AVID TECHNOLOGY, INC.
Metropolitan Technology Park
One Park West
Tewksbury, MA 01876
August 12, 1998
OFIS Filer Support
SEC Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Re: Avid Technology, Inc.
File No. 0-21174
Quarterly Report on Form 10-Q
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 Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998.
This filing is being effected by direct transmission to the Commission's
EDGAR System.
Very truly yours,
Avid Technology, Inc.
/s/ Peter T. Johnson
Peter T. Johnson
Vice President and Chief Legal Officer
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission File Number 0-21174
AVID TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2977748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
METROPOLITAN TECHNOLOGY PARK
ONE PARK WEST
TEWKSBURY, MA 01876
(Address of principal executive offices)
Registrant's telephone number, including area code: (978) 640-6789
Indicate by check mark whether the registrant 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 for such shorter period that the
registrant was required to file such reports).
Yes X No _____
Indicate by check mark whether the registrant has been subject to such
filing requirements for the past 90 days.
Yes X No _____
The number of shares outstanding of the registrant's Common Stock as of August
10, 1998 was 24,966,030.
==============================================================================
AVID TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements:
a) Condensed Consolidated Statements of Operations (unaudited)
for the three months ended June 30, 1998 and 1997 and the six
months ended June 30, 1998 and 1997 ..............................1
b) Condensed Consolidated Balance Sheets as of
June 30, 1998 (unaudited) and December 31, 1997...................2
c) Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 1998 and 1997 ..................3
d) Notes to Condensed Consolidated Financial Statements (unaudited)..4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...........................................21
ITEM 4. Submission of Matters to a Vote of Security Holders.........22
ITEM 5. Other Events................................................23
ITEM 6. Exhibits and Reports on Form 8-K............................24
Signatures.............................................................25
EXHIBIT INDEX.........................................................26
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues $112,852 $122,884 $221,594 $231,093
Cost of revenues 44,537 59,700 90,064 115,886
----------- ----------- ----------- -----------
Gross profit 68,315 63,184 131,530 115,207
----------- ----------- ----------- -----------
Operating expenses:
Research and development 20,616 18,296 40,928 34,712
Marketing and selling 30,584 30,687 58,278 58,984
General and administrative 6,450 6,294 13,029 12,096
----------- ----------- ----------- -----------
Total operating expenses 57,650 55,277 112,235 105,792
----------- ----------- ----------- -----------
Operating income 10,665 7,907 19,295 9,415
Interest and other income, net 2,713 2,045 5,249 3,285
----------- ----------- ----------- -----------
Income before income taxes 13,378 9,952 24,544 12,700
Provision for income taxes 4,147 3,483 7,608 4,445
----------- ----------- ----------- -----------
Net income $9,231 $6,469 $16,936 $8,255
=========== =========== =========== ===========
Net income per common share
- - basic $0.40 $0.28 $0.74 $0.37
=========== =========== =========== ===========
Net income per common share
- - diluted $0.37 $0.27 $0.69 $0.36
=========== =========== =========== ===========
Weighted average common
shares outstanding - basic 23,076 23,164 22,993 22,357
=========== =========== =========== ===========
Weighted average common
shares outstanding - diluted 24,833 24,075 24,687 22,913
=========== =========== =========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1998 1997
---------- ----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $114,725 $108,308
Marketable securities 95,144 78,654
Accounts receivable, net of allowances of $7,664
and $7,529 in 1998 and 1997, respectively 65,657 79,773
Inventories 9,980 9,842
Deferred tax assets 16,951 17,160
Prepaid expenses 5,576 4,645
Other current assets 3,759 2,700
---------- ----------
Total current assets 311,792 301,082
Property and equipment, net 35,225 38,917
Long-term deferred tax assets 14,820 14,820
Other assets 2,942 1,986
---------- ----------
Total assets $364,779 $356,805
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $20,785 $22,166
Current portion of long-term debt 631 783
Accrued compensation and benefits 18,312 23,737
Accrued expenses 28,186 30,249
Income taxes payable 17,472 11,210
Deferred revenues 21,293 26,463
---------- ----------
Total current liabilities 106,679 114,608
Long-term debt, less current portion 87 403
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock 240 242
Additional paid-in capital 252,386 252,307
Retained earnings 36,758 27,286
Treasury stock (24,245) (27,548)
Deferred compensation (4,939) (8,034)
Cumulative translation adjustment (2,207) (2,472)
Net unrealized gains on marketable securities 20 13
---------- ----------
Total stockholders' equity 258,013 241,794
---------- ----------
Total liabilities and stockholders' equity $364,779 $356,805
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended June 30,
-------------------------
1998 1997
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $16,936 $8,255
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,851 13,271
Compensation from stock grants and options 3,099
Provision for doubtful accounts 567 564
Changes in deferred tax assets 223 (147)
Tax benefit of stock option exercises 600
(Gain)/loss on disposal of equipment (539) 461
Changes in operating assets and liabilities:
Accounts receivable 13,296 805
Inventories 783 6,345
Prepaid expenses and other current assets (2,056) (1,199)
Accounts payable (1,380) 2,651
