AVID TECHNOLOGY, INC.
Metropolitan Technology Park
One Park West
Tewksbury, MA 01876
August 12, 1997
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, 1997.
This filing is being effected by direct transmission to the Commission's
EDGAR System.
Very truly yours,
/s/ Frederic G. Hammond
Frederic G. Hammond
General Counsel
==============================================================================
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, 1997
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: (508) 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
8, 1997 was 23,892,042.
==============================================================================
AVID TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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, 1997 and 1996, and the six
months ended June 30, 1997 and 1996 ....................................1
b) Condensed Consolidated Balance Sheets as of
June 30, 1997 (unaudited) and December 31, 1996.........................2
c) Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 1997 and 1996 ........................3
d) Notes to Condensed Consolidated Financial Statements (unaudited)........4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................15
ITEM 4. Submission of Matters to a Vote of Security Holders...............16
ITEM 6. Exhibits and Reports on Form 8-K..................................17
Signatures...................................................................18
EXHIBIT INDEX................................................................19
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,
--------------------- ---------------------
1997 1996 1997 1996
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues $122,884 $109,095 $231,093 $201,134
Cost of revenues 59,700 59,416 115,886 111,872
--------- --------- --------- ---------
Gross profit 63,184 49,679 115,207 89,262
--------- --------- --------- ---------
Operating expenses:
Research and development 18,296 16,637 34,712 34,253
Marketing and selling 30,687 33,088 58,984 63,521
General and administrative 6,294 6,081 12,096 11,579
Nonrecurring costs 20,150
--------- --------- --------- ---------
Total operating expenses 55,277 55,806 105,792 129,503
--------- --------- --------- ---------
Operating income (loss) 7,907 (6,127) 9,415 (40,241)
Interest and other income, net 2,045 710 3,285 1,297
--------- --------- --------- ---------
Income (loss) before income taxes 9,952 (5,417) 12,700 (38,944)
Provision for (benefit from)
income taxes 3,483 (1,760) 4,445 (12,489)
--------- --------- --------- ---------
Net income (loss) $6,469 $(3,657) $8,255 $(26,455)
========= ========== ========= =========
Net income (loss) per common share $0.27 $(0.17) $0.36 $(1.26)
========= ========== ========= =========
Weighted average common and
common equivalent shares
outstanding 24,075 21,104 22,913 21,062
========= ========= ========= =========
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,
1997 1996
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $89,606 $75,795
Marketable securities 57,801 17,248
Accounts receivable, net of allowances of $6,777
and $7,519 in 1997 and 1996, respectively 81,784 86,187
Inventories 23,271 28,359
Deferred tax assets 15,999 15,852
Prepaid expenses 6,801 6,310
Other current assets 2,547 1,947
------------- -------------
Total current assets 277,809 231,698
------------- -------------
Marketable securities 9,992 997
Property and equipment, net 42,870 49,246
Long-term deferred tax assets 15,538 15,538
Other assets 2,756 3,500
------------- -------------
Total assets $348,965 $300,979
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $27,844 $25,332
Current portion of long-term debt 1,080 1,726
Accrued compensation and benefits 12,119 9,085
Accrued expenses 31,166 21,844
Income taxes payable 10,356 3,258
Deferred revenues 25,243 25,133
------------- -------------
Total current liabilities 107,808 86,378
------------- -------------
Long-term debt, less current portion 780 1,186
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock 237 213
Additional paid-in capital 241,099 212,474
Retained earnings 9,706 1,451
Deferred compensation (8,932)
Cumulative translation adjustment (1,781) (724)
Net unrealized gains on marketable securities 48 1
------------- -------------
Total stockholders' equity 240,377 213,415
------------- -------------
Total liabilities and stockholders' equity $348,965 $300,979
============= =============
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,
--------------------------
1997 1996
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $8,255 $(26,455)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 13,271 14,089
Provision for accounts receivable allowances 564 3,236
Deferred tax assets (147) (10,729)
Provision for product transition costs,
non-cash portion 9,427
Provision for other nonrecurring costs,
non-cash portion 1,764
Tax benefit of stock option exercises 600
Loss on disposal of equipment 461
Changes in operating assets and liabilities:
Accounts receivable 805 15,064
Inventories 6,345 (12,368)
Prepaid expenses and other current assets (1,199) 18
Accounts payable 2,651 (3,449)
Accrued expenses 13,058 3,647
Income taxes payable 7,257 (4,442)
Deferred revenues 673 2,507
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 52,594 (7,691)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (107) (1,176)
Purchases of property and equipment and other assets (7,817) (16,156)
Proceeds from disposal of equipment 989
Purchases of marketable securities (70,204) (10,684)
Proceeds from sales of marketable securities 20,705 55,719
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (56,434) 27,703
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,052) (820)
Proceeds from issuance of common stock 19,116 1,929
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,064 1,109
Effects of exchange rate changes on cash and cash
equivalents (413) (66)
---------- ----------
Net increase in cash and cash equivalents 13,811 21,055
Cash and cash equivalents at beginning of period 75,795 32,847
---------- ----------
Cash and cash equivalents at end of period $89,606 $53,902
========== ==========
Supplemental disclosure of non-cash transactions:
For the six months ended June 30, 1996:
Acquisition of equipment under capital lease obligations.....$186
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, 1996 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 asset valuation allowances. Actual results could differ from those
estimates.
