... 33
Consolidated Financial Statement Schedule for the years ended
December 31, 1999, 1998 and 1997 included in Item 14(d):
Schedule II - Supplemental 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.
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Avid Technology, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Avid
Technology, Inc. at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States. In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. 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 of
these statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 2000
28
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Net revenues $452,555 $482,377 $471,338
Cost of revenues 205,877 190,249 221,553
---------- ---------- ----------
Gross profit 246,678 292,128 249,785
---------- ---------- ----------
Operating expenses:
Research and development 88,932 88,787 73,470
Marketing and selling 129,889 125,280 120,394
General and administrative 28,147 28,549 25,808
Restructuring and other costs 14,469 28,373
Amortization of acquisition-related intangible assets 79,879 34,204
---------- ---------- ----------
Total operating expenses 341,316 305,193 219,672
---------- ---------- ----------
Operating income (loss) (94,638) (13,065) 30,113
Interest and other income 4,145 8,986 8,291
Interest expense (686) (350) (166)
---------- ---------- ----------
Income (loss) before income taxes (91,179) (4,429) 38,238
Provision for (benefit from) income taxes 46,369 (796) 11,854
---------- ---------- ----------
Net income (loss) ($137,548) ($3,633) $26,384
========== ========== ==========
Net income (loss) per common share - basic ($5.75) ($0.15) $1.14
========== ========== ==========
Net income (loss) per common share - diluted ($5.75) ($0.15) $1.08
========== ========== ==========
Weighted average common shares outstanding - basic 23,918 23,644 23,065
========== ========== ==========
Weighted average common shares outstanding - diluted 23,918 23,644 24,325
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
29
AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
----------------------
1999 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents 46,072 $62,904
Marketable securities 26,733 48,922
Accounts receivable, net of allowances of $8,954
and $7,171 in 1999 and 1998, respectively 76,172 89,754
Inventories 14,969 11,093
Deferred tax assets 2,114 17,771
Prepaid expenses 5,584 6,095
Other current assets 4,795 5,108
--------- ---------
Total current assets 176,439 241,647
Property and equipment, net 32,748 35,398
Long-term deferred tax assets 23,891
Acquisition-related intangible assets 95,073 181,631
Other assets 7,764 4,148
--------- ---------
Total assets $312,024 $486,715
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $23,998 $24,311
Accrued compensation and benefits 16,955 29,031
Accrued expenses 36,022 32,708
Income taxes payable 5,073 13,715
Deferred revenues and other liabilities 24,047 22,917
--------- ---------
Total current liabilities 106,095 122,682
--------- ---------
Long-term debt and other liabilities, less current portion 14,220 13,261
Purchase consideration 23,786 60,461
Commitments and contingencies (Note L)
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;
26,641,457 and 26,591,457 shares issued and 23,890,169 and
24,393,795 shares outstanding at December 31, 1999 and 1998,
respectively 266 265
Additional paid-in capital 366,569 349,289
Retained earnings (accumulated deficit) (128,083) 14,338
Treasury stock, at cost, 2,751,288 and 2,197,662 shares at
December 31, 1999 and 1998, respectively (66,489) (68,024)
Deferred compensation (1,853) (3,773)
Accumulated other comprehensive loss (2,487) (1,784)
--------- ---------
Total stockholders' equity 167,923 290,311
--------- ---------
Total liabilities and stockholders' equity $312,024 $486,715
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
30
AVID TECHNOLOGY, INC.
Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
Accumulated
Other
Retained Compre- Total
Shares of Common Additional Earnings hensive Stock-
Common Stock Stock Paid-in (Accumulated Treasury Deferred Income holders'
Issued In Treasury Issued Capital Deficit) Stock Compensation (Loss) Equity
----------------------------------------------------------------------------------------------
Balances at December 31, 1996 21,338,369 $213 $212,474 $1,451 ($723) $213,415
Sale of common stock 1,552,632 16 14,712 14,728
Purchase of treasury stock (1,000,000) ($28,776) (28,776)
Stock issued pursuant to employee
stock plans and related tax benefits 919,737 42,698 10 15,995 (549) 1,228 16,684
Issuance of restricted stock 347,200 3 9,152 ($9,152) 3
Restricted stock grants canceled
and compensation expense (1,000) (26) 1,118 1,092
Comprehensive income:
Net income 26,384 26,384
Net unrealized gains on
marketable securities 12 12
Translation adjustment (1,748) (1,748)
-------
Other comprehensive income (1,736)
-------
Comprehensive income 24,648
----------------------------------------------------------------------------------------------
Balances at December 31, 1997 24,156,938 (957,302) 242 252,307 27,286 (27,548) (8,034) (2,459) 241,794
Purchase of treasury stock (1,953,487) (61,822) (61,822)
Stock issued pursuant to employee
stock plans and related tax benefits 741,927 3,094 (9,315) 21,346 15,125
Issuance of common stock in
connection with acquisition 2,435,519 24 65,463 65,487
Issuance of warrants to purchase
common stock in connection
with acquisition 26,196 26,196
Conversion of purchase consideration 2,544 2,544
Restricted stock grants canceled
and compensation expense (1,000) (28,800) (1) (315) 4,261 3,945
Comprehensive loss:
Net loss (3,633) (3,633)
Net unrealized losses on
marketable securities 5 5
Translation adjustment 670 670
-------
Other comprehensive income 675
-------
Comprehensive loss (2,958)
----------------------------------------------------------------------------------------------
Balances at December, 1998 26,591,457 (2,197,662) 265 349,289 14,338 (68,024) (3,773) (1,784) 290,311
Purchase of treasury stock (1,183,348) (19,718) (19,718)
Stock issued pursuant to employee
stock plans 659,382 (11,931) (4,873) 21,253 4,449
Issuance of restricted sotck 50,000 1 586 (587)
Conversion of purchase consideration 29,212 29,212
Restricted stock grants canceled
and compensation expense (29,660) (587) 2,507 1,920
Comprehensive loss:
Net loss (137,548) (137,548)
Net unrealized losses on
marketable securities (32) (32)
Translation adjustment (671) (671
-------
Other comprehensive income (703)
-------
Comprehensive loss (138,251)
----------------------------------------------------------------------------------------------
Balances at December, 1999 26,641,457 (2,751,288) $266 $366,569 ($128,083) ($66,489) ($1,853) ($2,487) $167,923
==============================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
31
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($137,548) ($3,633) $26,384
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 103,223 55,928 25,380
Charge for acquired in-process research and development, net of tax benefit 20,155
Provision for restructuring charge, non-cash portion 541
Compensation from stock grants and options 1,920 3,945 2,119
Provision for doubtful accounts 3,971 2,018 3,304
Changes in deferred tax assets 52,965 (4,412) (617)
Tax benefit of stock option exercises 3,829 3,658
(Gain) loss on disposal of equipment 850 (133) 222
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable 9,074 (2,801) (2,215)
Inventories (4,252) (2,769) 22,514
Prepaid expenses and other current assets (813) (2,126) 663
Accounts payable (245) 814 (2,940)
Income taxes payable (13,608) 2,404 7,556
Accrued expenses, compensation and benefits (8,054) 716 23,047
Deferred revenues (431) (5,700) 2,119
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,593 68,235 111,194
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (22,588) (14,118) (15,180)
(Increase)/decrease changes in other long-term assets (3,005) (1,815) (612)
Acquisition of business, net of cash acquired (78,416)
Proceeds from disposal of assets 1,325 1,309 2,227
Payments on note issued in connection with acquisitin (8,000)
Purchases of marketable securities (38,927) (166,580) (147,960)
Proceeds from sales of marketable securities 61,084 196,317 87,564
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (10,111) (63,303) (73,961)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (712) (610) (1,726)
Purchase of common stock for treasury (19,718) (61,822) (28,776)
Proceeds from issuance of common stock 4,449 10,901 26,729
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (15,981) (51,531) (3,773)
- -------------------------------------------------------------------------------------------------------------------------
Effects of exchange rate changes on cash and cash equivalents 1,667 1,195 (947)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (16,832) (45,404) 32,513
Cash and cash equivalents at beginning of year 62,904 108,308 75,795
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $46,072 $62,904 $108,308
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
32
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 software and systems for creating and manipulating
digital media content. Digital media are media elements, whether video, audio or
graphics, in which the image, sound or picture is recorded and stored as digital
values, as opposed to analog signals. 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 by use of traditional analog
tape-based systems. To complement these systems, Avid develops and sells 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.
Additionally, Avid develops and sells digital audio systems for the professional
audio market. Avid's products are used worldwide in video and audio production
and post-production facilities; film studios; network, affiliate, independent,
and cable television stations; recording studios; advertising agencies;
government and educational institutions; and corporate communication
departments.