Income taxes payable 6,230 7,257
Accrued expenses, compensation, and benefits (7,543) 13,058
Deferred revenues (5,115) 673
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,352 52,594
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (20) (107)
Purchases of property and equipment and other assets (9,097) (7,817)
Proceeds from disposal of equipment 1,218 989
Purchases of marketable securities (100,300) (70,204)
Proceeds from sales of marketable securities 83,817 20,705
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (24,382) (56,434)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (468) (1,052)
Purchase of common stock for treasury (12,837)
Proceeds from issuance of common stock 8,775 19,116
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,530) 18,064
Effects of exchange rate changes on cash and cash
equivalents (23) (413)
---------- ----------
Net increase in cash and cash equivalents 6,417 13,811
Cash and cash equivalents at beginning of period 108,308 75,795
---------- ----------
Cash and cash equivalents at end of period $114,725 $89,606
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
PART I. FINANCIAL INFORMATION
ITEM 1D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL INFORMATION
The accompanying condensed consolidated financial statements include the
accounts of Avid Technology, Inc. and its wholly owned subsidiaries ("the
Company"). The interim financial statements are unaudited. However, in the
opinion of management, the condensed consolidated financial statements include
all adjustments, consisting of only normal, recurring adjustments, necessary for
their fair presentation. Interim results are not necessarily indicative of
results expected for a full year. The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions for Form 10-Q
and therefore do not include all information and footnotes necessary for a
complete presentation of operations, the financial position and cash flows of
the Company, in conformity with generally accepted accounting principles. The
Company filed audited consolidated financial statements for the year ended
December 31, 1997 on Form 10-K which included all information and footnotes
necessary for such presentation.
The Company's preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates included in these financial statements
include accounts receivable and sales allowances, inventory valuation and income
tax valuation allowances. Actual results could differ from those estimates.
2. NET INCOME PER COMMON SHARE
The Company computes basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share". The
following tables reconcile the numerator and denominator of the basic and
diluted earnings per share computations shown on the Condensed Consolidated
Statements of Operations:
(In thousands, except per share data)
For the Three Months Ended June 30,
-----------------------------------
1998 1997
------------ -------------
Basic EPS
Numerator:
Net income $9,231 $6,469
Denominator:
Common shares outstanding 23,076 23,164
Basic EPS $0.40 $0.28
============ =============
Diluted EPS
Numerator:
Net income $9,231 $6,469
Denominator:
Common shares outstanding 23,076 23,164
Common stock equivalents 1,757 911
------------ -------------
24,833 24,075
Diluted EPS $0.37 $0.27
============ =============
Options to purchase 77,786 and 711,496 shares of common stock outstanding at
June 30, 1998 and 1997, respectively, were excluded from the calculation of
diluted earnings per share because the exercise prices of those options exceeded
the average market price of common stock for the three-month periods ended June
30, 1998 and 1997, respectively.
(In thousands, except per share data)
For the Six Months Ended June 30,
-----------------------------------
1998 1997
------------ -------------
Basic EPS
Numerator:
Net income $16,936 $8,255
Denominator:
Common shares outstanding 22,993 22,357
Basic EPS $0.74 $0.37
============ =============
Diluted EPS
Numerator:
Net income $16,936 $8,255
Denominator:
Common shares outstanding 22,993 22,357
Common stock equivalents 1,694 556
------------ -------------
24,687 22,913
Diluted EPS $0.69 $0.36
============ =============
Options to purchase 73,391 and 2,427,177 shares of common stock outstanding at
June 30, 1998 and 1997, respectively, were excluded from the calculation of
diluted earnings per share because the exercise prices of those options exceeded
the average market price of common stock for the six-month periods ended June
30, 1998 and 1997, respectively.
3. INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31,
1998 1997
------------- -------------
Raw materials $5,460 $5,488
Work in process 1,480 674
Finished goods 3,040 3,680
------------- -------------
$9,980 $9,842
============= =============
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following (in thousands):
June 30, December 31,
1998 1997
-------------- --------------
Computer and video equipment $79,255 $75,042
Office equipment 4,591 4,652
Furniture and fixtures 6,775 6,820
Leasehold improvements 13,150 13,105
-------------- --------------
103,771 99,619
Less accumulated depreciation and
amortization 68,546 60,702
-------------- --------------
$35,225 $38,917
============== ==============
5. LINE OF CREDIT
The Company has an unsecured line of credit with a group of banks, which
provides for up to $35.0 million in revolving credit. The line of credit
agreement was renewed on June 30, 1998 to expire on June 29, 1999. Under the
terms of the agreement, the Company must pay an annual commitment fee of 1/4% of
the average daily unused portion of the facility, payable quarterly in arrears.
The Company has 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 are equal to the Base Rate or LIBOR plus
1.25%, respectively. Additionally, the Company is required to maintain certain
financial ratios and is 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 June 30, 1998.
6. 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.