2. NET INCOME (LOSS) PER COMMON SHARE
Net income per common share is based upon the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are included in the per share calculations where the effect of their
inclusion would be dilutive. Net loss per common share is based upon the
weighted average number of common shares outstanding during the period. Common
equivalent shares result from the assumed exercise of outstanding stock options,
the proceeds of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method. Fully diluted net
income per share is not materially different from the reported primary net
income per share for all periods presented.
In February 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS
128 simplifies the computation of earnings per share ("EPS") by replacing the
presentation of primary EPS with a presentation of basic EPS. Basic EPS includes
no dilution and is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in
the earnings of an entity, similar to fully diluted EPS. SFAS 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. SFAS 128
requires restatement of all prior period earnings per share data.
Had the Company computed earnings per share consistent with the provisions of
SFAS 128, basic and diluted EPS would have been $0.28 and $0.27, respectively,
for the three-month period ended June 30, 1997 and $0.37 and $0.36 for the
six-month period ended June 30, 1997, respectively. Both basic and diluted EPS
for the three and six months ended June 30, 1996 would have been $(0.17) and
$(1.26), respectively.
3. INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31,
1997 1996
---------- ----------
Raw materials $13,351 $19,182
Work in process 1,296 870
Finished goods 8,624 8,307
---------- ----------
$23,271 $28,359
========== ==========
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following (in thousands):
June 30, December 31,
1997 1996
---------- ----------
Computer and video equipment $71,846 $68,171
Office equipment 4,490 4,233
Furniture and fixtures 6,930 6,915
Leasehold improvements 12,555 12,962
---------- ----------
95,821 92,281
Less accumulated depreciation and
amortization 52,951 43,035
--------- ----------
$42,870 $49,246
========== ==========
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 agreement was amended on June
27, 1997 to expire on June 30, 1998. 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 rate to be paid on the outstanding borrowings for each loan
annually is equal to the Base Rate or LIBOR plus 1.25%, respectively.
Additionally, the Company is required to maintain certain financial ratios and
covenants over the life of the agreement, including a restriction on the payment
of dividends. The Company had no borrowings against this facility as of June 30,
1997.
6. NONRECURRING COSTS
In the first quarter of 1996, the Company recorded a nonrecurring charge of
$20.2 million. Included in this charge was $7.0 million associated with
restructuring, consisting of approximately $5.0 million of costs related to
staff reductions of approximately 70 employees, primarily in the U.S., and
associated write-offs of fixed assets, and $2.0 million related to the decision
to discontinue development of certain products and projects. Included in this
$7.0 million were approximately $5.0 million of cash payments consisting of $3.6
million of salaries and related severance costs and $1.4 million of other staff
reduction and discontinued development costs. The non-cash charges of $2.0
million recorded during 1996 consist primarily of $1.5 million for the write-off
of fixed assets. Also included in this $20.2 million nonrecurring charge was
$13.2 million related to product transition costs associated with the transition
from NuBus to PCI bus technology in some of the Company's product lines. As of
December 31, 1996, the Company had completed the related restructuring and
product transition actions.
7. CONTINGENCIES
On June 7, 1995, the Company filed a patent infringement complaint in the United
States District Court for the District of Massachusetts against Data
Translation, Inc., a Marlboro, Massachusetts-based company. Avid is seeking
judgment against Data Translation that, among other things, Data Translation has
willfully infringed Avid's patent number 5,045,940, entitled "Video/Audio
Transmission System and Method." Avid is also seeking an award of treble damages
together with prejudgment interest and costs, Avid's costs and reasonable
attorneys' fees, and an injunction to prohibit further infringement by Data
Translation. The litigation has been temporarily stayed pending a decision by
the U.S. Patent and Trademark Office on a reissue patent application based on
the issued patent.
