UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                   FOR ANNUAL AND TRANSITION REPORTS PURUSANT
              TO SECTIONS 13 OR 15(D) OF THE SECURITIES ACT OF 1934
(Mark One)
 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934 

                  For the fiscal year ended December 31, 2004

                                       OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

          For the Transition period from             to             
                                        ------------    ------------

                         Commission File Number 0-21174

                              AVID TECHNOLOGY, INC.

             (Exact name of registrant as specified in its charter)

              Delaware                                    04-2977748
    (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                     Identification No.)

  Avid Technology Park, One Park West, Tewksbury, MA      01876
     (Address of principal executive offices)           (Zip Code) 

                                 (978) 640-6789
              (Registrant's telephone number, including area code)

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

                           Common Stock $.01 Par Value
                                (Title of Class)

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES v NO

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

   Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) YES v NO

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $1,721,782,981.11 based on the closing price of the
Common Stock on the NASDAQ National Market on June 30, 2004.

The number of shares outstanding of the registrant's Common Stock as of February
22, 2005, was 35,062,778.

                       Documents Incorporated by Reference

                      Document Description                            10-K Part
                      --------------------                            ---------
 Portions of the Registrant's Proxy Statement for the 2005 Annual
   Meeting of Stockholders ....................................          III


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        This Annual Report on Form 10-K contains a number of forward-looking
statements. Any statements contained herein (including without limitation 
statements to the effect that Avid Technology, Inc. ("We", the "Company" or 
"Avid") or our management "believes", "expects", "anticipates", "plans" and 
similar expressions) that are not statements of historical fact should be 
considered forward-looking statements. There are a number of important factors 
that could cause our actual results to differ materially from those indicated 
by such forward-looking statements. These factors include, without limitation, 
those set forth in "Certain Factors That May Affect Future Results."


                                     PART I

ITEM 1.     BUSINESS

OVERVIEW

        We develop, market, sell and support a wide range of software and
hardware for digital media production, management and distribution. Digital
media are video, audio or graphic elements in which the image, sound or picture
is recorded and stored in digital values, as opposed to analog, or tape-based,
signals. Our diverse range of product and service offerings enables customers to
"Make, Manage and Move Media."

        Make Media. Our Video and Film Editing and Effects ("Video") segment
offers digital, non-linear video and film editing systems and 3D and
special-effects software that enable users to manipulate moving pictures and
sound in a faster, easier, more creative, and more cost-effective manner than
using traditional analog tape-based systems. Non-linear systems allow editors to
access material instantaneously rather than requiring them to work sequentially.
Our Audio segment offers digital audio software applications and hardware
systems for music, film, television, video, broadcast, streaming media, and web
development. These systems are based upon proprietary audio hardware, software,
and control surfaces, and allow users to record, edit, mix, process, and master
audio in an integrated manner.

        Manage Media. We provide complete network, storage, and database
solutions based on our Avid Unity MediaNetwork technology. This technology
enables users to simultaneously share and manage media assets throughout a
project or organization. The ability to effectively manage digital media assets
is a critical component of success for many broadcast and media companies with
multiple nonlinear editing workstations in a range of geographic locations. As a
result, professionals can collaborate seamlessly on all production elements, and
streamline the process for cost-effectively delivering compelling media
experiences and quickly "re-purposing" or finding new uses or markets for media
assets.

        Move Media. We offer products that allow our customers to distribute
media over multiple platforms - including air, cable or satellite, or through
the Internet. In addition, we provide technology for playback directly to air
for broadcast television applications. Many of our products also support the
broadcast of streaming Internet video.

        Our products are used worldwide in production and post-production
facilities; film studios; network, affiliate, independent and cable television
stations; recording studios; advertising agencies; government and educational
institutions; corporate communication departments; and game developers and
Internet professionals. Projects produced by our customers using our products
have been honored with Oscar(R), Emmy(R), and Grammy(R) awards, as well as a
host of other international awards. In addition, we have also received numerous
awards for technical innovations, including Oscars, Emmys and a Grammy. (Oscar
is a registered trademark and service mark of the Academy of Motion Picture Arts
and Sciences. Emmy is a registered trademark of ATAS/NATAS. Grammy is a
registered trademark of The National Academy of Recording Arts and Sciences,
Inc.)

RECENT ACQUISITIONS

        In September 2004, we acquired Avid Nordic AB, a Sweden-based reseller
of Avid products operating in the Nordic and Belgium/Netherlands/Luxembourg
regions of Europe. We previously had no ownership interest in Avid Nordic. The
acquisition allows Avid to serve customers directly in this region.

        In August 2004, we acquired California based Midiman, Inc. (d/b/a
M-Audio), a leading provider of digital audio and MIDI (Music Industry Digital
Interface) solutions for electronic musicians and audio professionals. We have
integrated M-Audio into our Audio segment and will market M-Audio's line of
audio products alongside Digidesign's digital audio workstations. M-Audio's
consumer product line, including peripherals, keyboards, speakers and sound
libraries, is a complement to Digidesign's professional and home audio
solutions.

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        In January 2004, we acquired Munich, Germany-based NXN Software GmbH, a
leading provider of asset and production management systems targeted for the
entertainment and computer graphics industries. We believe that the addition of
NXN will enhance our film and video postproduction, broadcast news, and 3D
product lines by enriching them with a feature set that facilitates media
creation and management. NXN has been integrated into our Video segment.