As described in Note P, in August 1998, the Company acquired the common stock of
Softimage Inc. ("Softimage") and certain assets related to the business of
Softimage for total consideration of $247.9 million. Softimage is a developer of
three-dimensional ("3D") animation, video production, two-dimensional ("2D") cel
animation and compositing software solutions and technologies. The acquisition
was recorded as a purchase and, accordingly, the results of operations of
Softimage have been included in the Company's financial statements as of the
acquisition date.
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, the
recoverability of intangible assets including goodwill 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 included in accumulated other comprehensive income (loss), which is
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 what are primarily intercompany receivables and payables 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.
33
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, which is 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. (See also Note M).
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of taxable and tax-exempt money market funds, and
federal, state, and municipal obligations.
Marketable Securities
Marketable securities consist primarily of federal, state and municipal
obligations. 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 other comprehensive income
(loss), which is reflected as a separate component of 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 results of operations. 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.
Acquisition-related Intangible Assets
Acquisition-related intangible assets result from the Company's acquisition of
Softimage, which was accounted for under the purchase method and consist of the
values of identifiable intangible assets including completed technology, work
force and trade name, as well as goodwill. Goodwill is the amount by which the
cost of acquired net assets exceeded the fair values of those net assets on the
date of purchase. Acquisition-related intangible assets are reported at cost,
net of accumulated amortization. Identifiable intangible assets are amortized on
a straight-line basis over their estimated useful lives of two and three years.
Goodwill is amortized on a straight-line basis over three years. The Company
periodically evaluates the existence of intangible asset impairments.
Recoverability of these assets is assessed at each reporting period based on
undiscounted expected cash flows, considering a number of factors including past
operating results, budgets and economic projections, market trends and product
development cycles.
Purchase Consideration
In conjunction with the acquisition of Softimage (see Note P), the Company
issued stock options to retained employees. As agreed with the seller, the value
of the note payable to the seller will be increased by $39.71 for each share
underlying options that become forfeited by employees. At the date of
acquisition, the Company recorded these options as purchase consideration on the
balance sheet at a value of $68.2 million. As these options become vested,
additional paid-in capital is increased or, alternatively, as the options are
forfeited, the note payable to the seller is increased, with purchase
consideration being reduced by a corresponding amount in either case.
Revenue Recognition
The Company recognizes revenue from sales of software or products including
proprietary software upon receipt of a signed purchase order or contract and
product shipment to distributors or end users, provided that collection is
probable and all other revenue recognition criteria of SOP 97-2, "Software
Revenue Recognition," are met. The Company's products do not require significant
production, modification or customization of software. Installation of the
products is generally routine, requires insignificant effort and is not
essential to the functionality of the product. The Company recognizes revenue
from maintenance ratably and from training or other related services as the
services are performed. Revenue from services has been insignificant in relation
to product revenue for all periods presented.
34
As part of most sales transactions, telephone support, enhancements and
unspecified upgrades are provided at no additional charge during the product's
initial warranty period, generally between three and twelve months. The Company
allocates a portion of product revenue to this warranty and recognizes the
revenue ratably over the warranty period. The Company from time to time offers
certain customers free upgrades or future enhancements of specified product
releases. The Company allocates revenue among all elements of the order,
including specified upgrades, based upon the relative fair value of each element
of the arrangement. The Company defers recognition of revenue allocated to the
specified upgrade until delivery has occurred and any remaining contractual
terms relating to the upgrade have been met.
Included in accounts receivable allowances are sales allowances provided for
expected returns and credits and an allowance for bad debts. Actual returns have
not differed materially from management's estimates and have not been
significant. In addition, the Company from time to time offers rebates on
purchases of certain products or rebates based on purchasing volume, which are
accounted for as offsets to revenue upon shipment of related products or
expected achievement of purchasing volumes.
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.
Computation of Net Income (Loss) Per Common Share
Net income per common share is presented for both basic earnings per share
("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic EPS is based
upon the weighted average number of common shares outstanding during the period
excluding unvested restricted stock held by employees. Diluted EPS is based upon
the weighted average number of common and common equivalent shares outstanding
during the period. Common stock equivalent shares and unvested restricted stock
shares are included in the Diluted EPS calculation where the effect of their
inclusion would be dilutive. Common equivalent shares result from the assumed
exercise of outstanding stock options, warrants and unvested restricted stock
shares, the proceeds of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method. Net loss per common
share, both basic and dilutive, is based upon the weighted average number of
common shares outstanding during the period, excluding unvested restricted stock
held by employees.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other
comprehensive income (loss), which includes foreign currency translation
adjustments and unrealized gains and losses on certain investments. The adoption
of SFAS 130 had no impact on the Company's net income (loss) or stockholders'
equity. For the purposes of comprehensive income (loss) disclosures, the Company
does not record tax provisions or benefits for the net changes in foreign
currency translation adjustment, as the Company intends to permanently reinvest
undistributed earnings in its foreign subsidiaries.
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation" 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 (loss) and
earnings per share in the notes to the financial statements. The Company adopted
SFAS No. 123 and elected the disclosure-only provisions. The Company has chosen
to continue to account for stock-based compensation granted to employees using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options granted to employees is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the amount that must be paid to acquire the stock. All
stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123 and related interpretations.
35
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133." SFAS 137 defers the
implementation of SFAS 133 by one year. SFAS 133, as amended by SFAS 137, is
effective for fiscal quarters beginning after January 1, 2001 for the Company,
and its adoption is not expected to have a material impact on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
Company does not expect the application of SAB 101 to have a material impact on
the Company's financial position or results of operations.
C. MARKETABLE SECURITIES
The amortized cost, including accrued interest, and fair value of marketable
securities as of December 31, 1999 and 1998 are as follows (in thousands):
Amortized Fair
Cost Value
---------- ----------
1999
Federal, State and Municipal obligations $26,747 $26,733
========== ==========
1998
Federal, State and Municipal obligations $48,904 $48,922
========== ==========
Gross realized and unrealized gains and losses, which are calculated on a
specific identification basis, for the years ended December 31, 1999 and 1998
were immaterial. All marketable securities held at December 31, 1999 and 1998
mature within one year.
D. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
--------------------------
1999 1998
--------- ---------
Raw materials $9,896 $6,193
Work in process 1,946 2,081
Finished goods 3,127 2,819
--------- ---------
$14,969 $11,093
========= =========
E. JOINT VENTURE
In January 1999, Avid and Tektronix formally organized a 50/50 owned and funded
newsroom computer system joint venture, AvStar Systems LLC ("AvStar"). The joint
venture is dedicated to providing the next generation of newsroom computer
systems products by combining both companies' newsroom computer systems
technology and certain personnel. Tektronix transferred its interest in AvStar
to a third party, Grass Valley Group, Inc., in September 1999. The Company's
investment in the joint venture is being accounted for under the equity method
of accounting. The Company's initial contribution to the joint venture was
approximately $2.0 million, consisting of $1.5 million of cash and $500,000 of
fixed assets and inventory. During the fourth quarter of 1999, AvStar
distributed $1.5 million to each joint venture partner, which was recorded by
Avid as a return on investment during 1999. The pro rata share of earnings of
the joint venture recorded by the Company during 1999 was not material.
36
F. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
December 31,
Depreciable ------------------------
Life 1999 1998
------------- --------- ---------
Computer and video equipment and software 3 to 5 years $92,467 $85,365
Office equipment 3 years 5,335 4,874
Furniture and fixtures 3 years 9,176 7,138
Leasehold improvements 3 to 10 years 16,950 15,287
--------- ---------
123,928 112,664
Less accumulated depreciation and amortization 91,180 77,266
--------- ---------
$32,748 $35,398
========= =========
G. LONG-TERM DEBT AND OTHER LIABILITIES
Long-term debt and other liabilities consists of the following (in thousands):
December 31,
-----------------
1999 1998
------- -------
Subordinated note $9,635 $10,352
Long-term deferred compensation (see Note J) 3,023 2,909
Long-term deferred tax liabilities (see Note H) 1,562
------- -------
$14,220 $13,261
======= =======
Subordinated Note
In connection with the acquisition of Softimage (see Note P), Avid issued a $5.0
million subordinated note (the "Note") to Microsoft Corporation. The principal
amount of the Note, including any adjustments relative to Avid stock options
forfeited by Softimage employees, plus all unpaid accrued interest is due on
June 15, 2003. The Note bears interest at 9.5% per annum, payable quarterly.
Through December 31, 1999, the Note has been increased by approximately $12.7
million for forfeited Avid stock options. During 1999, the Company made a
principal payment of $8.0 million. The Company also made cash interest payments
of $626,000 and $77,000 during 1999 and 1998, respectively.
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 $35.0 million in revolving credit. Under
the terms of the agreement, the Company paid an annual commitment fee of 1/4% of
the average daily unused portion of the facility, payable quarterly in arrears.