In December 1995, six purported shareholder class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company and certain of its underwriters and officers and directors as
defendants. On July 31, 1996, the six actions were consolidated into two
lawsuits: one brought under the 1934 Securities Exchange Act (the "`34 Act
suit") and one under the 1933 Securities Act (the "`33 Act suit"). Principal
allegations contained in the two complaints include claims that the defendants
violated federal securities laws and state common law by allegedly making false
and misleading statements and by allegedly failing to disclose material
information that was required to be disclosed, purportedly causing the value of
the Company's stock to be artificially inflated. The `34 Act suit was brought on
behalf of all persons who bought the Company's stock between July 26, 1995 and
December 20, 1995. The `33 Act suit was brought on behalf of persons who bought
the Company's stock pursuant to its September 21, 1995 public offering. Both
complaints seek unspecified damages for the decline of the value of the
Company's stock during the applicable period. A motion to dismiss both the `34
Act suit and the `33 Act suit was filed on October 18, 1996. Plaintiffs filed
oppositions to both motions on December 13, 1996. The defendants' Reply Briefs
were filed and the Court heard oral argument on all pending motions on January
28 and 29, 1997. Both motions have been taken under advisement by the court.
Although the Company believes that it and the other defendants have meritorious
defenses to the allegations made by the plaintiffs and intends to contest these
lawsuits vigorously, an adverse resolution of this litigation could have a
material adverse effect on the Company's consolidated financial position or
results of operations in the period in which the litigation is resolved. A
reasonable estimate of the Company's potential loss for damages cannot be made
at this time. No costs have been accrued for this possible loss contingency.
On March 11, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, the suit was transferred to the United States
District Court for the Southern District of New York on motion by the Company.
The complaint alleges infringement by Avid of U.S. patent number 4,258,385,
issued in 1981, and seeks injunctive relief, treble damages and costs, and
attorneys' fees. The Company believes that it has meritorious defenses to the
complaint and intends to contest it vigorously. However, an adverse resolution
of this litigation could have an adverse effect on the Company's consolidated
financial position or results of operations in the period in which the
litigation is resolved. No costs have been accrued for this possible loss
contingency.
On April 23, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the District of Massachusetts
by Data Translation, Inc., of Marlboro, Massachusetts. The complaint alleged
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief, treble damages and costs, and attorneys' fees. In April 1997, the
litigation was dismissed with prejudice by agreement of the parties. No monies
were paid and no other consideration (except for dismissal of claims of each
party) was exchanged by the parties in connection with the dismissal.
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 or
product performance. Management does not believe these claims would have a
material adverse effect on the financial position or results of operations of
the Company.
The Company has entered into employment agreements with certain officers of the
Company that provide for severance pay and benefits, including vesting of
options during the severance period, as defined in the agreements. 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 becomes the
beneficial owner of 30% or more of the Company's common stock, the shareholders
approve 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 cease 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 severance payments equal to two times salary
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.
8. CAPITAL STOCK
On March 24, 1997, the Company issued 1,552,632 shares of its common stock to
Intel Corporation in exchange for approximately $14.8 million in cash. The
Company plans to use the net proceeds for working capital and other general
corporate purposes.
In June 1997, the Company granted 337,200 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. An accelerated vesting schedule may occur if
certain stock price performance goals, which have been established by the Board
of Directors are met. Unvested restricted shares are subject to forfeiture in
the event that an employee ceases to be employed by the Company. The Company has
recorded, as a separate component of stockholders' equity, deferred compensation
of approximately $8.9 million with respect to this restricted stock. This
deferred compensation represents the fair value of the restricted shares at the
date of the award, and will be recorded as compensation expense ratably as the
shares vest. As of June 30, 1997, no compensation expense has been recorded.
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 individual home users.
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 software maintenance contracts. Net revenues
increased by $13.8 million (12.6%) to $122.9 million in the quarter ended June
30, 1997 from $109.1 million in the same quarter of last year. Net revenues for
the six months ended June 30, 1997 of $231.1 million increased by $30.0 million
(14.9%) from $201.1 million for the six months ended June 30, 1996. The increase
in net revenues was primarily the result of growth in unit sales of the Media
Composer product line and of digital audio products and to a lesser extent, to
the increase in sales of other products. In March 1996 and in May 1996, the
Company began shipments of the Media Composer and Pro Tools product lines,
respectively, for use on PCI-based computers. In June 1996, the Company began
selling MCXpress for Macintosh and for Windows NT. The Company began shipping
Version 6.5 for its Media Composer family of systems in December 1996. To date,
returns of all products have been immaterial.