In December 1995, six purported shareholder class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company and certain of its underwriters and officers and directors as
defendants. On July 31, 1996, the six actions were consolidated into two
lawsuits: one brought under the 1934 Securities Exchange Act (the "'34 Act
suit") and one under the 1933 Securities Act (the "'33 Act suit"). Principal
allegations contained in the two complaints included claims that the defendants
violated federal securities laws and state common law by allegedly making false
and misleading statements and by allegedly failing to disclose material
information that was required to be disclosed, purportedly causing the value of
the Company's stock to be artificially inflated. The '34 Act suit was brought on
behalf of all persons who bought the Company's stock between July 26, 1995 and
December 20, 1995. The '33 Act suit was brought on behalf of persons who bought
the Company's stock pursuant to its September 21, 1995 public offering. Both
complaints sought unspecified damages for the decline of the value of the
Company's stock during the applicable period. A motion to dismiss both the '34
Act suit and the '33 Act suit was filed on October 18, 1996. After briefing and
argument on the motions, the Court issued its decision on August 14, 1997. With
respect to the '33 Act suit, the Court dismissed the claims against the
underwriters, dismissed the claims brought against the Company under section
12(2) of the '33 Act, and dismissed the plaintiffs' claims relating to the
Company's all digital newsroom (in both the '33 Act and '34 Act cases) on the
grounds that the plaintiffs had failed to allege a material misrepresentation or
omission. Finding that it was required to draw all reasonable inferences in
favor of the plaintiffs, the Court declined to dismiss the plaintiffs' remaining
claims in the '33 Act case and the '34 Act claims relating to matters other than
the all digital newsroom. On September 26, 1997, the plaintiffs filed a motion
seeking to have the Court reconsider its dismissal of the underwriters from the
'33 Act suit, which the underwriters opposed. The plaintiffs also sought leave
to amend their '33 Act Complaint to add new claims concerning the all digital
newsroom, which the Company opposed. In February 1998, the Company and the
plaintiffs entered into a Stipulation of Settlement in both suits and the judge
issued an order granting preliminary approval of the settlement. On May 28,
1998, the Court issued a final order approving the Stipulation of Settlement
between the Company and the plaintiffs in both suits. The period within which
the Court's order could have been appealed has expired without an appeal being
filed; accordingly, the '33 Act suit and '34 Act suit are officially settled.
The amount of the settlement did not have a material effect on the Company's
consolidated financial position or results of operations.
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 matters or employee relations
matters 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.
7. CAPITAL STOCK
During June and July 1997, the Company granted 347,200 shares of $.01 par value
restricted common stock to certain employees under the 1997 Stock Incentive Plan
approved by the shareholders on June 4, 1997. 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 $9,100,000 with
respect to this restricted stock. This deferred compensation represents 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.
On October 23, 1997 and February 5, 1998, the Company announced that the Board
of Directors authorized the repurchase of up to 1.0 million and 1.5 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 will continue to use any repurchased shares for its
employee stock plans. As of December 31, 1997, the Company had repurchased a
total of 1.0 million shares at a cost of $28,776,000, which completed the
program announced in October 1997. As of June 30, 1998, the Company had
repurchased approximately 348,000 shares of Avid common stock at a cost of
$12,836,000 under the program announced during February 1998. Subsequent to June
30, 1998, the Company repurchased approximately 863,000 additional shares of
Avid common stock, under the program, at a cost of $29,082,000. These additional
purchases include the 500,000 shares repurchased from Intel Corporation as
discussed below.
On March 24, 1997, the Company issued 1,552,632 shares of its common stock to
Intel Corporation in exchange for approximately $14,727,000 in cash. The Company
used the net proceeds for working capital and other general corporate purposes.
On August 7, 1998, the Company repurchased, under the on-going stock repurchase
program, 500,000 shares of Avid common stock from Intel Corporation at $33.00
per share, or $16,500,000.
8. RECENT ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair values. Changes in the fair values of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether or not a derivative is designated as part of a
hedge transaction and, if it is, depending on the type of hedge transaction. The
Company has not yet completed its evaluation of the impact of the adoption of
this new standard.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130
requires the reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive reporting methodology that
includes disclosure of certain financial information that historically has not
been recognized in the calculation of net income. The adoption of SFAS 130 had
no impact on the Company's net income or stockholder's equity. Total
comprehensive income, net of taxes, was $9,193,000 and $6,504,000 for the
three-month period ended June 30, 1998 and 1997, respectively and $17,292,000
and $6,893,000 for the six-month period ended June 30, 1998 and 1997,
respectively, which consists of net income, the net changes in foreign currency
translation adjustment and the net unrealized gains and losses on
available-for-sale securities.
In March 1998, Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), was issued which
provides guidance on applying generally accepted accounting principles in
addressing whether and under what condition the costs of internal-use software
should be capitalized. SOP 98-1 is effective for transactions entered into in
fiscal years beginning after December 15, 1998, however earlier adoption is
encouraged. The Company adopted the guidelines of SOP 98-1 as of January 1,
1998, and the impact of such adoption was not material to results of operations
or cash flows for the three- and six-month periods ended June 30, 1998.