DIGITAL MEDIA CONTENT MARKETS

        Digital formats and tools have largely displaced analog processes in
many markets, such as word processing, spreadsheets, publishing, graphics, and
electronic and mechanical design. Markets that use film, video and audio media
are also migrating to digital formats. Technical advances in digital media
content-creation tools have made this migration easier, allowing users to create
and manipulate more complex content incorporating several elements of digital
media. For example, many video games now include live-action video, detailed 3D
graphics, and high quality audio, all created, manipulated, and played back in
digital form. Feature films, such as "Harry Potter & the Prisoner of Azkaban,"
"Van Helsing," and "Motorcycle Diaries," to name a few, integrate sophisticated
computer-generated special effects into traditional live action shots.

        We currently sell our products and services in two principal markets:
video and film editing and effects, and audio. Both of these markets are
transitioning from well-established analog content-creation processes to digital
content-creation tools.

        Our video and film editing and effects market consists of professional
users, over-the-air broadcast and cable companies, and corporate, government,
and educational users. Professional users include independent production and
post-production companies that produce video and film material, such as feature
films, commercials, entertainment and documentary programming, industrial
videos, and music videos; professional character animators and video game
developers; and television facilities, film studios, and certain large
corporations that perform digital media production and post-production in-house.
Our customers also include a wide variety of companies that originate news
programming, including national and international broadcasters, such as the
British Broadcasting Corporation, the National Broadcasting Company, TV Azteca
of Mexico, and France Television, as well as network affiliates, local
independent television stations, web news providers and local and regional cable
operators that produce news programming. Finally, users in corporations and
various other institutional settings employ digital media tools to create and
distribute information enriched by the addition of digital media content to
their customers and employees.

        Our audio market is comprised of professional music studios, project
studios, film and television production and post-production facilities,
television and radio broadcasters, DVD, web and other "new media" production
studios, corporate, government, and educational facilities, as well as
home-hobbyists and enthusiasts. These users range from individuals to large
multi-national corporations. Our audio products are employed in a wide variety
of applications, including recording, editing, mixing, processing and mastering.

STRATEGY

        Our mission is to serve the industries that Make, Manage and Move Media.
Our strategy consists of four key elements:

Continue to Deliver Best-of-Breed Products to Professional Content Creators 
in Video and Audio Markets.

        We continue to focus on markets where digital media content creation
already takes place, and we believe we enjoy a leadership position in each of
these primary markets. These include the professional video and film editing and
effects market (film and television studios, independent production and
post-production firms, and broadcast, including hard news, long form news, and
promotion), and the audio market (music, audio production, and post-production).
We plan to strengthen our positions in these markets by continuing to enhance
our existing products and by introducing new products that satisfy a broader
range of customer needs that are developed internally, jointly with third
parties or through acquisitions. In 2004 we acquired NXN Software GmbH, a
leading provider of asset and production management systems targeted for the
entertainment and computer graphics industries. We also acquired M-Audio, a
leading provider of digital audio and MIDI solutions for musicians and audio
professionals.

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Deliver Seamlessly Integrated Workflow for Customers that Work with Multiple 
Systems or Multiple Media Disciplines.

        We continue to invest significant resources in enhancing the
interoperability of our broad array of products that Make, Manage and Move
Media. To satisfy the demands of the post-production and broadcast markets, we
are committed to delivering integrated solutions to our users, not just point
products. For example, with Avid Unity Network-based collaborative workgroups,
we are seeking to enable all of our products to connect to one another through
the sharing of common media production assets and information about the media,
or metadata, in a seamless workflow that encompasses all the disciplines in
content creation - acquisition, editing, image manipulation, graphics, audio,
mastering, encoding and distribution. An Avid Unity for News solution, for
example, can facilitate all the tasks required to create news stories for
broadcast by leveraging the aggregate power of all of our tools. The entire
process, including capturing news feeds, managing scripts and announcer
recordings, editing and manipulating video, audio and graphics elements,
delivering the finished product to a video server for playback, automated
repurposing of the story for web distribution, and streaming the repurposed
content to the consumer, can be accomplished seamlessly by an array of our
products working together, connected in an Avid Unity workgroup.

Support Open Standards for Media, Metadata and Application Program Interfaces
(APIs).

        Beyond interoperability within the Avid family of products, we seek to
design all of our products so that they are based on and can work with a variety
of established industry-wide standards, including computer platforms, operating
systems, networking protocols, data compression, and digital media handling
formats. We have been a leader in defining and developing the Advanced Authoring
Format, or AAF, a multimedia file format that enables content creators to easily
exchange digital media and metadata, across platforms and between systems and
applications. AAF saves time, simplifies project management, and preserves
valuable metadata that can be lost when transferring media between applications.

        In order to address the needs for collaboration and efficient workflow
in a local-area network (LAN) or wide-area network (WAN) environment, we offer
the Avid Unity Productivity Tools, such as Avid Unity MediaManager and Avid
Unity TransferManager products. MediaManager makes media accessible to more
people by providing a simple Web browser interface to search, view, and select
high resolution video on any desktop. TransferManager enables local or
geographically dispersed content creators to collaborate easily by facilitating
the exchange of digital media. TransferManager streamlines and automates the
task of transferring production assets between editing systems, between
collaborative Avid Unity workgroups, and between Avid Unity workgroups and
external Avid editing or video server systems.

Deliver Excellent Customer Service, Support and Training.

        In order to succeed, we must provide experienced, accessible and
knowledgeable customer service. We try to create a culture at Avid that
encourages every employee to focus on exceptional customer service. We seek to
train our support staff in a broad range of applications, operating systems, and
storage and networking solutions. In addition, we work with resellers in the
major regions of the world who also have the capability to deliver various
levels of application and hardware support directly to end users. We also offer
training throughout the world in all areas of content creation though a team of
experienced educational specialists.