The Company has recently initiated steps to shift an increasing proportion of
its sales through indirect channels such as distributors and resellers. Net
revenues derived through indirect channels increased to greater than 60.0% for
the second quarter of 1997, compared to approximately 50.0% in the same quarter
of last year. Indirect channel revenues accounted for greater than 60.0% of net
revenues for the six months ended June 30, 1997, compared to approximately 45.0%
for the same period in 1996.
International sales (sales to customers outside the U.S. and Canada) accounted
for approximately 50.0% and 52.2% of the Company's second quarter 1997 and 1996
net revenues, respectively. International sales increased by 7.9% in the second
quarter of 1997 compared to the same period in 1996. International sales
accounted for approximately 49.3% and 51.0% of the Company's net revenues for
the first six months of 1997 and 1996, respectively. International sales
increased by 11.0% in the six-month period ended June 30, 1997 from the same
period in 1996. The increase in international sales in 1997 was attributable
primarily to higher unit sales of the Media Composer and Pro Tools product lines
in Europe.
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
51.4% in the second quarter of 1997 compared to 45.5% in the second quarter of
1996 and increased to 49.9% for the six-month period ended June 30, 1997 from
44.4% for the same period in 1996. The increase during 1997 was primarily due to
lower material costs, reduced discounts and other sales promotion programs, and
a favorable product mix. In addition, gross margin in the first half of 1996 was
reduced by certain accrued costs for sales promotions for upgrading certain
NuBus-based Media Composer systems to PCI-based systems. The upgrades for which
these costs were accrued were completed in 1996. The Company expects that gross
margins during the remainder of 1997 will be consistent with recent levels.
Research and Development
Research and development expenses increased $1.7 million (10.0%) in the second
quarter of 1997 compared to the same period in 1996. For the six-month period
ended June 30, 1997, research and development expenses increased $459,000 (1.3%)
compared to the same period of 1996. These increased expenditures were primarily
due to additions to the Company's engineering staffs for the continued
development of new and existing products as well as provisions resulting from
the Company's profit sharing plan. Offsetting these increases is the allocation
in 1997 of product marketing costs to sales and marketing expenses rather than
research and development expenses which more appropriately reflects the current
activities of that function. Research and development expenses decreased to
14.9% of net revenues in the second quarter of 1997 compared to 15.3% in the
same quarter of 1996 and from 17.0% to 15.0% for the six-month periods ended
June 30, 1996 and 1997, respectively. The Company capitalized software
development costs of approximately $107,000 or 0.3% of total research and
development costs during the six-month period ended June 30, 1997. No software
development costs were capitalized in the second quarter of 1997. The Company
capitalized approximately $778,000 or 4.5% and $1.2 million or 3.3% of total
research and development costs during the second quarter of 1996 and the six
months ended June 30, 1996, respectively. 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 $227,000 and $656,000 during
the three- and six-month periods ended June 30, 1997, respectively. For the
three- and six-month periods ended June 30, 1996, amortization totaled
approximately $750,000 and $1.4 million, respectively.
Marketing and Selling
Marketing and selling expenses decreased by $2.4 million (7.3%) in the second
quarter of 1997 compared to the same period in 1996 and decreased by $4.5
million (7.1%) for the six-month period ended June 30, 1997 compared to the same
period in 1996 primarily due to the effect of the restructuring of the Company's
sales and marketing operations during the first quarter of 1997. The Company is
shifting its primary distribution emphasis from a direct sales force to indirect
sales channels, which reduced certain costs, including direct sales compensation
and office overhead expenses in the first half of 1997. In addition, marketing
and selling expenses decreased in the second quarter of 1997 compared to the
same period of 1996 due to lower costs incurred in 1997 associated with the
Company's participation in the National Association of Broadcasters trade show.
Marketing and selling expenses decreased as a percentage of net revenues from
30.3% and 31.6% in the three- and six-month periods ended June 30, 1996,
respectively, to 25.0% and 25.5% in the corresponding periods in 1997. This
decrease was primarily due to the increase in net revenues in the first half of
1997 compared to 1996.
General and Administrative
General and administrative expenses for the second quarter of 1997 increased by
$213,000 (3.5%) from the second quarter of 1996 and increased $517,000 (4.5%)
for the six-month period ended June 30, 1997, compared to the six-month period
ended June 30, 1996. This increase in general and administrative expenses was
primarily due to provisions resulting from the Company's profit sharing plan as
well as higher compensation-related costs as compared to 1996. General and
administrative expenses decreased as a percentage of net revenues from 5.6% in
the second quarter of 1996 to 5.1% in the second quarter of 1997 and from 5.8%
for the six-month period ended June 30, 1996 to 5.2% for the same period in 1997
primarily due to the increase in net revenues in the first half of 1997 compared
to 1996.