The Company had two loan options available under the agreement: the Base Rate
Loan and the LIBOR Rate Loan. The interest rates to be paid on the outstanding
borrowings for each loan annually were equal to the Base Rate or LIBOR plus
1.25%, respectively. Additionally, the Company was required to maintain certain
financial ratios and was bound by 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, 1998 or during 1999. The
Company terminated this arrangement in November 1999.
Three of the Company's international subsidiaries have unsecured overdraft
facilities that permit aggregate borrowings of Italian Lire 300,000,000, Irish
Punt 150,000 and German Mark 400,000. No borrowings were outstanding under these
facilities as of December 31, 1999 or 1998.
37
H. INCOME TAXES
Income (loss) before income taxes and the components of the income tax provision
(benefit) for the years ended December 31, 1999, 1998 and 1997 are as follows
(in thousands):
1999 1998 1997
---------- ---------- ----------
Income (loss) before income taxes:
United States ($106,930) ($27,497) $22,017
Foreign 15,751 23,068 16,221
---------- ---------- ----------
Total income (loss) before income taxes ($91,179) ($4,429) $38,238
========== ========== ==========
Provisions for (benefit from) income taxes:
Current tax expense:
Federal ($6,183) $7,770 $2,353
Foreign 2,817 4,665 4,667
State 55 155 75
---------- ---------- ----------
Total current tax expense (3,311) 12,590 7,095
Deferred tax (benefit)expense:
Federal 42,822 (13,878) 4,937
Foreign 2,211 2,401 (1,237)
State 4,647 (1,909) 1,059
---------- ---------- ----------
Total deferred tax(benefit) expense 49,680 (13,386) 4,759
---------- ---------- ----------
Total income tax provision (benefit) $46,369 ($796) $11,854
========== ========== ==========
Net cash payments or (refunds) for income taxes in 1999, 1998 and 1997 were
approximately $6.4 million, $6.6 million and ($1.1) million, respectively. The
net refund in 1997 was the result of the 1996 loss, which was carried back to
1993, 1994 and 1995 for federal tax purposes.
The cumulative amount of undistributed earnings of subsidiaries, which is
intended to be permanently reinvested and for which U.S. income taxes have not
been provided, totaled approximately $43.1 million at December 31, 1999.
Net deferred tax assets are comprised of the following (in thousands):
December 31,
--------------------
1999 1998
-------- --------
Allowances for accounts receivable $1,947 $2,118
Difference in accounting for:
Revenue 4,836 3,487
Costs and expenses 12,713 10,846
Inventories 1,820 1,944
Intangible assets 43,770 7,735
Deferred intercompany profit 844
Foreign related items 552
Tax credit and net operating loss carryforwards 26,965 15,506
Other (1,414) (818)
-------- --------
Net deferred tax assets before valuation allowance 91,189 41,662
Valuation allowance (90,637)
-------- --------
Net deferred tax assets after valuation allowance $552 $41,662
======== ========
For U.S. Federal income tax purposes at December 31, 1999, the Company has tax
credit carryforwards of approximately $12.4 million, which will expire between
2004 and 2019, and a net operating loss carryforward of approximately $38.1
million, which will expire in 2019.
38
Deferred tax assets reflect the net tax effects of the tax credits, 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. The ultimate realization of the deferred tax assets is
dependent upon the generation of sufficient future U.S. taxable income. Based on
the level of the deferred tax assets as of December 31, 1999 and the level of
historical U.S. taxable income, management has determined that the uncertainty
regarding the realization of these assets is sufficient to warrant the
establishment of a valuation allowance. Accordingly, a valuation allowance of
approximately $90.2 million has been established through the provision for
income taxes against the U.S.-related deferred tax assets. In the event that the
related tax benefit is realized, such benefit will reduce future provision for
income taxes. In addition, a valuation allowance of $400,000 has been
established for U.S. tax return carryforwards resulting from stock option
compensation deductions. The tax benefit associated with the stock option
compensation deductions will be credited to equity when realized.
A reconciliation of the Company's income tax provision (benefit) to the
statutory federal tax rate follows:
1999 1998 1997
------ ------ ------
Statutory rate (35%) 35% 35%
Nondeductible acquisition costs 12
Tax credits (3) (8) (4)
Foreign operations (8) (3)
State taxes, net of federal benefit (3) (2) 2
Foreign sales corporation (2) (1)
Other 4 2
------ ------ ------
Effective tax rate before special charge
and valuation allowance (41) 31 31
Rate difference due to charge for in-process
research and development (49)
Change in valuation allowance 99
Reduction in required tax liabilities (7)
------ ------ ------
Effective tax rate 51% (18%) 31%
====== ====== ======
For the year ended December 31, 1998, the effective tax rate before special
charge is based on a profit before tax amount that excludes the $28.4 million
charge for in-process research and development, of which $6.7 million was not
deductible for tax purposes. The Company's actual effective tax rate of (18%)
for the year reflects a tax benefit equal to 29% of this one-time charge.
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. There was no
Irish tax benefit in 1999 due to a loss recorded for the Irish manufacturing
operations. The favorable Irish tax rate resulted in tax benefits of
approximately $1.5 million in 1998 and $900,000 in 1997. The 1998 basic and
diluted per share tax benefit was $0.06.
During 1999, the Internal Revenue Service ("IRS") substantially completed its
tax audit of the Company's U.S. tax returns for 1993 through 1996. The
adjustments resulting from the IRS audit did not have a material impact on the
Company's financial statements.
I. CAPITAL STOCK
Preferred Stock
The Company has authorized up to one million shares of preferred stock, $.01 par
value per share for issuance. Each 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.
Shareholder Rights Plan
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 was 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.
39
Common Stock
During June and July 1997, the Company granted 347,200 shares of $0.01 par value
restricted common stock to certain employees under a Company stock option and
award plan. These shares vest annually in 20% increments beginning May 1, 1998.
Accelerated vesting may occur if certain stock price performance goals
established by the Board of Directors are met. On May 1, 1998, an additional 20%
of the restricted stock became vested due to the attainment of specific stock
performance goals. Unvested restricted shares are subject to forfeiture in the
event that an employee ceases to be employed by the Company. The Company
initially recorded, as a separate component of stockholders' equity, deferred
compensation of approximately $9.1 million with respect to this restricted
stock. During 1999, the Company granted 50,000 shares of $0.01 par value
restricted common stock to certain employees under the 1997 Stock Incentive
Plan. These shares vest 40% on the first anniversary and 60% on the second
anniversary of the award. The Company initially recorded, as a separate
component of stockholders' equity, deferred compensation of approximately
$587,000 with respect to this restricted stock. The deferred compensation
amounts represent the excess of fair value of the restricted shares at the date
of the award over the purchase price and is recorded as compensation expense
ratably as the shares vest. For the year ended December 31, 1999, 1998 and 1997,
approximately $1.4 million, $3.2 million and $1.1 million, respectively, was
recorded as compensation expense.
On October 23, 1997, February 5, 1998 and October 21, 1998, the Company
announced that the Board of Directors had authorized the repurchase of up to 1.0
million, 1.5 million and 2.0 million shares, respectively, of the Company's
common stock. Purchases have been and will be made in the open market or in
privately negotiated transactions. The Company has used and plans to continue to
use any repurchased shares for its employee stock plans. During 1997, the
Company repurchased a total of 1.0 million shares at a cost of $28.8 million,
which completed the program announced in October 1997. During 1998, the Company
repurchased approximately 2.0 million additional shares of common stock at a
cost of $61.8 million, which completed the program announced during February
1998 and initiated the program announced in October 1998. These purchases
include the repurchase of 500,000 shares from Intel Corporation ("Intel"). Intel
originally purchased approximately 1.6 million shares of Avid common stock in
March 1997. During 1999, the Company repurchased a total of 1.2 million shares
of common stock at a cost of $19.7 million, under the program announced in
October 1998. As of December 31, 1999, there are approximately 300,000 shares
remaining authorized for repurchase.
Warrants
In connection with the acquisition of Softimage Inc. (see Note P), the Company
issued to Microsoft a ten-year warrant to purchase 1,155,235 shares of the
Company's common stock, valued at $26.2 million. The warrants are exercisable
after August 3, 2000, at a price of $47.65 per share, and expire on August 3,
2008.
J. EMPLOYEE BENEFIT AND PROFIT SHARING PLANS
Employee Benefit Plans
The Company has an employee benefit plan under section 401(k) of the Internal
Revenue Code covering substantially all U.S. employees. The 401(k) 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. 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. Effective January 1, 1999, the Company's
contribution was increased from 33% to 50% 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 $2.2 million, $1.3 million, and $988,000 in
1999, 1998 and 1997, respectively.