PRODUCTS

        The following section describes our major products and product families
within the markets into which they are sold, organized by reportable segment.
Information about our reportable segments, including total revenues, operating
income and total assets, as well as a geographic breakdown of our revenues and
long-lived assets, can be found in Footnote N to our Consolidated Financial
Statements in Item 8.

VIDEO AND FILM EDITING AND EFFECTS PRODUCTS

Video and Film Editing

        Avid's award-winning digital nonlinear editing tools are used by film,
video, audio, animation, games, and broadcast professionals to create the
world's most recognizable media. Among Academy Award nominees for the 2004
eligibility year, every film nominated in the categories of Best Picture,
Directing, Film Editing, Sound Editing, Sound Mixing, Visual Effects, and Best
Animated Feature employed at least one Avid solution in the postproduction
process. In the recording industry, every No. 1 single on the Billboard Hot 100
chart in 2004 was created using Avid digital audio workstation technology.

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Avid DNA Family

        The family of Avid Digital Nonlinear Accelerator (Avid DNA) products is
based on a hybrid architecture that leverages the power of the host CPU while
offloading media processing tasks to more efficient, purpose-built hardware. The
three hardware components of the Avid DNA product family are Avid Nitris, Avid
Adrenaline, and Avid Mojo. They are used in combination with our software
solutions in the following products described below: Avid DS Nitris, Media
Composer Adrenaline, Media Composer Adrenaline HD, Avid NewsCutter Adrenaline
FX, Avid NewsCutter XP, Avid Xpress Pro with Avid Mojo, Avid Xpress Pro HD with
Avid Mojo, and Avid Xpress Studio Complete. The Mojo accelerator can also be
used in conjunction with Digidesign Pro Tools and SOFTIMAGE|XSI systems.

Media Composer Family

        This group of digital nonlinear editing products includes the Media
Composer Adrenaline HD, Media Composer Adrenaline, Media Composer, and Film
Composer systems. These products are used widely for editing on television
programs, commercials, feature films, and independent films and comprised 17%,
16% and 19% of our consolidated net revenues in 2004, 2003 and 2002,
respectively.

Avid Xpress Family

        The Avid Xpress family is made up of portable editing systems that
include the Avid Xpress DV, Avid Xpress Pro, Avid Xpress Pro HD, and Avid Xpress
Studio systems. All Avid Xpress Pro solutions can be augmented with the Avid
Mojo accelerator. The Avid Xpress Studio system can be augmented with both the
Avid Mojo accelerator and the Digidesign 002 audio interface. These products are
designed to meet the needs of media professionals, video/film educators,
Internet video developers and others involved with video and multimedia
production.

Finishing and Compositing

        Professionals who create feature films, television programs,
commercials, and music videos use our real-time, uncompressed high-definition
(HD) and standard-definition (SD) solutions for master-quality finishing,
effects, color correction, and to conform with our offline editing systems. Our
line of finishing and compositing solutions includes the Avid DS Nitris and Avid
DS Nitris Editor systems - which deliver advanced uncompressed HD editing and
finishing capabilities for the most demanding applications - and the
industry-standard Avid Symphony finishing system.

High-Definition (HD) Solutions

        Our wide range of HD products and technologies offer customers the most
comprehensive format and resolution support in the industry, as well as a
comprehensive workflow between our editing system and our shared-storage
networks. Our solutions that support HD include the Avid DS Nitris, Avid Media 
Composer Adrenaline HD, Avid Xpress Pro HD, and Avid Unity MediaNetwork systems.

Avid DNxHD

        Avid DNxHD is an 8- or 10-bit HD encoding format that enables
collaborative HD postproduction with the same storage bandwidth and capacity
requirements as uncompressed SD files. While the size of Avid DNxHD files is as
manageable as working with SD files, the quality of the original HD image is
preserved because no sub-sampling of the raster or pixel reduction takes place
in the encoding process. Consistent with our strategy of supporting open
standards, the source code for Avid DNxHD technology is licensable free of
charge through the Avid Web site, enabling users to compile it on any platform.

Broadcast

        We offer broadcast customers a wide range of solutions to fit their
needs - whether they are looking to integrate new technology into existing
operations or implement all-digital workflows across a wide network of stations.

News Production & Editing

        Our array of news production and editing systems includes the Avid Media
Browse system and the Avid NewsCutter family: the Avid NewsCutter Adrenaline FX,
Avid NewsCutter Effects, and Avid NewsCutter XP editors.

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Ingest and Playout

        The Avid AirSpeed broadcast video server offers users a wide range of
workflow capabilities and format compatibility, as well as flexible
connectivity. It features complete interoperability with the Avid Unity for News
family of shared storage solutions and with our nonlinear editing systems. The
AirSpeed CountDown solution enhances playout automation by allowing users to
view, manage, and edit playlists on up to five AirSpeed servers.

Newsroom Automation

        Our line of newsroom automation solutions include the Avid iNEWS family,
which comprises the Avid iNEWS 2.0, Avid iNEWS ControlAir, and Avid iNEWS
Multibyte systems. Avid Active ContentManager system is also used to automate
content management and distribution functions.

Media Network Solutions

        Avid Unity for News is a powerful media network solution that allows
broadcasters to accelerate the entire production process, from ingest to
archive. It links analog and digital acquisition, editing, newsroom computer
systems, graphics, audio, and distribution in a managed, real-time,
shared-storage environment. Products in this category include the Avid Unity
MediaNetwork system and the Avid Unity LANshare for News system.