Nonrecurring Costs
During the first quarter of 1996, the Company recorded charges for nonrecurring
costs consisting of $7.0 million for restructuring charges related to February
1996 staffing reductions of approximately 70 employees primarily in the U.S.,
the Company's concurrent decision to discontinue certain products and
development projects, and $13.2 million for product transition costs in
connection with the transition from NuBus to PCI bus technology in certain of
its product lines. The Company has completed the related restructuring actions.
Included in the $7.0 million for restructuring charges were approximately $5.0
million of cash payments and $2.0 million of non-cash charges.
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 1997 increased $1.3 million as compared to the same period in 1996.
For the six-month period ended June 30, 1997 and 1996, interest and other
income, net increased $2.0 million. This increase during the first half of 1997
was primarily due to higher cash and investment balances in 1997 compared to
1996.
Provision for (Benefit from) Income Taxes
The Company's effective tax rate was 35% for the three and six months ended June
30, 1997, compared to 32% for the three and six months ended June 30, 1996. The
1996 effective tax rate is different from the Federal statutory rate of 35%
primarily due to the impact of the Company's foreign subsidiaries.
Recent Accounting Pronouncements
In February 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS
128 simplifies the computation of earnings per share ("EPS") by replacing the
presentation of primary EPS with a presentation of basic EPS. Basic EPS includes
no dilution and is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in
the earnings of an entity, similar to fully diluted EPS. SFAS 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. SFAS 128
requires restatement of all prior period earnings per share data.
Had the Company computed earnings per share consistent with the provisions of
SFAS 128, basic and diluted EPS would have been $0.28 and $0.27, respectively
for the three-month period ended June 30, 1997 and $0.37 and $0.36 for the
six-month period ended June 30, 1997, respectively. Both basic and diluted EPS
for the three and six months ended June 30, 1996 would have been $(0.17) and
$(1.26), respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company funded its operations to date through private sales of equity
securities and public offerings of equity securities in 1993, 1995 and 1997
which generated net proceeds to the Company of approximately $66.6 million,
$88.2 million and $14.8 million, respectively, as well as through cash flows
from operations. As of June 30, 1997, the Company's principal sources of
liquidity included cash, cash equivalents and marketable securities totaling
approximately $157.4 million.
The Company's operating activities generated cash of $52.6 million in the six
months ended June 30, 1997 compared to using cash of $7.7 million in the first
half of 1996. Cash from operating activities increased during the six months
ended June 30, 1997 primarily due to increases in accrued expenses and income
taxes payable as well as reductions in inventory. In the first half of 1996,
cash was used primarily to fund the increases in inventories and to reduce
accounts payable.
The Company purchased $7.8 million of property and equipment and other assets
during the six months ended June 30, 1997, compared to $16.2 million in the same
period in 1996. The 1997 purchases included primarily the purchase of equipment
for hardware and software for the Company's information systems and equipment to
support research and development activities.
The Company has an unsecured line of credit agreement with a group of banks
which provide for up to $35.0 million in revolving credit. The agreement, as
amended in June 1997, has been extended to June 30, 1998. 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 interest
rate to be paid on any outstanding borrowings is equal to either the Base Rate
or LIBOR plus 1.25%. Additionally, the Company is required to maintain certain
financial ratios and covenants over the life of the agreement, including a
restriction on the payment of dividends. The Company had no borrowings against
the line and was not in default of any financial covenants as of June 30, 1997.
The Company believes existing cash and marketable securities, anticipated cash
flows from operations, and available borrowings under its bank credit line will
be sufficient to meet the Company's working capital and capital expenditure
needs, 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.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
The Company's gross margin has fluctuated, and may continue to fluctuate, based
on factors such as the mix of products sold, cost and the proportion of
third-party hardware included in the systems sold by the Company, the
distribution channels through which products are sold, the timing of new product
introductions, the offering of product and platform upgrades, price discounts
and other sales promotion programs, the volume of sales of aftermarket hardware
products, the costs of swapping or fixing products released to the market with
errors or flaws, provisions for inventory obsolescence, allocations of overhead
costs to manufacturing and customer support costs to cost of goods, sales of
third-party computer hardware to its distributors, and competitive pressure on
selling prices of products. The Company's systems and software products
typically have higher gross margins than storage devices and product upgrades.