9. SUBSEQUENT EVENTS
On June 15, 1998, the Company entered into a Stock and Asset Purchase Agreement
(the "Agreement") with Microsoft Corporation ("Microsoft") and its wholly owned
Canadian subsidiary, Softimage Inc. ("Softimage"). On August 3, 1998, under the
terms of the Agreement, the Company acquired from Microsoft the outstanding
capital stock of Softimage as well as certain assets and rights relating to the
Softimage business. The Company 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, (ii) 2,344,490 shares of Common Stock and (iii) a ten-year warrant to
purchase 1,155,235 shares of Common Stock at an exercise price of $47.65 per
share. In addition, the Company issued options, with a nominal exercise price,
to Softimage employees to purchase up to 1,911,846 shares of Common Stock ("Avid
Options") to replace unvested Microsoft options that were forfeited in the
transaction. The principal amount of the Note will be increased by $39.71 for
each share underlying forfeited Avid Options. The transaction will be accounted
for under the purchase method of accounting.
Based on an independent valuation of the consideration to be paid, the Company
has estimated the purchase price for accounting purposes to be approximately
$249 million. As a result of this valuation, the Company expects to record a
pre-tax, non-recurring charge for the write-off of in-process technology of
approximately $194 million in the third quarter of 1998. The Company also
expects to record on its balance sheet intangible assets consisting of
approximately $45 million of completed technology and $12 million of other
acquisition related intangibles. The completed technology and other intangibles
will be amortized into operating expenses over their estimated useful lives of
two and three years. The Company also expects to record approximately $6 million
in working capital and fixed assets, and $8 million as an offsetting deferred
tax liability. The estimated amounts above are expected to be finalized during
the third quarter of 1998.
PART I. FINANCIAL INFORMATION
ITEM 2. 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 develops and provides digital film, video and audio editing and special
effects software and hardware technologies to create media content for
information and entertainment applications. Integrated with the Company's
digital storage and networking solutions, Avid's products are used worldwide in
film studios; video production and post-production facilities; network,
independent and cable television stations; recording studios; advertising
agencies; government and educational institutions; corporate communications
departments; and by consumers.
RESULTS OF OPERATIONS
Net Revenues
The Company's net revenues have been derived mainly from the sales of disk-based
digital, nonlinear media editing systems and related peripherals, licensing of
related software, and sales of maintenance contracts. Net revenues decreased by
$10.0 million (8.1%) to $112.9 million in the quarter ended June 30, 1998 from
$122.9 million for the same quarter of last year. Net revenues for the six
months ended June 30, 1998 of $221.6 million decreased by $9.5 million (4.1%)
from $231.1 million for the six months ended June 30, 1997. The decline in
revenues in both periods reflected decreased sales of system upgrades, Avid
Cinema, Media Composer products, and storage peripherals. These decreased
revenues were offset by increased sales of MCXpress and Avid Xpress products,
customer service, and digital audio products. During 1998, the Company began
shipments of Media Composer 9000, version 7.0 of Media Composer and Film
Composer, and version 2.0 of Avid Xpress, as well as version 1.1 and the Media
Browse Module of AvidNews. Additionally, late in the second quarter of 1998, the
Company began shipping version 5.0 of Avid Media Illusion. To date, product
returns of all products have been immaterial.
The Company continues 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 70% of net revenue for the three
months ended June 30, 1998, compared to greater than 60% in the same period of
last year.
International sales (sales to customers outside the U.S. and Canada) accounted
for approximately 48.9% and 50.0% of the Company's second quarter 1998 and 1997
net revenues, respectively. International sales decreased by 10.3% in the second
quarter of 1998 compared to the same period in 1997. International sales
accounted for approximately 48.4% and 49.3% of the Company's net revenues for
the first six months of 1998 and 1997, respectively. International sales
decreased by 5.9% in the six-month period ended June 30, 1998 from the same
period in 1997. International revenues reflected increased sales of MCXpress and
Avid Xpress offset by reductions in sales of upgrades, Media Composer products,
and storage peripherals. Additionally, revenue in the first half of 1998 was
impacted adversely by the strengthening of the U.S. dollar against various
currencies.
Gross Profit
Cost of revenues consists primarily of costs associated with the acquisition of
components; the assembly, test, and distribution of finished products;
provisions for inventory obsolescence; warehousing; shipping; and post-sales
customer support costs. The resulting gross profit fluctuates based on factors
such as the mix of products sold, the cost and proportion of third-party
hardware included in the systems sold by the Company, the distribution channels
through which products are sold, the timing of new product introductions, the
offering of product upgrades, price discounts and other sales promotion programs
and sales of aftermarket hardware products. Gross margin increased to 60.5% in
the second quarter of 1998 compared to 51.4% in the same period of 1997 and
increased to 59.4% for the six-month period ended June 30, 1998 from 49.9% for
the same period in 1997. These increases were primarily due to lower material
costs, continued improvements in manufacturing efficiencies, and improved
service margins. The Company currently expects that gross margins for the
remainder of 1998 will approximate the results of the two most recent quarters.