Avid Computer Graphics

        The Avid Computer Graphics production pipeline ties together 3D
animation, digital asset management, and nonlinear editing tools in a
comprehensive, integrated CG production environment. These tools include:

o  SOFTIMAGE|XSI, our flagship 3D content creation solution;
o  Alienbrain Studio, Avid's digital asset management software for entertainment
   and computer graphics professionals; and
o  the Avid DS Nitris HD finishing and compositing solution.

Storage & Workgroups

        Our shared media networks offer simultaneous, real-time collaboration
workflows that support a wide range of uncompressed SD formats as well as the
high-efficiency Avid DNxHD encoding technology. These Storage and Workgroups
products include the Avid Unity MediaNetwork and Avid Unity LANshare systems,
which link analog and digital acquisition, editing, graphics, audio, and
distribution in a managed, real-time, shared-storage environment. In addition,
the media network solutions and Workgroups and Productivity Tools described
above, plus local storage products such as Avid MediaDock Ultra 320, MediaDock
2+, MediaDrive rS 320/LDV, MediaDrive rS FireWire, and MEDIArray II are part of
our Storage and Workgroups offerings. This product family accounted for
approximately 18%, 19% and 15% of our consolidated net revenues in 2004, 2003
and 2002, respectively.

Avid Assurance Support

        Avid Assurance is our annual maintenance support offering for the Avid
Video and Film Editing and Effects products described above.

        Avid Assurance provides software and application support to meet the
needs of our customers including isolating hardware issues, resolving software
issues, and generally helping our customers to fully utilize their applications.
In addition to Avid Assurance, we offer other services to our customer including
training programs and installation services. Total service offerings represented
10%, 10% and 9% of our consolidated net revenues in 2004, 2003 and 2002,
respectively.

AUDIO PRODUCTS

        Avid's audio division, Digidesign, manufactures digital audio production
systems for recording engineers, mixers, film sound editors, sound designers,
live sound engineers, and other audio professionals. The audio business also
includes M-Audio, a business unit of Digidesign that specializes in digital
audio and MIDI solutions for electronic musicians and audio professionals.

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Digidesign Products

Pro Tools Products

        Developed by our Digidesign audio division, Pro Tools is a multi-track,
non-linear digital audio workstation comprising a variety of hardware options
and bundled software that runs on Macintosh and Windows platforms. The Pro Tools
workstation provides solutions for the entire audio production process,
including recording, editing, signal processing, sound synthesis, integrated
surround mixing and mastering. Pro Tools users work in the prosumer and
professional music, film, television, radio, multimedia, DVD, and Internet
production markets. Pro Tools systems support a rich third party development
environment, with more than 100 development partners providing a variety of
additional software and hardware add-on options.

        Digidesign offers Pro Tools systems in a variety of price points and
configurations, ranging from high-end systems for professional music and
post-production, to the affordable Mbox, Digi 002, and Digi 002 Rack systems for
home production studios. The first Pro Tools|HD system, which began shipping in
early 2002, was further enhanced in October 2003 by the introduction of the Pro
Tools|HD Accel card which provides greatly increased power in the DSP hardware
(the basis of all Pro Tools|HD systems) that performs the audio processing. The
Mbox product, introduced in early 2002, is an "all-in-one" two-channel USB audio
interface with integral inputs for microphone, instrument or line level signals.
Bundled with Pro Tools LE software, the Mbox system integrates audio recording,
editing and mixing in an affordable, portable package for entry-level users, as
well as professionals who wish to use additional low cost satellite systems. The
Digi 002 product, introduced in late 2002, is a more comprehensive home audio
production device. The Digi 002 combines a versatile multi-channel audio
interface with multiple microphone or line level preamplifiers, a full-featured
and compact control surface with touch-sensitive motorized faders, and can also
act as a standalone compact digital mixer. It communicates with the bundled Pro
Tools LE software via a 1394 FireWire connection. The Digi 002 Rack product was
introduced in 2003, and is a more compact, rack-mountable version of the 002,
without the motorized fader control features. The Pro Tools product family
accounted for approximately 24%, 25% and 27% of our consolidated net revenues in
2004, 2003 and 2002, respectively.

D-Control and ICON

        The D-Control mixing surface is Digidesign's high-end, expandable
hardware control surface for tactile control of Pro Tools software and hardware.
It also contains a stand-alone audio monitoring system called XMON. A D-Control
combined with a Pro Tools HD system and one or more PRE multi-channel microphone
pre-amplifiers can replace all the recording, editing, processing, surround
mixing, monitoring, pre-amplification and control capabilities found on a more
traditional analog or digital console. We describe such a combination system as
an "ICON" or Integrated Console Environment. D-Control connects to the host
computer (and Pro Tools software) via Ethernet, serving as a comprehensive front
end for professional Pro Tools systems. With its modular design, a D-Control
mixing surface can be customized to fit any studio, providing from 16 to 80
channels of simultaneous control.

ProControl

        Our ProControl product line provides a solution similar to D-Control and
ICON at a lower price point. Like D-Control, it connects via Ethernet to a Pro
Tools-equipped computer, and provides a comprehensive front end and full tactile
control of Pro Tools functions. The ProControl mixing surface can be customized
to fit any studio, providing from 8 to 48 channels of simultaneous control. The
Edit Pack option adds integrated control of advanced editing and surround mixing
features, rounding out the ProControl product range.