Gross profit varies from product to product depending primarily on the
proportion and cost of third-party hardware included in each product. The
Company, from time to time, adds functionality and features to its systems. If
such additions are accomplished through the use of more, or more costly,
third-party hardware, and if the Company does not increase the price of such
systems to offset these increased costs, the Company's gross margins on such
systems would be adversely affected.
The Company has 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, continue 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.
Therefore, to the extent the Company increases its sales through indirect
channels, its revenue per unit sale will be less than it would have been had the
same sale been made directly by the Company. In the event the Company is unable
to increase the volume of sales in order to offset this decrease in revenue per
sale or is unable to continue to reduce its costs associated with such sales,
profits could be adversely affected.
In 1995, the Company shipped server-based, all-digital broadcast newsroom
systems to a limited number of beta sites. These systems incorporate a variety
of the Company's products, as well as a significant amount of hardware purchased
from third parties, including computers purchased from Silicon Graphics, Inc.
("SGI"). Because some of the technology and products in these systems were new
and untested in live broadcast environments at the time that such systems were
originally installed, the Company provided greater than normal discounts to
these initial customers. In addition, because some of the technology and
products in these systems were new and untested in live broadcast environments
at the time that such systems were originally installed, the Company has
incurred unexpected delays and greater than expected costs in completing and
supporting these initial installations to customers' satisfaction. As a result,
the Company expects that it will report, in the aggregate, a loss on these
sales, when all revenues and costs are recognized. The Company has recognized
approximately $6.1 million in revenues from these initial installations and
approximately $6.6 million of related costs. In future quarters, the Company
expects to recognize an additional $1.6 million in revenues associated with the
remaining initial installations. The Company has provided a reserve for
estimated costs in excess of anticipated revenues. Revenues and costs are
recognized upon acceptance of the systems by customers. The Company is unable to
determine whether and when the systems will be accepted. There can be no
assurance that the remaining initial installations will be accepted by customers
or that the Company will not incur further costs in completing the
installations. If customers do not accept these systems, the Company could face
additional costs associated with reducing the value of the inventory included in
the systems. The Company's overall gross margin percentage will be reduced in
any quarter or quarters in which the remaining initial installations are
recognized or written off. In 1996 and 1997, the Company has installed
additional server-based, all-digital broadcast newsroom systems at other
customer sites. Some of these systems have been accepted by customers, and the
resulting revenues and associated costs were recognized by the Company. Other 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, that the gross margins
on such sales would be lower than the gross margins generally on the Company's
other systems.
The Company's operating expense levels are based, in part, on its expectations
of future revenues. In recent quarters, including the second quarter of 1997,
more than 40% 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, the Company's operating results would
be adversely affected and there can be no assurance that the Company would be
able to operate profitably. Reductions of certain operating expenses, if
incurred, in the face of lower than expected revenues could involve material
one-time charges associated with reductions in headcount, trimming product
lines, eliminating facilities and offices, and writing off certain assets.
The Company has significant deferred tax assets in the accompanying balance
sheets. The deferred tax assets reflect the net tax effects of tax credit and
operating loss carryforwards and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
The Company has expanded its product line to address the digital media
production needs of the television broadcast news market and the emerging market
for multimedia production tools, including the corporate and industrial user
market. The Company has limited experience in serving these markets, and there
can be no assurance that the Company will be able to develop such products
successfully, 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 on 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. In particular, the Company
believes that it will be necessary to develop 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,
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, 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. Apple has
recently been suffering business and financial difficulties. In consideration of
these difficulties, there can be no assurance that customers will not delay
purchases of Apple-based products, or purchase 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; and application specific
integrated circuits ("ASIC") from Lucent, AMI, and LSI Logic. The Company
purchases these sole source components pursuant to purchase orders placed from
time to time. The Company also manufactures certain circuit boards under 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 would 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 film, video and audio production and post-production, television broadcast
news, and multimedia tools markets, including the corporate and industrial user
market. Many current and potential competitors of the Company have substantially
greater financial, technical, 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.
The Company is involved in various legal proceedings, including patent and
securities litigation; an adverse resolution of any such proceedings could have
a material adverse effect on the Company's business and results of operations.
See Note 7 to Condensed Consolidated Financial Statements (unaudited), and PART
II ITEM 1, "LEGAL PROCEEDINGS". This litigation has been described in previously
filed reports on Form 10-Q and 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
DATA TRANSLATION, INC.
On April 23, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the District of Massachusetts
by Data Translation, Inc., of Marlboro, Massachusetts. The complaint alleged
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief, treble damages and costs, and attorneys' fees. In April 1997, the
litigation was dismissed with prejudice by agreement of the parties. No monies
were paid and no other consideration (except for dismissal of claims of each
party) was exchanged by the parties in connection with the dismissal.