Research and Development
Research and development expenses increased by $2.3 million (12.7%) in the
second quarter of 1998 compared to the same period in 1997 and increased $6.2
million (17.9%) for the six-month period ended June 30, 1998 compared to the
same period of 1997. These increased expenditures were primarily due to
additions to the Company's engineering staffs for the continued development of
new and existing products and higher compensation-related costs. Research and
development expenses increased to 18.3% of net revenues in the second quarter of
1998 compared to 14.9% in the same quarter of 1997 and increased to 18.5% from
15.0% for the six-month periods ended June 30, 1998 and 1997, respectively.
These increases were primarily due to the increases in research and development
expenses noted above combined with decreases in revenues. The Company
capitalized immaterial amounts of software development costs during the six
months ended June 30, 1998 and 1997. These costs will be amortized into cost of
revenues over the estimated life of the related products, generally 12 to 24
months. Amortization totaled approximately $58,000 and $126,000 during the
three- and six-month periods ended June 30, 1998, respectively. For the three-
and six-month periods ended June 30, 1997, amortization totaled approximately
$227,000 and $656,000, respectively. The capitalized software development costs
are associated primarily with enhancements to Media Composer and Pro Tools
software, as well as the development of software to be used in other products.
Marketing and Selling
Marketing and selling expenses decreased by approximately $103,000 (0.3%) in the
second quarter of 1998 compared to the same period in 1997 and decreased by
$706,000 (1.2%) for the six-month period ended June 30, 1998 compared to the
same period in 1997. These decreased expenditures in selling and marketing were
primarily due to on-going savings in selling expenses as a result of the shift
to an indirect sales model. These savings were offset by increased investment in
marketing programs. Marketing and selling expenses increased to 27.1% as a
percentage of net revenues in the second quarter of 1998 compared to 25.0% in
the same quarter of 1997 and increased to 26.3% from 25.5% for the six-month
periods ended June 30, 1998 and 1997, respectively. These increases were
primarily due to relatively flat spending in the second quarter and decreased
spending for the six-month period combined with decreases in revenues.
General and Administrative
General and administrative expenses increased by $156,000 (2.5%) in the second
quarter of 1998 compared to the same period in 1997 and increased by $933,000
(7.7%) for the six-month period ended June 30, 1998 compared to the same period
in 1997. These increased expenditures in general and administrative expenses
were primarily due to higher compensation-related costs. General and
administrative expenses increased to 5.7% as a percentage of net revenues in the
second quarter of 1998 compared to 5.1% in the same quarter of 1997 and
increased to 5.9% from 5.2% for the six month period ended June 30, 1998 and
1997, respectively. These increases were primarily due to relatively flat
spending in the second quarter and increased spending for the six-month period
combined with decreases in revenues.
Interest and Other Income, Net
Interest and other income, net consists primarily of interest income, other
income and interest expense. Interest and other income, net for the second
quarter in 1998 increased $668,000 as compared to the same period in 1997. For
the six-month period ended June 30, 1998 as compared to the same period in 1997,
interest and other income, net increased $2.0 million. These increases were
primarily due to higher investment balances.
Provision for Income Taxes
The Company's effective tax rate was 31% for the three and six months ended June
30, 1998, compared to 35% for the three- and six-months ended June 30, 1997. The
1998 effective tax rate of 31% is 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.
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
June 30, 1998, the Company's principal sources of liquidity included cash, cash
equivalents and marketable securities totaling approximately $209.9 million.
The Company's operating activities generated cash of $35.4 million in the six
months ended June 30, 1998 compared to $52.6 million in the six months ended
June 30, 1997. Cash was generated during the six months ended June 30, 1998
primarily from net income, as well as from collections of accounts receivable
and increases in income taxes payable offset by decreases in accrued expenses
and deferred revenue. In the six months ended June 30, 1997, cash was generated
primarily from net income, as well as increases in accrued expenses and income
taxes payable and reductions in inventory.
The Company purchased $9.1 million of property and equipment and other assets
during the six months ended June 30, 1998, compared to $7.8 million in the same
period in 1997. These purchases included primarily hardware and software for the
Company's information systems and equipment to support research and development
activities.
The Company has an unsecured line of credit with a group of banks which provides
for up to $35.0 million in revolving credit. The line of credit agreement was
renewed on June 30, 1998 to expire on June 29, 1999. Under the terms of the
agreement, the Company must pay an annual commitment fee of 1/4% of the average
daily unused portion of the facility, payable quarterly in arrears. The Company
has 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 are equal to the Base Rate or LIBOR plus 1.25%, respectively.
Additionally, the Company is required to maintain certain financial ratios and
is 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 June 30, 1998. The Company believes existing cash and marketable securities,
internally generated funds and available borrowings under its bank credit line
will be sufficient to meet the Company's cash requirements, including capital
expenditures, at least through the 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 and February 5, 1998, the Company announced that the Board
of Directors authorized the repurchase of up to 1.0 million and 1.5 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 will continue to use any repurchased shares for its
employee stock plans. As of December 31, 1997, the Company had repurchased a
total of 1.0 million shares at a cost of approximately $28.8 million, which
completed the program announced in October 1997. As of August 11, 1998, the
Company had repurchased approximately 1,211,000 shares of Avid common stock at a
cost of approximately $41.9 million, under the program announced during February
1998. These purchases under the program announced in February 1998, include the
repurchase of 500,000 shares of Avid common stock from Intel Corporation. Intel
originally purchased 1,552,632 shares of Avid common stock at $9.50 per share in
March 1997. See Note 7 to Condensed Consolidated Financial Statements herein.