Control|24

        Our Control|24 product is a mixing control surface that combines
hands-on access to Pro Tools software features and high-quality microphone
pre-amplifiers from Focusrite. The Control|24 product communicates with the host
computer (and Pro Tools software) via Ethernet, and provides tactile control of
most Pro Tools functions. The Control|24 product is a 24-fader, fixed-size
control surface, designed for music production and broadcast applications.

AVoption|V10 and AVoption|XL

        The AVoption|XL and AVoption|V10 hardware options for Pro Tools systems
allow users to record, edit and process sound synchronized with Avid-format,
non-linear digital video. Designed for post-production professionals working in
film, TV and video, the AVoption products enable capture, playback, and basic

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editing of broadcast-quality picture from projects originating on Avid Media
Composer, Film Composer and Symphony systems. V10 shipped in April 2004, and is
based on the Avid DNA video technology. It provides support for a greater number
of video resolutions and interface standards including SDI, and a basis for
future support for HD video. Both versions include the DigiTranslator software
option that provides users with a high level of media and metadata interchange
with any of our compatible video editing systems.

M-Audio Products

Audio interfaces

        M-Audio's audio interfaces dovetail with Digidesign's Pro Tools LE
product line, allowing users access to high-quality sound in and out of a
computer at even more affordable prices. Users can create a PC-based audio
recorder over PCI, USB or FireWire standard connections on their personal
computers utilizing bundled or add-on software. M-Audio interfaces offer a wide
range of input and output configurations from stereo to multi-channel surround.
Popular models include the PCI Audiophile series, FireWire 410 and 1814, USB
24/96 and keyboard-equipped audio interfaces such as Ozone and Ozonic.

Keyboards

        M-Audio's USB-based keyboards allow users to send MIDI (Musical
Instrument Digital Interface) messages directly to a personal computer allowing
users to access sound creation software and control a variety of other musical
functions without the need for an additional MIDI interface peripheral. Because
M-Audio keyboards do not require embedded sound creating hardware, we can offer
high quality keyboards at affordable prices. Our keyboards come in various sizes
including 25 notes, 49 notes, 61 notes, and 88 notes, weighted or unweighted,
and with and without a variety of sliders and knobs.

MIDI interfaces

        Our MIDI interfaces allow the computer to communicate with external
MIDI-compatible peripheral devices such as synthesizers, effects devices and
drum machines over a standard USB connection.

Speakers, Add-On Software and Microphones

        M-Audio manufacturers a variety of affordable, high-quality self-powered
monitor speakers that provide stereo or multi-channel surround monitoring (BX
series), and distributes several software product lines popular in music
production, and creates sound libraries for commonly used software. We also
manufacture a suite of high-quality yet affordable condenser and dynamic
microphones. These ancillary products allow customers to purchase entire home
recording packages which include all of the essential tools required to make
music recordings from a single manufacturer.

SALES AND SERVICE

        We market and sell our solutions through a combination of direct and
indirect sales channels.

        From our traditional presence in the high-end post-production market to
broadcast news, low-cost post-production, and audio solutions, we strive for
balanced market and geographic sales coverage. We sell our products primarily
through a network of more than 2500 independent distributors, value-added
resellers and dealers. We supplement these channels with a team of internal
sales representatives directly serving select customers and markets.

        We provide customer service and support directly through regional
telephone support centers and major-market field service representatives, and
indirectly through strategically located dealers, value-added resellers and
authorized third-party service providers. Customers may choose from a variety of
support offerings, including 24-hour telephone support, quick-response on-site
assistance, hardware replacement and extended warranty and software upgrades.
Customer training is available directly from us or through field-based
authorized third-party Avid training centers around the world.

MANUFACTURING AND SUPPLIERS

        Our manufacturing operations consist primarily of the testing of
subassemblies and components purchased from third parties, the duplication of
software, and the configuration, assembly and testing of board sets, software,
related hardware components and complete systems. We also rely on independent

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contractors to manufacture components and subassemblies to our specifications.
Our systems undergo testing and quality assurance at the final assembly stage.
We are dependent on a number of sole source vendors for certain key hardware
components of our products. For the risks associated with our reliance upon
certain vendors, see "Certain Factors that May Affect Future Results" under Item
7.

        Our manufacturing facilities are located in Tewksbury, Massachusetts;
Dublin, Ireland; Madison, Wisconsin; Menlo Park, California and Irwindale,
California. We also contract with third-party manufacturing facilities in the
United States and overseas for certain component parts.

INTELLECTUAL PROPERTY

        We regard our software and hardware as proprietary and protect it under
the laws of patents, copyrights, trademarks, and trade secrets, and through
contractual provisions.

        We have obtained patents and have registered copyrights, trademarks and
service marks in the United States and foreign countries. In particular, as of
December 31, 2004, we held 200 United States patents and had 79 patent
applications pending with the United States Patent and Trademark Office with
expiration dates through 2021. We have also registered or applied to register
various trademarks and service marks in the U.S. and a number of foreign
countries, including Avid(R), Media Composer(R), NewsCutter(R), Digidesign(R),
Pro Tools(R), M-Audio(R), Softimage(R), XSI(R), and Alienbrain(R). Although we
believe ownership of our patents, copyrights, trademarks and service marks, and
trade secrets is an important factor in our business, our success relies
primarily on the innovative skills, technical competence, and marketing
abilities of our personnel.