OTHER
The Company also receives inquiries from time to time with regard to additional
possible patent infringement claims. These inquiries are generally referred to
counsel and are in various stages of discussion. If any infringement is
determined to exist, the Company may seek licenses or settlements. In addition,
from time to time as a normal incidence of the nature of the Company's business,
various claims, charges, and litigation 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 would have a
material adverse effect on the financial position or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 4, 1997. At the
meeting, Messrs. Charles T. Brumback and Robert M. Halperin were elected as
Class III Directors. The vote with respect to each nominee is set forth below:
Total Vote For Total Vote Withheld
Each Director From Each Director
--------------------- ---------------------
Mr. Brumback 18,973,931 193,574
Mr. Halperin 18,967,760 199,745
Additional Directors of the Company are William J. Miller, William E. Foster,
Peter C. Gotcher, William S. Kaiser, and William J. Warner.
The stockholders also authorized the adoption of the Company's 1997 Stock
Incentive Plan and authorized the issuance of up to 1,000,000 shares under the
Plan by a vote of 14,215,619 shares for, 4,667,264 shares against, 119,721
shares abstaining, with 164,901 broker non-votes.
In addition, the stockholders ratified the selection of Coopers & Lybrand L.L.P.
as the Company's independent auditors by a vote of 19,028,240 shares for, 11,131
shares against, and 128,134 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.1 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.
11 Statement Regarding Supplemental Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K. For the fiscal quarter ended June 30, 1997, 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, 1997 By: /s/ WILLIAM L. FLAHERTY
----------------------------
William L. Flaherty,
Senior Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1 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.
11 Statement Regarding Supplemental Computation of Per Share
Earnings
27 Financial Data Schedule
EXHIBIT 10.1
SIXTH AMENDMENT
TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT AND ASSIGNMENT
Sixth Amendment and Assignment dated as of June 27, 1997 to Amended and Restated
Revolving Credit Agreement (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 (as hereinafter
defined) (the "Banks") and BANKBOSTON, N.A., as agent for the Banks (in such
capacity, the "Agent"), amending certain provisions of the Amended and Restated
Revolving Credit Agreement dated as of June 30, 1995 (as amended and in effect
from time to time, the "Credit Agreement") by and among the Borrower, the Banks
and the Agent. Terms not otherwise defined herein which are defined in the
Credit Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrower, the Banks and the Agent have agreed to modify certain
terms and conditions of the Credit Agreement and waive certain covenants
contained in the Credit Agreement as specifically set forth in this Sixth
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss.1. Amendment to ss.1 of the Credit Agreement.
Section 1.1 of the Credit Agreement is hereby amended as follows:
(a) The definition of "Consolidated Operating Cash Flow" is hereby
amended by deleting the definition in its entirety and restating it
as follows:
CONSOLIDATED OPERATING CASH FLOW. For any fiscal quarter, an amount
equal to (a) the sum of (i) Earnings Before Interest and Taxes for
such period, plus (ii) depreciation and amortization for such period
less (b) the sum of (i) cash payments for all taxes paid during such
period, plus (ii) Capital Expenditures made in such period, plus
(iii) the portion of the costs of software development required to
be capitalized pursuant to Financial Accounting Standards Board
Statement No. 86.
(b) The definition of "Maturity Date" is hereby amended by deleting the
date "June 28, 1997" which appears in such definition and
substituting in place thereof the date "June 30, 1998".
(c) Section 1.1 of the Credit Agreement is further amended by
deleting each of the following definitions: "Adjustment Date",
"Applicable Margin", Commitment Fee Rate", "Net Working Capital
Changes" and "Rate Adjustment Period".
ss.2. Amendment to ss.2 of the Credit Agreement.
Section 2 of the Credit Agreement is hereby amended as follows:
(a) Section 2.2 of the Credit Agreement is hereby amended by deleting
the words "the Commitment Fee Rate" from the first sentence of
ss.2.2 and substituting in place thereof the words "one quarter of
one percent (1/4%)".
(b) Section 2.5 of the Credit Agreement is hereby amended by deleting
subparagraphs (a) and (b) in their entirety and restating such
subparagraphs as follows:
(a) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the
last day of the Interest Period with respect thereto at the
rate per annum equal to the Base Rate.
(b) Each LIBOR Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the
last day of the Interest Period with respect thereto at the
rate of one and one quarter percent (1 1/4%) per annum equal to
1.25% per annum above the LIBOR Rate applicable thereto during
such Interest Period.
ss.3.Amendment to ss.7 of the Credit Agreement.