In addition, the Company has various retirement and post-employment plans
covering certain international 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 $1.3 million, $1.0
million, and $489,000 in 1999, 1998, and 1997, respectively.
40
Profit Sharing and Executive Compensation Plans
The Company has profit sharing plans that cover substantially all employees of
the Company and its participating subsidiaries, other than those employees
covered by other incentive plans. The plans provides that the Company contribute
a varying percentage of salary based on the Company's achievement of targeted
return on invested capital for each fiscal year.
1998 Nonqualified Deferred Compensation Plan
In December 1997, the Board of Directors approved the 1998 Nonqualified Deferred
Compensation Plan (the "1998 Deferred Plan"). The 1998 Deferred Plan, effective
January 1, 1998, covers selected senior management and highly compensated
employees, as approved by the Company's Compensation Committee. The plan
provides for a trust to which participants can contribute varying percentages or
amounts of eligible compensation for deferred payment. The timing of the payouts
can be at the election of the employee or upon termination of employment with
the Company. The benefit payable under the 1998 Deferred Plan represents an
unfunded and unsecured contractual obligation of the Company to pay the value of
the deferred compensation in the future, adjusted to reflect the trust's
investment performance. The assets of the trust, as well as the corresponding
obligations, were approximately $3.0 million and $2.9 million as of December 31,
1999 and 1998, respectively, and are recorded in other assets and other
long-term liabilities.
K. STOCK PLANS
Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan, as amended on May 19, 1998,
authorizes the issuance of a maximum of 700,000 shares of common stock in
semi-annual offerings to employees 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.
Stock Option and Award Plans
The Company has several stock-based compensation plans under which employees,
officers, directors and consultants may be granted stock awards or options to
purchase the Company's common stock generally at the fair market value on the
date of grant. Certain plans allow for options to be granted at below fair
market value under certain circumstances. Options become exercisable over
various periods, typically two to four years for employees and immediately to
four years for officers and directors. The options have a maximum term of ten
years. At December 31, 1999, 12,605,000 shares were authorized for grant under
the Company's stock-based compensation plans.
Information with respect to options granted under all stock option plans is as
follows:
1999 1998 1997
------------------------- ------------------------- -------------------------
Wtd Avg. Wtd Avg. Wtd Avg.
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
----------- ----------- ----------- ----------- ----------- -----------
Options outstanding at January 1, 7,401,490 $16.63 3,573,527 $16.09 3,547,356 $16.18
Granted, at fair value 2,551,790 $14.64 3,208,674 $26.19 1,243,950 $14.77
Granted, below fair value 1,820,817 $0.01
Exercised (481,003) $12.53 (650,420) $13.74 (758,298) $13.23
Canceled (1,218,720) $18.34 (551,108) $16.52 (459,481) $17.17
=========== =========== ===========
Options outstanding at December 31, 8,253,557 $15.95 7,401,490 $16.63 3,573,527 $16.09
=========== =========== ===========
Options exercisable at December 31, 3,388,955 $16.80 1,658,724 $15.94 1,338,726 $16.04
=========== =========== ===========
Options available for future grant at
December 31, 1,529,362 1,660,022 674,296
=========== =========== ===========
41
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------- --------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------------------------- -------------- --------------------- --------------------- -------------- -----------------
$0.01 to $11.18 1,751,470 7.92 $3.65 945,720 $4.55
$11.37 to $12.18 2,021,401 9.82 $11.39 13,064 $11.79
$12.56 to $16.50 1,055,519 6.43 $15.40 876,336 $15.56
$16.56 to $26.18 2,016,375 8.14 $21.09 874,491 $20.53
$26.37 to $45.25 1,408,792 8.03 $30.84 679,344 $30.73
-------------- --------------
$0.01 to $45.25 8,253,557 8.27 $15.95 3,388,955 $16.80
============== ==============
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 adjusted to
the pro forma amounts indicated below:
1999 1998 1997
----------------------------------- ---------------------------------- ---------------------------------
Net Earnings Earnings Net Earnings Earnings Net Earnings Earnings
Income per share per share Income per share per share Income per share per share
(Loss) Basic Dilutive (Loss) Basic Dilutive (Loss) Basic Dilutive
------------ ---------- ----------- ---------- --------- ----------- ---------- --------- ----------
As Reported ($137,548) ($5.75) ($5.75) ($3,633) ($0.15) ($0.15) $26,384 $1.14 $1.08
============ ========== =========== ========== ========= =========== ========== ========= ==========
Pro Forma ($154,898) ($6.48) ($6.48) ($13,598) ($0.58) ($0.58) $18,855 $0.82 $0.76
============ ========== =========== ========== ========= =========== ========== ========= ==========
During 1998, the Company issued stock options to purchase approximately 1.8
million shares of common stock with a nominal exercise price in connection with
the acquisition of Softimage (see Note P). As a result of this nominal exercise
price, the Company excluded the effects of the options issued from the
calculation of 1999 and 1998 pro forma net loss from SFAS No. 123 disclosures of
compensation expense. The Softimage purchase price included the excess of the
fair value of the Company's stock on the grant date over the exercise prices.
Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions and results:
Stock Options Stock Purchase Plan
------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
------------------------------------- -------------------------------------
Expected dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Risk-free interest rate 6.0% 5.2% 6.5% 6.0% 5.2% 6.5%
Expected volatility 61.8% 61.8% 61.2% 61.8% 61.8% 61.2%
Expected-life (in months) 15 17 17 6 6 6
Weighted-average fair value
of options granted $5.61 $13.29 $7.46 $5.91 $10.38 $5.21
42
L. 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, 1999 are as follows (in thousands):
2000 $11,388
2001 7,876
2002 5,557
2003 4,579
2004 4,414
Thereafter 21,638
--------
Total $55,452
========
The total of future minimum rentals to be received by the Company under
non-cancelable subleases related to the above leases is $9.3 million. Such
amounts are not reflected in the schedule of minimum lease payments above.
The Company's two leases for corporate office space in Tewksbury, Massachusetts,
expiring June 2010, contain renewal options to extend the respective terms of
each lease for an additional 60 months. The Company's lease for the Dublin,
Ireland facility has a termination option in April 2002, which if elected
requires the Company to pay certain penalties of approximately $338,000. The
Company also has other various leases which include termination options , that
if exercised would result in penalties totaling $248,000. The future minimum
lease commitments above include the Company's obligations through the original
lease terms and do not include these penalties.
The accompanying consolidated results of operations reflect rent expense on a
straight-line basis over the term of the leases. Total rent expense under
operating leases was approximately $12.3 million, $12.4 million and $13.3
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Purchase Commitments
As of December 31, 1999, the Company has entered into non-cancelable purchase
commitments for certain components used in its normal operations. The purchase
commitments covered by these agreements aggregate approximately $3.8 million.
The Company currently purchases 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.
Transactions with Recourse
The Company, through a third party, provides lease financing options to its
customers, including distributors. Under the terms of these leases, which are
generally three years, the Company remains liable for any unpaid principal
balance upon default by the end-user, but such liability is limited in the
aggregate based on a percentage of initial amounts funded or, in certain cases,
amounts of unpaid balances. At December 31, 1999, 1998 and 1997, the third
party's uncollected balance of lease receivables with recourse was approximately
$98.2 million, $86.1 million and $58.0 million, respectively; at those same
dates, Avid's maximum recourse totaled approximately $22.7 million, $22.3
million and $15.4 million, respectively. The Company records revenue from these
transactions upon the shipment of products to end-users and maintains a reserve
for estimated losses under this recourse lease program based on historic default
rates. To date, the Company has not experienced significant losses under this
financing lease program.
The Company also has an arrangement whereby it receives cash from the transfer
of certain receivables to a third party. The Company is liable to the third
party for any amounts not paid by the customer. The Company records a liability
for the amount received, and such liability and the related receivables are
relieved upon payment by the customer to the third party. As of December 31,
1999, a liability of $3.6 million was recorded for receivables transferred which
had not been paid as of that date.
43
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 dismissed without prejudice (with leave to
refile) pending a decision by the U.S. Patent and Trademark Office on a reissue
patent application based on the issued patent.
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 a material adverse effect on the Company's
consolidated financial position or results of operations in the period in which
the litigation is resolved. No costs have been accrued for this possible loss
contingency.
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 have been asserted or commenced against
the Company arising from or related to contractual or employee relations,
intellectual property rights or product performance. Management does not believe
these claims will have a material adverse effect on the financial position or
results of operations of the Company.