        Our software is licensed to end-users pursuant to either shrink-wrap,
embedded or on-line licenses, or signed license agreements. Our products
generally contain copy protection and/or copy-detection features to guard
against unauthorized use. Policing unauthorized use of computer software is
difficult, and software piracy is a persistent problem for the software
industry. This problem is particularly acute in international markets. We
participate in an anti-piracy program through an external association of
software vendors.

RESEARCH AND DEVELOPMENT

        Our research and development efforts are focused on the development of
digital media content-creation tools and workgroup solutions that operate
primarily on the Macintosh and Windows platforms. We are committed to delivering
best-in-class video, film, 3D animation, and audio editing systems to meet the
needs of professionals in the television, film, music, broadcast news
production, and industrial post-production markets, and of end-users in the
educational and corporate markets. Our research and development efforts also
include networking and storage initiatives to deliver standards-based media
transfer and media asset management tools, as well as stand-alone and
network-attached media storage systems for workgroups. Our systems are designed
to be Internet-enabled with technology for encoding and streaming media over the
Internet.

         Our research and development operations are primarily located in
Tewksbury, Massachusetts; Daly City, California; Madison, Wisconsin; Irwindale,
California; Munich, Germany; and Montreal, Canada. We also employ independent
contractors in the United States and abroad for some of our research and
development activities.

COMPETITION

        The markets for our products are highly competitive and subject to rapid
change. Our competition is fragmented, with a large number of suppliers
providing different types of products to different markets.

Video Postproduction and 3D

        In the TV, video, and film postproduction markets, we compete primarily 
with vendors that offer similar digital editing and effects products based on 
standard computer platforms.  These competitors include AJA Video Systems Inc., 
Adobe Systems Incorporated, Apple Computer, BlackMagic Design Pty. Ltd., 
Discreet (a division of Autodesk, Inc.), Pinnacle Systems, Inc., Quantel Inc., 
and Sony Corporation.  In the 3D/animation sector, we compete with other 
manufacturers of content creation solutions for the video game, feature film, 
and related markets, including Discreet, Alias, and NewTek, Inc.

                                       9

<PAGE>

Broadcast

        In the broadcast sphere, we compete with vendors of video servers and
traditional broadcast equipment that now offer nonlinear editing and shared
storage systems such as Leitch, Thomson Grass Valley and Sony Corporation for
news, sports, and special programming for television. Other vendors of
competitive products targeting these markets include Omneon, Pinnacle Systems,
and Quantel. Primary competitors to the Avid iNEWS newsroom computer are
Associated Press (ENPS), and Dalet. We expect continued competition from these
vendors as they develop and introduce digital media products.

Data Storage and Digital Asset Management

        Avid competes in the data storage market with companies such as ADIC,
Apple Computer, Ciprico, EMC Corporation, Hewlett-Packard, IBM, Medea
Corporation, Rorke Data (a subsidiary of Bell Microproducts), and SGI. In
digital asset management, the Alienbrain product family - which Avid acquired in
January 2004 from NXN Software GmbH - is focused primarily on animation,
electronic graphics and video gaming markets where it competes primarily with
Perforce Software, Inc., and also with offerings from Microsoft (Visual
SourceSafe) and Borland Software Corporation (StarTeam).

Audio

        In the audio market, we compete primarily with (a) suppliers of
disk-based digital audio workstation software/hardware products such as Emagic
(a subsidiary of Apple Computer), Mark of the Unicorn (MOTU), Merging
Technologies, and Steinberg Media Technologies (a subsidiary of Yamaha
Corporation), and (b) manufacturers of professional analog and digital mixing
consoles for studio production and live sound mixing including AMS Neve Ltd.,
DiGiCo Ltd, Euphonix, Midas (a division of Telex Communications), Solid State
Logic Ltd., and Yamaha Corporation. Digidesign and M-Audio compete with
manufacturers of low-cost computer-connected audio I/O hardware such as Creative
Technology Ltd, Ego Systems Inc., Loud Technologies, Inc., Roland, Tascam (a
division of TEAC Corporation), and Yamaha Corporation. In addition, M-Audio also
competes in the categories of MIDI keyboard/controllers, MIDI interfaces,
speakers, pre-amplifiers and microphones, with many of the companies already
listed and others.

        There can be no assurance that these companies will not introduce
products that are more directly competitive with our products.

EMPLOYEES

        We employed 2,014 people as of December 31, 2004.

WEBSITE ACCESS

        We make available free of charge on our website, www.avid.com, copies of
our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, current
reports on Form 8-K, and all amendments to those reports, as soon as reasonably
practicable after such material is filed with the Securities and Exchange
Commission, and in any event on the same day. Additionally, we will provide
paper copies of all such filings free of charge upon request.

        Alternatively, these reports can be accessed at the SEC's internet
website: www.sec.gov.


I
TEM 2.     PROPERTIES

        Our principal administrative, sales and marketing, research and
development, support, and manufacturing facilities are located in three adjacent
buildings in an office park located in Tewksbury, Massachusetts. Our leases on
these buildings expire in June 2010. In September 2000, we subleased a portion
of this space to an unrelated company. This sublease has been extended and
expires in 2007.

        We lease facilities in Dublin, Ireland; Madison, Wisconsin; Menlo Park,
California and Irwindale, California for the manufacture and distribution of our
products. We lease office space in Daly City, California for our Digidesign
headquarters, including its administrative, sales and marketing, and research
and development activities, and in Iver Heath, United Kingdom, for our European
headquarters, including administrative, sales, and support functions. Finally,
we lease facilities in Montreal, Canada, and Munich, Germany which house certain
administrative, research and development, and support operations. In December
2002, we vacated portions of our leased space in Daly City and Montreal. In July
2003 we subleased a portion of our space in Montreal to an unrelated company.
This sublease expires in January 2007.