Section 7.3 of the Credit Agreement is hereby amended by (a) deleting
the word "and" which appears at the end of ss.7.3(e); (b) deleting the
period which appears at the end of ss.7.3(f) and substituting in place
thereof a semicolon and the word "and"; and (c) inserting the
following text at the end of ss.7.3:
(g) an Investment by the Borrower in Pluto Technologies, Inc.
("Pluto") in an aggregate amount of not more than $700,000
pursuant to a joint development and marketing agreement between
the Borrower and Pluto; provided, that no Default or Event of
Default has occurred and is continuing or would exist
immediately after giving effect to such Investment.
ss.4.Amendment to ss.8 of the Credit Agreement.
Section 8.3 of the Credit Agreement is hereby amended by deleting
ss.8.3 in its entirety and restating it as follows:
8.3.Operating Cash Flow to Total Debt Service. The Borrower will not
permit the ratio of Consolidated Operating Cash Flow to Total Debt
Service at the end of any fiscal quarter for the period of the two
immediately preceding fiscal quarters (treated as a single
accounting period) to be less than 1.50:1.00.
ss.5. Conditions to Effectiveness.
This Sixth Amendment shall not become effective until the Agent
receives the following:
(a) a counterpart of this Sixth Amendment executed by the Borrower,
the Banks and the Agent; and
(b) payment to the Agent in cash for the respective pro rata accounts of
each of the Banks of an amendment fee in the aggregate amount of
$15,000.
ss.6. Representations and Warranties.
The Borrower hereby repeats, on and as of the date hereof, each of the
representations and warranties made by it in ss.5 of the Credit
Agreement, provided, that all references therein to the Credit
Agreement shall refer to such Credit Agreement as amended hereby. In
addition, the Borrower hereby represents and warrants that the
execution and delivery by the Borrower of this Sixth Amendment and the
performance by the Borrower of all of its agreements and obligations
under the Credit Agreement as amended hereby are within the corporate
authority of the Borrower and have been duly authorized by all
necessary corporate action on the part of the Borrower.
ss.7. Ratification, Etc.
Except as expressly amended hereby, the Credit Agreement and all
documents, instruments and agreements related thereto are hereby
ratified and confirmed in all respects and shall continue in full force
and effect. The Credit Agreement and this Sixth Amendment shall be read
and construed as a single agreement. All references in the Credit
Agreement or any related agreement or instrument to the Credit
Agreement shall hereafter refer to the Credit Agreement as amended
hereby.
ss.8. No Waiver.
Nothing contained herein shall constitute a waiver of, impair or
otherwise affect any Obligations, any other obligation of the Borrower
or any rights of the Agent or the Banks consequent thereon.
ss.9. Counterparts.
This Sixth Amendment may be executed in one or more counterparts, each
of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.10.Governing Law.
THIS SIXTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
IN WITNESS WHEREOF, the parties hereto have executed this Sixth Amendment as a
document under seal as of the date first above written.
AVID TECHNOLOGY, INC.
By: /s/ C. Edward Hazen
-----------------------
Title: Senior Vice President of Business
Development and Corporate Treasurer
BANKBOSTON, N.A.,
individually and as Agent
By: /s/ John B. Desmond
------------------------
Title: Vice President
ABN AMRO BANK N.V.
Boston Branch
By: ABN AMRO North America, Inc., as Agent
By: /s/ Carol A. Levine
--------------------------
Title: Senior Vice President
By: /s/ James S. Adelsheim
--------------------------
Title: Vice President
Exhibit 11
STATEMENT REGARDING SUPPLEMENTAL COMPUTATION OF EARNINGS PER SHARE
Historical
-----------------------------
Primary Fully Diluted
-------------- --------------
For the three months ended June 30, 1997:
Weighted average number of common shares
outstanding 23,164,147 23,164,147
Common stock equivalents 910,728 1,528,491
============== ==============
24,074,875 24,692,638
============== ==============
Net income $6,469,000 $6,469,000
============== ==============
Net income per common share $0.27 $0.26
============== ==============
For the three months ended June 30, 1996:
Weighted average number of common shares
outstanding 21,104,473 21,104,473
============== =============
Net income (loss) $(3,657,000) $(3,657,000)
============== =============
Net income (loss) per common share $(0.17) $(0.17)
============== =============
5
1000
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
89,606
57,801
88,561
6,777
23,271
277,809
95,821
52,951
348,965
107,808
0
0
0
237
240,140
348,965
231,093
231,093
115,886
115,886
105,792
0
0
12,700
4,445
8,255
0
0
0
8,255
.36
.35