On June 15, 1998, the Company entered into a Stock and Asset Purchase Agreement
(the "Agreement") with Microsoft Corporation ("Microsoft") and its wholly owned
Canadian subsidiary, Softimage Inc. ("Softimage"). On August 3, 1998, under the
terms of the Agreement, the Company acquired from Microsoft the outstanding
capital stock of Softimage as well as certain assets and rights relating to the
Softimage business. The Company 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, (ii) 2,344,490 shares of Common Stock and (iii) a ten-year warrant to
purchase 1,155,235 shares of Common Stock at an exercise price of $47.65 per
share. In addition, the Company issued options, with a nominal exercise price,
to Softimage employees to purchase up to 1,911,846 shares of Common Stock ("Avid
Options") to replace unvested Microsoft options that were forfeited in the
transaction. The principal amount of the Note will be increased by $39.71 for
each share underlying forfeited Avid Options.
NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair values. Changes in the fair values of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether or not a derivative is designated as part of a
hedge transaction and, if it is, depending on the type of hedge transaction. The
Company has not yet completed its evaluation of the impact of the adoption of
this new standard.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
The Company's gross margin has fluctuated, and may continue to fluctuate, based
on factors such as the mix of products sold, cost and the proportion of
third-party hardware included in the systems sold by the Company, the
distribution channels through which products are sold, the timing of new product
introductions, the offering of product and platform upgrades, price discounts
and other sales promotion programs, the volume of sales of aftermarket hardware
products, the costs of swapping or fixing products released to the market with
errors or flaws, provisions for inventory obsolescence, allocations of overhead
costs to manufacturing and customer support costs to cost of goods, sales of
third-party computer hardware to its distributors, and competitive pressure on
selling prices of products. The Company's systems and software products
typically have higher gross margins than storage devices and product upgrades.
Gross profit varies from product to product depending primarily on the
proportion and cost of third-party hardware included in each product. The
Company, from time to time, adds functionality and features to its systems. If
such additions were 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. In addition, in 1997 and during the first
half of 1998, the Company installed server-based, all-digital broadcast newsroom
systems at certain customer sites. Some of these systems have been accepted by
customers, and the resulting revenues and associated costs were recognized by
the Company. Others of these systems have not yet been accepted by customers.
The Company believes that such installations, when and if fully recognized as
revenue on customer acceptance, will be profitable. However, the Company is
unable to determine whether and when the systems will be accepted. In any event,
the Company believes that, because of the high proportion of third-party
hardware, including computers and storage devices, included in such systems, the
gross margins on such sales will be lower than the gross margins generally on
the Company's other systems.
The Company has shifted an increasing proportion of its sales through
indirect channels such as distributors and resellers. The majority of the
Company's product sales to the broadcast industry, however, continues to be sold
on a direct basis. The Company believes the overall shift to indirect channels
has resulted in an increase in the number of software and circuit board "kits"
sold through indirect channels in comparison with turnkey systems consisting of
CPUs, monitors, and peripheral devices, including accompanying software and
circuit boards, sold by the Company through its direct sales force to customers.
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. Therefore, to the extent the Company
increases its sales through indirect channels, its revenue per unit sale will be
less than it would have been had the same sale been made directly by the
Company. In the event the Company is unable to increase the volume of sales in
order to offset this decrease in revenue per unit sale or is unable to continue
to reduce its costs associated with such sales, profits could be adversely
affected.
The Company's operating expense levels are based, in part, on its expectations
of future revenues. In recent quarters approximately half of the Company's
revenues for the quarter have been recorded in the third month of the quarter.
Further, in many cases, quarterly operating expense levels cannot be reduced
rapidly in the event that quarterly revenue levels fail to meet internal
expectations. Therefore, if quarterly revenue levels fail to meet internal
expectations 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. Reductions of certain operating expenses,
if incurred, in the face of lower than expected revenues could involve material
one-time charges associated with reductions in headcount, trimming product
lines, eliminating facilities and offices, and writing off certain assets.
The Company has significant deferred tax assets. The deferred tax assets reflect
the net tax effects of tax credit and operating loss carryforwards and temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
The Company has expanded its product line to address the digital media
production needs of the television broadcast news market, online film and video
finishing market and the emerging market for multimedia production tools,
including the corporate user market. The Company has limited experience in
serving these markets, and there can be no assurance that the Company will be
able to develop such products successfully, 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,
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 has from time to time developed new products, or upgraded existing
products that incorporate advances in enabling technologies. The Company
believes that further advances will occur in such enabling technologies,
including microprocessors, computers, operating systems, networking
technologies, bus architectures, storage devices, and digital media formats. The
Company may be required, based on market demand or the decision of certain
suppliers, to end the manufacturing of certain products based on earlier
generations of technology, to upgrade existing products or develop other
products that incorporate these further advances. The Company is developing
additional products which operate using Intel Architecture ("IA") -based
computers and the Windows NT operating system. There can be no assurance that
customers will not defer purchases of existing Apple-based products in
anticipation of the release of IA-based or NT-based products, that the Company
will be successful in developing additional IA-based, NT-based or other new
products or that they will gain market acceptance, if developed. Any deferral by
customers of purchases of existing Apple-based products or any failure by the
Company to develop such new products in a timely way or to gain market
acceptance for them could have a material adverse effect on the Company's
business and results of operations.