The Company has entered into employment agreements with certain officers of the
Company that provide for severance pay and benefits, including accelerated
vesting of options. Under the terms of the agreements, these officers receive
100% of such severance benefits if they are involuntarily terminated. Such
agreements are effective for two years and are automatically extended for
successive one-year periods after the second anniversary, unless 30 days advance
written notice is given by either party. The Company has also entered into
change in control employment agreements with certain officers of the Company. As
defined in the agreements, a change in control includes, but is not limited to:
a third person or entity becoming the beneficial owner of 30% or more of the
Company's common stock, the shareholders approving any plan or proposal for the
liquidation or dissolution of the Company, or within a twenty-four month period
a majority of the members of the Company's Board of Directors ceasing to
continue as members of the board unless their successors are each approved by at
least two-thirds of the Company's directors. If at any time within two years of
the change in control, the officer's employment is terminated by the Company for
any reason other than cause or by the officer for good reason, as such terms are
defined in the agreement, then the employee is entitled to receive certain
severance payments plus an amount equal to compensation earned under the
management incentive compensation plan during the previous two years as well as
accelerated vesting of options.
M. 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. The
Company places its cash, cash equivalents and investments with financial
institutions with high credit standing. 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. (See also Note B).
44
Forward Exchange Contracts
As of December 31, 1999 and 1998, the Company had approximately $31.7 million
and $31.9 million, respectively, of foreign exchange forward contracts
outstanding, denominated in various European, Asian and Canadian currencies, as
a hedge primarily against its intercompany receivables and payables exposures.
The following table summarizes the Company's net currencies position and
approximate U.S. dollar amounts involved at December 31, 1999; the Company is in
a net sell position with respect to each currency with the exception of the
British pound (in thousands):
Local Currency Approximate
Amount U.S. Dollar Equivalent
------------------ -----------------------
British Pound 8,225 $13,332
Canadian Dollar 5,000 3,422
Euro 11,410 11,587
Japanese Yen 342,000 3,368
--------
$31,709
========
The forward exchange contracts generally have maturities of one month. Net gains
(losses) of approximately $3.0 million, ($1.1) million and $3.2 million
resulting from forward exchange contracts were included in results of operations
in 1999, 1998 and 1997, respectively. The fair values of these forward exchange
contracts as of December 31, 1999, 1998, and 1997 were immaterial, as the
contracts generally are placed within a week of year-end.
N. SEGMENT INFORMATION
The Company's organizational structure is based on strategic business units that
offer various products to the principle markets in which the Company's products
are sold. These business units equate to two reportable segments: Video and Film
Editing and Effects and Professional Audio.
The Video and Film Editing and Effects segment produces nonlinear video and film
editing systems to improve the productivity of video and film editors and
broadcasters by enabling them to edit moving pictures and sound in a faster,
easier, more creative, and more cost-effective manner than by use of traditional
analog tape-based systems. The products in this operating segment are designed
to provide capabilities for editing and finishing feature films, television
shows, broadcast news programs, commercials, music videos, and corporate and
home videos. The Professional Audio segment produces digital audio systems for
the professional audio market. This operating segment includes products
developed to provide audio recording, editing, signal processing, and automated
mixing.
The accounting policies of each of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on profit and loss from operations before income taxes,
interest income, interest expenses and other income, excluding the effects of
nonrecurring charges and amortization of intangible assets associated with
acquisitions. Common costs not directly attributable to a particular segment are
allocated among segments based on management's best estimates, including an
allocation of depreciation expense without a corresponding allocation of the
related assets. The segments are reported net of eliminations resulting from
intersegment sales and transfers. The Company does not report segment assets as
part of the assessment of segment performance, as such, segment asset
information is not available.
The following is a summary of the Company's operations by operating segment (in
thousands):
For the Year Ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
Video and Film Editing and Effects:
Net revenues $361,012 $412,374 $406,808
============ ============ ============
Depreciation $20,017 $20,290 $21,676
============ ============ ============
Operating income (loss) ($20,061) $37,818 $22,061
============ ============ ============
Professional Audio:
Net revenues $91,543 $70,003 $64,530
============ ============ ============
Depreciation $1,005 $1,373 $1,601
============ ============ ============
Operating income (loss) $19,771 $11,694 $8,052
============ ============ ============
45
Combined Segments:
Net revenues $452,555 $482,377 $471,338
============ ============ ============
Depreciation $21,022 $21,663 $23,277
============ ============ ============
Operating income (loss) ($290) $49,512 $30,113
============ ============ ============
The following table reconciles income (loss) for reportable segments to total
consolidated amounts for the years ended December 31, 1999, 1998 and 1997 (in
thousands):
1999 1998 1997
------------- ------------- -------------
Total operating income (loss) for reportable segments ($290) $49,512 $30,113
Unallocated amounts:
Restructuring and other costs (14,469) (28,373)
Amortization of acquisition-related intangible assets (79,879) (34,204)
------------- ------------- -------------
Consolidated operating income (loss) ($94,638) ($13,065) $30,113
============= ============= =============
The 1999 unallocated amounts represent the charges for the 1999 restructuring
actions, the loss on the sale of the Company's Italian subsidiary and other
personnel related severance costs as well as the amortization of acquired
intangible assets, including goodwill, as described in Notes O and P. The 1998
unallocated amounts represent the charge for in-process research and development
and the amortization of acquired intangible assets, including goodwill,
associated with the acquisition of Softimage as described in Note P.
The following table summarizes the Company's revenues and long-lived assets,
excluding intangible and deferred tax assets, by country (in thousands):
For the Year Ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
Revenues
North America (U.S. and Canada) $220,405 $244,476 $242,106
Germany 46,454 43,825 43,800
United Kingdom 38,420 47,511 45,232
Other foreign countries 147,276 146,565 140,200
--------- --------- ---------
Total revenues $452,555 $482,377 $471,338
========= ========= =========
1999 1998 1997
--------- --------- ---------
Long-lived assets
North America (U.S. and Canada) $37,714 $35,309 $35,589
United Kingdom 1,248 1,867 2,466
Other foreign countries 1,550 2,370 2,848
--------- --------- ---------
Total long-lived assets $40,512 $39,546 $40,903
========= ========= =========
Foreign revenue is based on the country in which the sales originate.
O. RESTRUCTURING AND OTHER COSTS
In the fourth quarter of 1999, the Company announced and implemented a
restructuring plan to strategically refocus the Company and bring operating
expenses in line with net revenues with the goal of restoring long-term
profitability to the Company. The major elements of the restructuring plan
include the termination of certain employees and the vacating of certain
facilities. The plan also provides for no further reclasses of a limited number
of existing product offerings, including stand-alone Marquee, Avid Cinema, Media
Illusion and Matador. In connection with this plan, the Company recorded a
restructuring charge of $9.6 million. The charge includes approximately $6.6
million for severance and related costs for 209 employees on a worldwide basis,
$2.4 million for facility vacancy costs and approximately $600,000 of non-cash
charges relating to the disposition of certain fixed assets. All employees had
been informed of their termination and related benefits by December 31, 1999.
46
The following table sets forth the 1999 restructuring charge accounting:
Restructuring Charge Employee Facilities Fixed
Related Related Assets Total
- ------------------------------------------------------------------------------------------------------
(In thousands)
Restructuring charge $6,623 $2,443 $541 $9,607
Cash payments made in 1999 (2,202) (289) (2,491)
- ------------------------------------------------------------------------------------------------------
Accrual balance at December 31, 1999 $4,421 $2,154 $541 $7,116
- ------------------------------------------------------------------------------------------------------
In December 1999, the Company entered into an agreement to sell its Italian
subsidiary to a third party, which will establish the entity as a distributor of
Avid products. The sale was completed in the first quarter of 2000. The Company
incurred a loss of approximately $2.0 million relating to the sale, including a
reserve of $1.0 million for the Company's guarantee of the new entity's line of
credit with a bank which ends January 31, 2001.
In 1999, in connection with the resignation of two executive officers, the
Company incurred and recorded a charge of $2.9 million for the termination
benefits as specified in the employment contracts of the officers. During 1999,
cash payments of approximately $200,000 were made and, at December 31, 1999, the
related accrual was $2.7 million.
As described in Note P, in connection with the 1998 acquisition of Softimage,
the Company recorded a charge of approximately $28.4 million in 1998 for the
acquired in-process research and development. The related tax benefit of $8.2
million is reflected in the 1998 tax provision (benefit).
P. ACQUISITIONS
On August 3, 1998, the Company acquired from Microsoft Corporation ("Microsoft")
the common stock of Softimage and certain assets relating to the business of
Softimage. In connection with the acquisition, Avid paid $79.0 million in cash
to Microsoft and issued to Microsoft (i) a subordinated note (the "Note") in the
amount of $5.0 million, due June 2003, (ii) 2,394,813 shares of common stock,
valued at $64.0 million, and (iii) a ten-year warrant to purchase 1,155,235
shares of common stock at an exercise price of $47.65 per share, valued at $26.2
million. In addition, Avid agreed to issue to Softimage employees 40,706 shares
of common stock, valued at $1.5 million, as well as stock options with a nominal
exercise price to purchase up to 1,820,817 shares of common stock, valued at
$68.2 million ("Avid Options"). Avid also incurred fees of $4.0 million in
connection with the transaction. Per terms of the agreements, shares of common
stock issued to Microsoft and shares underlying the warrant may not be traded
until August 3, 2001. Additionally, the principal amount of the Note will be
increased by $39.71 for each share underlying forfeited Avid Options. The value
of the Avid Options has been recorded on the balance sheet as Purchase
Consideration (see Note B).