                                       10

<PAGE>
               
        In September 1995, our United Kingdom subsidiary entered into a 15-year
lease in London, England. We vacated this property in 1999 as part of our
corporate restructuring actions, and have currently sublet all of this space. We
also maintain sales and marketing support offices in leased facilities in
various other locations throughout the world.
         
        We anticipate that our leased facilities will be adequate for our needs
during 2005.


ITEM 3.     LEGAL PROCEEDINGS

        On March 11, 1996, we were named as a 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, upon our motion, the suit was transferred to the
United States District Court for the Southern District of New York. The
complaint alleged infringement by Avid of U.S. patent number 4,258,385, and
sought injunctive relief, treble damages, costs, and attorneys' fees. In our
answer to the complaint, we asserted that we did not infringe the patent and
that the patent was invalid. In August 2004, we filed a Motion To Dismiss based
on Combined Logic's failure to prosecute. An oral hearing on the Motion was held
on November 5, 2004 and the District Court granted the Motion on November 22,
2004. The District Court entered Judgment in our favor on December 10, 2004,
dismissing the suit with prejudice. Combined Logic Company filed a Notice Of
Appeal to the Court of Appeals for the Second Circuit on January 6, 2005. On
February 14, 2005, we filed a Motion To Dismiss For Lack of Jurisdiction. On
February 15, 2005, Combined Logic, by letter to the Second Circuit, indicated
that it did not object to the dismissal of its appeal and did not object to the
relief sought in our Motion. Because of the foregoing facts, we consider this
matter terminated.

        We receive inquiries from time to time with regard to possible patent
infringement claims. If any infringement is determined to exist, we may seek
licenses or settlements. In addition, as a normal incidence of the nature of our
business, various claims, charges, and litigation have been asserted or
commenced against the Company arising from or related to contractual or employee
relations, intellectual property rights or product performance. We do not
believe these claims will have a material adverse effect on our financial
position or results of operations.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of our security holders during the
last quarter of the fiscal year ended December 31, 2004.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is (i) the name and age of each of our executive officers; (ii)
the position(s) presently held by each person; and (iii) the principal
occupation held by each person for at least the past five years.

EXECUTIVE OFFICER          AGE                        POSITION(S)

David A. Krall              44               President and Chief Executive
                                             Officer

Patricia A. Baker           57               Vice President of Human 
                                             Resources

Joseph Bentivegna           44               Vice President and Chief
                                             Operating Officer, Avid Video

Ethan E. Jacks              51               Vice President of Business
                                             Development, Chief Legal
                                             Officer and Corporate Secretary

David M. Lebolt             48               Vice President and General
                                             Manager, Audio

Paul J. Milbury             56               Vice President and Chief
                                             Financial Officer

Carol L. Reid               57               Vice President and Corporate
                                             Controller

                                       11

<PAGE>

Michael J. Rockwell         38               Vice President of Software
                                             Engineering and Chief 
                                             Technology Officer

Charles L. Smith            44               Vice President and General
                                             Manager, Avid Video

--------------------

DAVID A. KRALL.  Mr. Krall has served as President since October 1999 and Chief
Executive Officer since April 2000.  Previously, he served as Avid's Chief
Operating Officer from October 1999 to April 2000.  Prior to that, Mr. Krall
served in various capacities at Digidesign: Chief Operating Officer of
Digidesign from July 1998 to October 1999, Vice President of Engineering from
June 1996 to July 1998 and Director of Program Management from May 1995 to June
1996.

PATRICIA A. BAKER.  Ms. Baker has served as Vice President of Human Resources
since November 2002.  From May 1996 to November 2002, Ms. Baker was responsible
for human resource matters at Digidesign.  Prior to joining Avid, Ms. Baker held
senior human resources positions at major firms specializing in the medical,
pharmaceutical, and industrial and specialty chemical industries.  Ms. Baker was
also President of The Baker Group, an independent consulting firm that focused
on both strategic organizational planning and executive team building.

JOSEPH BENTIVEGNA.  Mr. Bentivegna has served as Vice President and Corporate
Operating Officer, Avid Video since November 2004. Previously, he served as Vice
President of Video Development and Operations from August 2001 to November 2004.
Prior to that, he held a variety of other positions at Avid, including Vice
President and General Manager of Avid Media Solutions from June 2000 to August
2001, Vice President of Worldwide Operations from January 1999 to June 2000,
Vice President and General Manager of Asia Operations from September 1998 to
January 1999 and Vice President of Worldwide Manufacturing from June 1996 to
September 1998. From November 1991 to June 1996 Mr. Bentivegna held various
other positions at Avid. Prior to that he held various positions in operations
for Access Technology, Inc., a developer of application software.

ETHAN E. JACKS.  Mr. Jacks has served as Vice President of Business Development
since June 1999 and Chief Legal Officer since June 2000.  From May 2000 to
December 2000, Mr. Jacks also served as Acting Chief Financial Officer and from
March 1999 to June 2000 as General Counsel. Prior to joining Avid, Mr. Jacks was
Vice President and General Counsel for Molten Metal Technology, Inc. from
November 1991 to October 1998.  Mr. Jacks was also engaged in 
the private practice of law for eleven years, including as a partner at
McDermott, Will & Emery.