The Company's products operate primarily only on Apple computers. There can be
no assurance that customers will not delay purchases of Apple-based products, or
purchase competitors' products based on non-Apple computers, that Apple will
continue to develop and manufacture products suitable for the Company's existing
and future markets or that the Company will be able to secure an adequate supply
of Apple computers, the occurrence of any of which could have a material adverse
effect on the Company's business and results of operations.
The Company is also dependent on a number of other suppliers as sole source
vendors of certain other key components of its products and systems. Products
purchased by the Company from sole source vendors include computers from Apple
and SGI; video compression chips manufactured by C-Cube Microsystems; a small
computer systems interface ("SCSI") accelerator board from ATTO Technology; a 3D
digital video effects board from Pinnacle Systems; application specific
integrated circuits ("ASICS") from AMI, Atmel, and LSI Logic; digital signal
processing integrated circuit from Motorola; and a fibre channel adapter card
from Adaptec. 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 Truevision, Inc. 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, digital news production, 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 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 Note 6
to Condensed Consolidated Financial Statements, and Part II, Item I, "Legal
Proceedings," herein.
The Company recognizes that it must ensure that its products and operations will
not be adversely impacted by year 2000 software failures (the "Year 2000 issue")
which can arise in time-sensitive software applications which utilize a field of
two digits to define the applicable year. In such applications, a date using
"00" as the year may be recognized as the year 1900 rather than the year 2000.
In general, the Company expects to resolve Year 2000 issues through planned
replacement or upgrades. In addition, the Company expects that any costs
incurred to modify its internal systems will not be material. Although
management does not expect Year 2000 issues to have a material impact on its
business or future results of operations, there can be no assurance that there
will not be interruptions of operations or other limitations of system
functionality or that the Company will not incur significant costs to avoid such
interruptions or limitations.
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the euro. The participating countries have agreed to
adopt the euro as their common legal currency on that date. The Company has
formed a task force and has begun to assess the potential impact to the Company
that may result from the euro conversion. In addition to tax and accounting
considerations, the Company is assessing the potential impact from the euro
conversion in a number of areas, including the following: (1) the technical
challenges to adapt information technology and other systems to accommodate
euro-denominated transactions; (2) the competitive impact of cross-border price
transparency, which may make it more difficult for businesses to charge
different prices for the same products on a country-by-country basis; (3) the
impact on currency exchange costs and currency exchange rate risk; and (4) the
impact on existing contracts. At this early stage of its assessment, the Company
can not yet predict the anticipated impact of the euro conversion on the
Company.
On June 15, 1998, the Company entered into a Stock and Asset Purchase Agreement
(the "Agreement") with Microsoft Corporation ("Microsoft") and its wholly owned
Canadian subsidiary, Softimage, Inc. ("Softimage"). On August 3, 1998, under the
terms of the Agreement, the Company acquired from Microsoft the outstanding
capital stock of Softimage as well as certain assets and rights relating to the
Softimage business. See ITEM 5, "Other Events," of the Company's current report
on Form 8-K filed on July 7, 1998, and Note 9 to Condensed Consolidated
Financial Statements herein. The Company's business and results of operations
could be materially adversely affected in the event the Company fails to
successfully integrate the business and operations of Softimage.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1995, six purported shareholder class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company and certain of its underwriters and officers and directors as
defendants. On July 31, 1996, the six actions were consolidated into two
lawsuits: one brought under the 1934 Securities Exchange Act (the "`34 Act
suit") and one under the 1933 Securities Act (the "`33 Act suit"). Principal
allegations contained in the two complaints included claims that the defendants
violated federal securities laws and state common law by allegedly making false
and misleading statements and by allegedly failing to disclose material
information that was required to be disclosed, purportedly causing the value of
the Company's stock to be artificially inflated. The `34 Act suit was brought on
behalf of all persons who bought the Company's stock between July 26, 1995 and
December 20, 1995. The `33 Act suit was brought on behalf of persons who bought
the Company's stock pursuant to its September 21, 1995 public offering. Both
complaints sought unspecified damages for the decline of the value of the
Company's stock during the applicable period. A motion to dismiss both the `34
Act suit and the `33 Act suit was filed on October 18, 1996. After briefing and
argument on the motions, the Court issued its decision on August 14, 1997. With
respect to the `33 Act suit, the Court dismissed the claims against the
underwriters, dismissed the claims brought against the Company under ss.12(2) of
the `33 Act, and dismissed the plaintiffs' claims relating to the Company's all
digital newsroom (in both the `33 Act and `34 Act cases) on the grounds that the
plaintiffs had failed to allege a material misrepresentation or omission.