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the results of operations of Softimage and the fair market value of
the acquired assets and assumed liabilities have been included in the financial
statements of the Company as of the acquisition date. The purchase price was
allocated to the acquired assets and assumed liabilities as follows (in
thousands):
Working capital, net $2,448
Property and equipment 3,958
Completed technologies 76,205
In-process research and development 28,373
Work force 7,790
Trade name 4,252
Deferred tax liability (2,945)
Goodwill 127,779
-----------
$247,860
===========
47
The amounts allocated to identifiable tangible and intangible assets, including
acquired in-process research and development, were based on results of an
independent appraisal. Goodwill represents the amount by which the cost of
acquired net assets exceeded the fair values of those net assets on the date of
purchase. Acquired in-process research and development represented development
projects in areas that had not reached technological feasibility and had no
alternative future use. Accordingly, the amount of $28.4 million was charged to
operations at the date of the acquisition, net of the related tax benefit of
$8.2 million.
The values of completed technologies and in-process research and development
were determined using a risk-adjusted, discounted cash flow approach. The value
of in-process research and development, specifically, was determined by
estimating the costs to develop the in-process projects into commercially viable
products, estimating the resulting net cash flows from such projects,
discounting the net cash flows back to their present values, and adjusting that
result to reflect each project's stage of completion.
In-process research and development projects identified at the acquisition date
included next-generation three-dimensional modeling, animation and rendering
software and new graphic, film and media management capabilities for
effects-intensive, on-line finishing applications for editing. The nature of the
efforts to develop the purchased in-process technology into commercially viable
products principally relate to (i) completion of the animation and real-time
playback architecture, completion and integration of architectural software
components, validation of the resulting architecture, and finalization of the
feature set; and (ii) the rebuilding of the framework architecture, the
rewriting of software code of the compositing engine to accommodate significant
new features, and the rewriting of software code of the titling component. If
these projects are not successfully developed, the sales and profitability of
the Company may be adversely affected in future periods.
The Company recorded deferred tax assets of $6.9 million related to tax credits
and carryforwards of Softimage Inc. An additional $2.6 million of deferred tax
assets were not recorded at the acquisition date due to the uncertainty of their
realization. If any benefit of these unrecorded tax credits and carryforwards is
realized in the future, the non-current assets recorded upon the acquisition
will be reduced at that time by a corresponding amount, before any benefit is
recognized in the statement of operations.
In 1999, the Company recorded reductions of $6.9 million to the goodwill and the
deferred tax liability recorded upon the acquisition, due to a change to the tax
treatment of certain acquired intangible assets.
Accumulated amortization associated with identifiable intangible assets was
approximately $54.0 million and $16.5 million at December 31, 1999 and 1998,
respectively. The accumulated amortization associated with goodwill was
approximately $58.1 million and $17.7 million at December 31, 1999 and 1998,
respectively.
At the date of acquisition, the Company recorded the value of the Avid options
issued to retained employees as purchase consideration on the balance sheet. As
agreed with the seller, the value of the note payable to the seller is being
increased by $39.71 for each share underlying options that become forfeited by
employees. As these options become vested, additional paid-in capital is
increased or, alternatively, as the options are forfeited, the note payable to
the seller is increased, with purchase consideration being reduced by a
corresponding amount in either case. The following table shows the activity of
purchase consideration (in thousands):
Purchase consideration at time of acquisition $68,177
Forfeited options increasing value of the Note (5,172)
Vested options increasing additional paid-in capital (2,544)
-------------
Purchase consideration at December 31, 1998 60,461
Forfeited options increasing value of the note (7,463)
Vested options increasing additional paid-in capital (29,212)
-------------
Purchase consideration at December 31, 1999 $23,786
=============
48
The following table presents unaudited pro forma information as if Avid and
Softimage had been combined as of the beginning of the periods presented. The
pro forma data are presented for illustrative purposes only and are not
necessarily indicative of the combined financial position or results of
operations of future periods or the results that actually would have resulted
had Avid and Softimage been a combined company during the specified periods. The
pro forma results include the effects of the purchase price allocation from
amortization of acquisition-related intangible assets and exclude the charge for
the purchased in-process technology and related tax benefit.
Pro Forma Unaudited
(in thousands, except per share amounts)
For the Year Ended December 31,
-------------------------------------------------
1998 1997
---------------------- ---------------------
Net revenue $505,382 $508,153
====================== =====================
Net income (loss) ($22,329) ($43,102)
====================== =====================
Net income (loss) per common share - basic ($0.89) ($1.69)
====================== =====================
Net income (loss) per common share - diluted ($0.89) ($1.69)
====================== =====================
Weighted average common shares outstanding - basic 25,071 25,501
====================== =====================
Weighted average common shares outstanding - diluted 25,071 25,501
====================== =====================
Q. NET INCOME (LOSS) PER SHARE
The following table reconciles the numerator and denominator of the basic and
diluted earnings per share computations shown on the consolidated statements of
operations:
For the Years Ended December 31,
-------------------------------------------
(In thousands, except per share data) 1999 1998 1997
----------- ----------- -----------
Basic EPS
Numerator:
Net income (loss) ($137,548) ($3,633) $26,384
Denominator:
Weighted common shares outstanding 23,918 23,644 23,065
Basic EPS ($5.75) ($0.15) $1.14
Diluted EPS
Numerator:
Net income (loss) ($137,548) ($3,633) $26,384
Denominator:
Weighted common shares outstanding 23,918 23,644 23,065
Weighted common stock equivalents 1,260
----------- ----------- -----------
23,918 23,644 24,325
Diluted EPS ($5.75) ($0.15) $1.08
Options and warrants to purchase 2,031,990 and 2,534,833 weighted shares of
common stock outstanding as of December 31, 1999 and 1998 were excluded from the
calculation of diluted net loss per share as the effect of their inclusion would
have been anti-dilutive. Options to purchase 234,554 weighted shares of common
stock outstanding as of December 31, 1997 were excluded from the calculation of
diluted net income per share because the exercise prices of those options
exceeded the average market price of common stock during the periods.
49
R. QUARTERLY RESULTS (UNAUDITED)
The following 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:
Ended Quarters
--------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
------------------------------------------- -----------------------------------------
Net revenues $111,640 $113,279 $116,353 $111,283 $144,598 $116,185 $112,852 $108,742
Cost of revenues 55,872 55,310 50,275 44,420 54,256 45,929 44,537 45,527
------------------------------------------- -----------------------------------------
Gross profit 55,768 57,969 66,078 66,863 90,342 70,256 68,315 63,215
------------------------------------------- -----------------------------------------
Operating expenses:
Research & development 21,417 20,623 22,644 24,248 25,102 22,757 20,616 20,312
Marketing & selling 30,237 33,564 33,525 32,563 36,035 30,967 30,584 27,694
General & administrative 7,538 6,598 7,270 6,741 8,618 6,902 6,450 6,579
Restructuring and other costs 14,469 28,373
Amortization of acquisition-
related intangible assets 19,792 19,789 19,787 20,511 20,503 13,701
------------------------------------------- -----------------------------------------
Total operating expenses 93,453 80,574 83,226 84,063 90,258 102,700 57,650 54,585
------------------------------------------- -----------------------------------------
Operating income (loss) (37,685) (22,605) (17,148) (17,200) 84 (32,444) 10,665 8,630
Other income, net 857 739 1,263 600 1,371 2,016 2,713 2,536
------------------------------------------- -----------------------------------------
Income (loss) before income taxes (36,828) (21,866) (15,885) (16,600) 1,455 (30,428) 13,378 11,166
Provision for (benefit from)
income taxes 68,110 (8,746) (7,849) (5,146) 451 (8,855) 4,147 3,461
-------------------------------------------- -----------------------------------------
Net income (loss) ($104,938) ($13,120) ($8,036) ($11,454) $1,004 ($21,573) $9,231 $7,705
============================================ =========================================
Net income (loss) per share -
basic ($4.42) ($0.56) ($0.34) ($0.47) $0.04 ($0.89) $0.40 $0.34
============================================ =========================================
Net income (loss) per share -
diluted ($4.42) ($0.56) ($0.34) ($0.47) $0.04 ($0.89) $0.37 $0.31
============================================ ========================================
Weighted average common
shares outstanding - basic 23,731 23,614 23,946 24,391 24,378 24,190 23,076 22,908
=========================================== =========================================
Weighted average common
shares outstanding -diluted 23,731 23,614 23,946 24,391 26,703 24,190 24,833 24,587
=========================================== =========================================
High common stock price $15.438 $18.938 $22.000 $34.250 $27.000 $38.875 $47.750 $41.250
Low common stock price $10.000 $12.000 $12.500 $17.000 $11.063 $18.625 $28.375 $26.000
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.
S. SUPPLEMENTAL RECONCILIATION OF OPERATING INCOME (LOSS) TO PRO FORMA
OPERATING INCOME (LOSS) (UNAUDITED)
The following table presents a pro forma calculation of operating income (loss),
excluding restructuring and other costs and amortization of acquisition-related
intangible assets. The information is presented in order to enhance the
comparability of the statements of operations for the years presented.
50
(in thousands, except per share data)
For the Years Ended December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
Operating income (loss) ($94,638) ($13,065) $30,113
Adjustments:
Restructuring and other costs 14,469 28,373
Amortization of acquisition-related intangible assets 79,879 34,204
------------- ------------- -------------
Pro forma operating income (loss) ($290) $49,512 $30,113
============= ============= =============
The 1999 adjustments include the restructuring actions, the loss on the sale of
the Company's Italian subsidiary and other personnel severance costs; as well as
the amortization of $79.9 million related to acquired intangible assets,
including goodwill. The 1998 adjustments include the charge for in-process
research and development of $28.4 million as well as the amortization of $34.2
million related to acquired intangible assets and goodwill associated with the
acquisition of Softimage.
T. SUPPLEMENTAL CASH FLOW INFORMATION
The following table reflects supplemental cash flow investing activities related
to the Softimage acquisition.
Year Ended
December 31, 1998
---------------------
Fair value of:
Assets acquired and goodwill $257,233
Liabilities assumed (13,374)
Debt, common stock, stock options
and warrant issued (164,859)
---------------------
Cash paid 79,000
Less: cash acquired (584)
---------------------
Net cash paid for acquisition $78,416
=====================
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
52
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 7, 2000 (the "2000 Proxy Statement") under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 2000 Proxy Statement
under the captions "Election of Directors - Directors' Compensation" and
"Executive Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 2000 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
Not applicable.
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 Operations for the years ended December 31,
1999, 1998 and 1997
- Consolidated Balance Sheets as of December 31, 1999 and 1998
- Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
- Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule is included in Item
14(d):
Schedule II - Supplemental 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.
53
(a) 3. LISTING OF EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Stock and Asset Purchase Agreement among Microsoft Corporation,
Softimage Inc. and Avid Technology, Inc. dated as of June 15, 1998
together with all material exhibits thereto (incorporated by
reference to the Registrant's Quarterly Report a Form 10-Q as filed
with the Commission on August 12, 1998, File No. 0-21174).
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 Current Report on
Form 8-K as filed with the Commission on March 8, 1996).
3.5 Certificate of Correction to the Certificate of Designations
(incorporated by reference to the Registrant's Current Report on
Form 8-K as filed with the Commission on March 8, 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).
4.3 Common Stock Purchase Warrant dated August 3, 1998 by and between
Avid Technology, Inc. and Microsoft Corporation (incorporated by
reference to the Registrant's Quarterly Report a Form 10-Q as filed
with the Commission on November 13, 1998, File No. 0-21174).
10.1 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).
10.2 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).
10.3 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).
10.4 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).
54
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 Sixth Amendment dated as of June 27, 1997 to Amended and Restated
Revolving Credit Agreement and Assignment(the "Sixth Amendment"), by
and among AVID TECHNOLOGY, INC., a Delaware corporation (the
"Borrower"), BANKBOSTON, N.A. (formerly known as The First National
Bank of Boston)and the other lending institutions listed on Schedule
1 to the Credit Agreement, amending certain provisions of the
Amended and Restated Revolving Credit Agreement dated as of June
30, 1995 (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on August
12, 1997, File No. 0-21174).
10.12 Seventh Amendment dated as of October 1, 1997 to Amended and
Restated Revolving Credit Agreement (the "Seventh Amendment"), by
and among AVID TECHNOLOGY, INC., a Delaware corporation (the
"Borrower"), BANKBOSTON, N.A. (formerly known as The First National
Bank of Boston) and the other lending institutions listed on
Schedule 1 to the Credit Agreement, amending certain provisions of
the Amended and Restated Revolving Credit Agreement dated as of June
30, 1995.
10.13 Eighth Amendment dated as of June 30, 1998 to Amended and Restated
Revolving Credit Agreement and Assignment (the "Eighth Amendment"),
by and among Avid Technology, Inc., BankBoston, N.A (formerly known
as The First National Bank of Boston) and the other lending
institutions listed on Schedule 1 to the Credit Agreement, amending
certain provisions of the Amended and Restated Revolving Credit
Agreement dated as of June 30, 1995 (incorporated by reference to
the Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on August 12, 1998, File No. 0-21174)
10.14 Ninth Amendment dated as of September 30, 1998 to Amended and
Restated Revolving Credit Agreement and Assignment, by and among
Avid Technology, Inc., BankBoston, N.A. (formerly known as The First
National Bank of Boston) and the other lending institutions listed
on schedule 1 to the Credit Agreement, amending certain provisions
of the Amended and Restated Revolving Credit Agreement dated as of
June 30, 1995 (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on
November 13, 1998, File No. 0-21174).
55
10.15 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).
10.16 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).
10.17 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).
#10.18 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).
#10.19 1993 Stock Incentive 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).
#10.20 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. 0-21174).
#10.21 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).
#10.22 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).
#10.23 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).
#10.24 Digidesign, Inc. 1991 Stock Option Plan (incorporated by reference
to Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on May 15, 1995, File No. 0-21174).
#10.25 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).
#10.26 1998 Executive and Senior Management Variable Compensation Plan
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.27 1997 Stock Option Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as file with the Commission
on March 27, 1998, File No. 0-21174).
#10.28 1996 Employee Stock Purchase Plan, as amended (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed
with the Commission on March 27, 1998, File No. 0-21174).
#10.29 1998 Non-Qualified Deferred Compensation Plan (incorporated by
reference to the Registrant's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, File No. 33-42569).
#10.30 1998 Profit Sharing Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 27, 1998, File No. 0-21174).
#10.31 Employment Agreement between the Company and William J. Miller
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
56
#10.32 Change-in-Control Agreement between the Company and William J.
Miller (incorporated by reference to the Registrant's Annual Report
on Form 10-K as filed with the Commission on March 27, 1998, File
No. 0-21174).
#10.33 Employment Agreement between the Company and William L. Flaherty
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.34 Change-in-Control Agreement between the Company and William L.
Flaherty (incorporated by reference to the Registrant's Annual
Report on Form 10-K as filed with the Commission on March 27, 1998,
File No. 0-21174).
#10.35 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).
#10.36 1999 Profit Sharing Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 30, 1999, File No. 0-21174).
#10.37 1999 Executive and Senior Management Variable Compensation Plan
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
10.38 Registration Rights Agreement dated August 3, 1998 by and between
Avid Technology, Inc. and Microsoft Corporation (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on November 13, 1998, File No. 0-21174).
10.39 Form of Electronic Software License Agreement (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed
with the Commission on March 30, 1999, File No. 0-21174).
#10.40 Form of Employment Agreements between the Company and certain
Executive Officers (incorporated by reference to the Registrant's
Annual Report on Form 10-K as filed with the Commission on March 30,
1999, File No. 0-21174).
#10.41 Form of Change-in-Control Agreement between the Company and certain
Executive Officers (incorporated by reference to the Registrant's
Annual Report on Form 10-K as filed with the Commission on March 30,
1999, File No. 0-21174).
#10.42 Employment Agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
#10.43 Change-in-Control Agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
#10.44 1999 Stock Option Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on January 6, 2000, 1999, File No. 33-94167).
*#10.45 Employment Agreement between the Company and Ethan Jacks.
*#10.46 Change-in-Control Agreement between the Company and Ethan Jacks.
*#10.47 Employment Agreement between the Company and David Krall.
*#10.48 Change-in-Control Agreement between the Company and David Krall.
*#10.49 Employment Agreement between the Company and Charles Smith.
57
*#10.50 Change-in-Control Agreement between the Company and Charles Smith.
*#10.51 Employment Agreement between the Company and Michael Rockwell.
*#10.52 Change-in-Control Agreement between the Company and Michael
Rockwell.
*21 Subsidiaries of the Registrant.
*23.1 Consent of PricewaterhouseCoopers LLP.
*27 Financial Data Schedule
- ------------------
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.