Finding that it was required to draw all reasonable inferences in favor of the
plaintiffs, the Court declined to dismiss the plaintiffs' remaining claims in
the `33 Act case and the `34 Act claims relating to matters other than the all
digital newsroom. On September 26, 1997, the plaintiffs filed a motion seeking
to have the Court reconsider its dismissal of the underwriters from the `33 Act
suit, which the underwriters opposed. The plaintiffs also sought leave to amend
their `33 Act Complaint to add new claims concerning the all digital newsroom,
which the Company opposed. In February 1998, the Company and the Plaintiffs
entered into a Stipulation of Settlement in both suits and the judge issued an
order granting preliminary approval of the settlement. On May 28, 1998, the
Court issued a final order approving the Stipulation of Settlement between the
Company and the Plaintiffs in both suits. The period within which the Court's
order could have been appealed has expired without an appeal being filed;
accordingly, the '33 Act suit and '34 Act suit are officially settled. The
amount of the settlement did not have a material effect on the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 19, 1998. At the
meeting, Messrs. Peter C. Gotcher, Roger J. Heinen and William J. Warner
were elected as Class II Directors. The vote with respect to each nominee is
set forth below:
Total Vote For Total Vote Withheld
Each Director From Each Director
---------------- --------------------
Mr. Gotcher 19,375,960 288,569
Mr. Heinen 19,272,031 392,498
Mr. Warner 19,378,116 286,413
Additional Directors of the Company whose term of office continues after the
meeting are Charles T. Brumback, William E. Foster, Robert M. Halperin, Nancy
Hawthorne, William J. Miller and Lucille S. Salhany.
The stockholders also authorized the amendment of the Company's 1996 Employee
Stock Purchase Plan to increase by 500,000 shares to 700,000 shares the number
of shares authorized for issuance under this Plan, by a vote of 18,809,928
shares for, 771,743 shares against, 82,858 shares abstaining, with no broker
non-votes.
The stockholders also authorized the amendment of the Company's 1997 Stock
Incentive Plan to increase by 500,000 shares to 1,500,000 the number of shares
authorized for issuance under the Plan, by a vote of 13,470,186 shares for,
6,036,048 shares against, 86,669 shares abstaining, with 71,626 broker
non-votes.
In addition, the stockholders ratified the selection of PricewaterhouseCoopers
LLP as the Company's independent auditors by a vote of 19,584,200 shares for,
6,631 shares against, and 73,698 shares abstaining.
ITEM 5. OTHER INFORMATION
Any proposal that a stockholder wishes the Company to consider for inclusion in
the Company's proxy statement and form of proxy card for the Company's 1999
Annual Meeting of Stockholders (the "1999 Meeting") must be submitted to the
Secretary of the Company at its offices, Metropolitan Technology Park, One Park
West, Tewksbury, Massachusetts 01876, no later than December 7, 1998.
In addition, the Company's Bylaws require all stockholder proposals to be timely
submitted in advance to the Company at the above address (other than proposals
submitted for inclusion in the Company's proxy statement and form of proxy card
as described above). To be timely, the notice must be received by the Company no
later than March 7, 1999 or 60 days before the date of the 1999 Meeting,
whichever is later. The Company has not yet set a date for the 1999 Meeting.
However, if the 1999 Meeting is held on May 19, 1999 (the anniversary of the
1998 Annual Meeting of Stockholders), the deadline for delivery of the notice
would be March 20, 1999.
On June 15, 1998, the Company entered into a Stock and Asset Purchase Agreement
(the "Agreement") with Microsoft Corporation ("Microsoft") and its wholly owned
Canadian subsidiary, Softimage Inc. ("Softimage"). On August 3, 1998, under the
terms of the Agreement, the Company acquired from Microsoft the outstanding
capital stock of Softimage as well as certain assets and rights relating to the
Softimage business. The Company 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, (ii) 2,344,490 shares of Common Stock and (iii) a ten-year warrant to
purchase 1,155,235 shares of Common Stock at an exercise price of $47.65 per
share. In addition, the Company issued options, with a nominal exercise price,
to Softimage employees to purchase up to 1,911,846 shares of Common Stock ("Avid
Options") to replace unvested Microsoft options that were forfeited in the
transaction. The principal amount of the Note will be increased by $39.71 for
each share underlying forfeited Avid Options.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
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. Exhibits not filed
herewith will be provided to the Securities and Exchange Commission
upon request by The Commission.
10.1 Eighth Amendment dated as of June 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.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
For the fiscal quarter ended June 30, 1998, the Company filed no Current Reports
on Form 8-K.
SIGNATURES
Pursuant to the requirements 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.
Date: August 12, 1998 By: /s/ William L. Flaherty
------------------------
William L. Flaherty
Senior Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
EXHIBIT INDEX
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. Exhibits not filed
herewith will be provided to the Securities and Exchange Commission
upon request by The Commission.
10.1 Eighth Amendment dated as of June 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.
27 Financial Data Schedule