58
(b) REPORTS ON FORM 8-K
For the fiscal quarter ended December 31, 1999, the Company filed a Current
Report on Form 8-K on November 11, 1999.
59
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 L. Flaherty By: /s/ Carol L. Reid
----------------------- -----------------
William L. Flaherty Carol L. Reid
Acting Chief Executive Officer Vice President and Corporate
Senior Vice President of Finance, Controller
Chief Financial Officer and Treasurer (Principal Accounting Officer)
(Principal Financial Officer)
Date: March 30, 2000 Date: March 30, 2000
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 24, 2000
------------------------ ----------------
Charles T. Brumback
/s/ Peter C. Gotcher Director March 21, 2000
------------------------ ----------------
Peter C. Gotcher
/s/ Robert M. Halperin Director March 23, 2000
-------------------- ----------------
Robert M. Halperin
/s/ Nancy Hawthorne Director March 27, 2000
-------------------- ----------------
Nancy Hawthorne
/s/ Roger J. Heinen, Jr. Director March 24, 2000
------------------------ ----------------
Roger J. Heinen, Jr.
/s/ William J. Warner Director March 24, 2000
------------------------ ----------------
William J. Warner
60
AVID TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULE
61
AVID TECHNOLOGY, INC.
SCHEDULE II - SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998 and 1997
Additions
----------------------------------
Balance at Charged to Charged to Balance at
beginning of costs and other end of
Description period expenses accounts Deductions period
- ------------------------------------ --------------- --------------- --------------- ------------------ --------------
Allowance for doubtful accounts
December 31, 1999 $5,867,991 $3,230,185 $1,220,305 ($2,921,392) (a) $7,397,089
December 31, 1998 7,097,893 2,103,801 (116,756) (3,216,947) (a) 5,867,991
December 31, 1997 6,959,243 2,032,489 (413,862) (1,479,977) (a) 7,097,893
Sales returns and allowances
December 31, 1999 $1,303,386 $267,039 (b) ($13,666) (a) $1,556,759
December 31, 1998 430,710 879,670 (b) (6,994) (a) 1,303,386
December 31, 1997 559,600 152,272 (b) (281,162) (a) 430,710
Inventory valuation allowance
December 31, 1999 $7,488,990 $3,794,830 ($3,772,940) (a) $7,510,880
December 31, 1998 8,927,841 3,668,098 57,049 (5,163,997) (a) 7,488,990
December 31, 1997 8,372,460 5,136,384 166,187 (4,747,190) (a) 8,927,841
Deferred tax asset valuation allowance
December 31, 1999 $0 $90,243,834 $392,778 $90,636,612
<FN>
(a) Amount represents write-offs, net of recoveries.
(b) Sales return provisions are charged directly against revenue.
</FN>
Index to Exhibits
Exhibit No. Description
2.1 Stock and Asset Purchase Agreement among Microsoft Corporation,
Softimage Inc. and Avid Technology, Inc. dated as of June 15, 1998
together with all material exhibits thereto (incorporated by
reference to the Registrant's Quarterly Report a Form 10-Q as filed
with the Commission on August 12, 1998, File No. 0-21174).
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 Current Report on
Form 8-K as filed with the Commission on March 8, 1996).
3.5 Certificate of Correction to the Certificate of Designations
(incorporated by reference to the Registrant's Current Report on
Form 8-K as filed with the Commission on March 8, 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).
4.3 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).
4.3 Common Stock Purchase Warrant dated August 3, 1998 by and between
Avid Technology, Inc. and Microsoft Corporation (incorporated by
reference to the Registrant' Quarterly Report a Form 10-Q as filed
with the Commission on November 13, 1998, File No. 0-21174).
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 Sixth Amendment dated as of June 27, 1997 to Amended and Restated
Revolving Credit Agreement and Assignment (the "Sixth Amendment"),
by and among AVID TECHNOLOGY, INC., a Delaware corporation
(the "Borrower"), BANKBOSTON, N.A. (formerly known as The First
National Bank of Boston) and the other lending institutions listed
on Schedule 1 to the Credit Agreement, amending certain provisions
of the Amended and Restated Revolving Credit Agreement dated as
of June 30, 1995 (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on
August 12, 1997, File No. 0-21174).
10.12 Seventh Amendment dated as of October 1, 1997 to Amended and
Restated Revolving Credit Agreement (the "Seventh Amendment"), by
and among AVID TECHNOLOGY, INC., a Delaware corporation (the
"Borrower"), BANKBOSTON, N.A. (formerly known as The First National
Bank of Boston) and the other lending institutions listed on
Schedule 1 to the Credit Agreement, amending certain provisions of
the Amended and Restated Revolving Credit Agreement dated as of June
30, 1995.
10.13 Eighth Amendment dated as of June 30, 1998 to Amended and Restated
Revolving Credit Agreement and Assignment (the "Eighth Amendment"),
by and among Avid Technology, Inc., BankBoston, N.A (formerly known
as The First National Bank of Boston) and the other lending
institutions listed on Schedule 1 to the Credit Agreement, amending
certain provisions of the Amended and Restated Revolving Credit
Agreement dated as of June 30, 1995 (incorporated by reference to
the Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on August 12, 1998, File No. 0-21174)
10.14 Ninth Amendment dated as of September 30, 1998 to Amended and
Restated Revolving Credit Agreement and Assignment, by and among
Avid Technology, Inc., BankBoston, N.A. (formerly known as The First
National Bank of Boston) and the other lending institutions listed
on schedule 1 to the Credit Agreement, amending certain provisions
of the Amended and Restated Revolving Credit Agreement dated as of
June 30, 1995 (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on
November 13, 1998, File No. 0-21174).
10.15 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).
10.16 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).
10.17 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).
#10.18 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).
#10.19 1993 Stock Incentive 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).
#10.20 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. 0-21174).
#10.21 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).
#10.22 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).
#10.23 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).
#10.24 Digidesign, Inc. 1991 Stock Option Plan (incorporated by reference
to Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on May 15, 1995, File No. 0-21174).
#10.25 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).
#10.26 1998 Executive and Senior Management Variable Compensation Plan
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.27 1997 Stock Option Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the
Commission on March 27, 1998, File No. 0-21174).
#10.28 1996 Employee Stock Purchase Plan, as amended (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed
with the Commission on March 27, 1998, File No. 0-21174).
#10.29 1998 Non-Qualified Deferred Compensation Plan (incorporated by
reference to the Registrant's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, File No. 33-42569).
#10.30 1998 Profit Sharing Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 27, 1998, File No. 0-21174).
#10.31 Employment Agreement between the Company and William J. Miller
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.32 Change-in-Control Agreement between the Company and William J.
Miller (incorporated by reference to the Registrant's Annual Report
on Form 10-K as filed with the Commission on March 27, 1998, File
No. 0-21174).
#10.33 Employment Agreement between the Company and William L. Flaherty
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.34 Change-in-Control Agreement between the Company and William L.
Flaherty (incorporated by reference to the Registrant's Annual
Report on Form 10-K as filed with the Commission on March 27, 1998,
File No. 0-21174).
#10.35 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).
#10.36 1999 Profit Sharing Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 30, 1999, File No. 0-21174).
#10.37 1999 Executive and Senior Management Variable Compensation Plan
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
10.38 Registration Rights Agreement dated August 3, 1998 by and between
Avid Technology, Inc. and Microsoft Corporation (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on November 13, 1998, File No. 0-21174).
10.39 Form of Electronic Software License Agreement (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed
with the Commission on March 30, 1999, File No. 0-21174).
#10.40 Form of Employment Agreements between the Company and certain
Executive Officers (incorporated by reference to the Registrant's
Annual Report on Form 10-K as filed with the Commission on March 30,
1999, File No. 0-21174).
#10.41 Form of Change-in-Control Agreement between the Company and certain
Executive Officers (incorporated by reference to the Registrant's
Annual Report on Form 10-K as filed with the Commission on March 30,
1999, File No. 0-21174).
#10.42 Employment Agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
#10.43 Change-in-Control Agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
#10.44 1999 Stock Option Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on January 6, 2000, 1999, File No. 33-94167).
*#10.45 Employment Agreement between the Company and Ethan Jacks.
*#10.46 Change-in-Control Agreement between the Company and Ethan Jacks.
*#10.47 Employment Agreement between the Company and David Krall.
*#10.48 Change-in-Control Agreement between the Company and David Krall.
*#10.49 Employment Agreement between the Company and Charles Smith.
*#10.50 Change-in-Control Agreement between the Company and Charles Smith.
*#10.51 Employment Agreement between the Company and Michael Rockwell.
*#10.52 Change-in-Control Agreement between the Company and Michael
Rockwell.
*21 Subsidiaries of the Registrant.
*23.1 Consent of PricewaterhouseCoopers LLP.
*27 Financial Data Schedule
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*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.