DAVID M. LEBOLT.  Mr. Lebolt has served as Vice President and General Manager of
Audio since July 2002.  Previously, Mr. Lebolt held a variety of positions at
Digidesign, including Vice President of Product Strategy from November 1999 to
July 2002, Director of Product Strategy from November 1998 to November 1999, and
Pro Tools Product Line Manager from February 1994 to November 1998. Before
joining Digidesign in 1994, Mr. Lebolt was a professional keyboardist, producer,
arranger and composer.  He also has experience in music advertising and music
production, and has received both Clio and Emmy(R) awards for his production
work.

PAUL J. MILBURY.  Mr. Milbury has served as Vice President and Chief Financial
Officer since December 2000.  Prior to joining Avid, Mr. Milbury was Chief
Financial Officer of iBelong.com, Inc. from April 2000 to December 2000, and
Chief Financial Officer of JuniorNet Corporation from October 1998 to April
2000.  Prior to that, Mr. Milbury spent 19 years at Digital Equipment
Corporation (now part of Hewlett-Packard Computer Corporation), where in 1995 he
became Vice President and Treasurer.

CAROL L. REID.  Ms. Reid has served as Vice President and Corporate Controller
since November 1998.  Prior to joining the Company, Ms. Reid spent 20 years at
Digital Equipment Corporation (now part of Hewlett-Packard Computer
Corporation), where she was Vice President of Internal Audit from January 1998
to November 1998 and Assistant Treasurer/Director from October 1994 to January
1998.

MICHAEL J. ROCKWELL.  Mr. Rockwell has served as Vice President of Software
Engineering since December 2003 and as Chief Technology Officer since August
2001.  Previously, Mr. Rockwell was Vice President and General Manager of Avid
Internet Solutions from June 2000 to August 2001, and Chief Architect for
Software Engineering of Digidesign from January 1997 to November 1999.
Mr. Rockwell's prior positions with Digidesign included Director of Application
Development from March 1995 to January 1997 and Director of Multi-Media Products
from April 1994 to March 1995.

                                       12

<PAGE>

CHARLES L. SMITH.  Mr. Smith has served as Vice President and General Manager,
Avid Video since November 2004.  Previously, he served as Vice President of
Worldwide Sales, Marketing and Services from November 1999 to November 2004.
Prior to that, Mr. Smith served in various capacities at Digidesign: Vice
President of Sales and Marketing from October 1996 to November 1999, Vice
President of International Sales from August 1995 to October 1996, and Managing
Director Digidesign UK from May 1993 to August 1995.

                                       13

<PAGE>


                                     PART II


ITEM 5.     MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        Our common stock is listed on the Nasdaq National Market under the
symbol AVID. The table below shows the high and low sales prices of the common
stock for each calendar quarter of the fiscal years ended December 31, 2004 and
2003.

            2004                   High               Low
            ----                   ----               ---
        First Quarter             $55.42            $38.43
        Second Quarter            $61.68            $44.11
        Third Quarter             $54.66            $40.90
        Fourth Quarter            $62.57            $46.48
                           
                           
            2003                   High               Low
            ----                   ----               ---
        First Quarter             $24.15            $16.76
        Second Quarter            $38.15            $21.86
        Third Quarter             $57.95            $33.96
        Fourth Quarter            $59.77            $44.65

        On February 22, 2005, the last reported sale price of the Nasdaq
National Market for our common stock was $64.55 per share. The approximate
number of holders of record of our common stock at February 22, 2005 was 380.
This number does not include shareholders for whom shares were held in a
"nominee" or "street" name.

        We have never declared or paid cash dividends on our capital stock and
currently intend to retain all available funds for use in the operation of our
business. We do not anticipate paying any cash dividends in the foreseeable
future.

                                       14

<PAGE>


ITEM 6.     SELECTED FINANCIAL DATA

        The following table sets forth our selected condensed consolidated
financial data. The selected consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this filing.

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
In thousands (except per share data)


<TABLE>
<CAPTION>
                                                                   For the Year Ended December 31,
                                                     --------------------------------------------------------
                                                           2004       2003        2002       2001       2000
                                                     --------------------------------------------------------
<S>                                                     <C>        <C>         <C>        <C>        <C>     
Net revenues                                           $589,605   $471,912    $418,719   $434,638   $476,090
Cost of revenues                                        255,496    209,373     207,236    213,572    234,424
                                                     ----------- ---------- ----------- ---------- ----------
 Gross profit                                           334,109    262,539     211,483    221,066    241,666
                                                     ----------- ---------- ----------- ---------- ----------
Operating expenses:
  Research and development                               94,940     85,552      82,346     86,140     82,900
  Marketing and selling                                 135,811    109,704     100,761    113,053    119,469
  General and administrative                             29,780     23,208      19,819     23,313     27,504
  Restructuring and other costs, net                          -      3,194       2,923      8,268          -
  Amortization of intangible assets                       3,641      1,316       1,153     31,168     66,872
  Impairment of intangible assets                         1,187          -           -          -          -
                                                     ----------- ---------- ----------- ---------- ----------
   Total operating expenses                             265,359    222,974     207,002    261,942    296,745
                                                     ----------- ---------- ----------- ---------- ----------
Operating income (loss)                                  68,750     39,565       4,481    (40,876)   (55,079)
Other income, net                                         1,339      1,874         218      5,529      3,730
                                                     ----------- ---------- ----------- ---------- ----------
Income (loss) before income taxes                        70,089     41,439       4,699    (35,347)   (51,349)
Provision for (benefit from) income taxes                (1,612)       550       1,700      2,800      5,000
                                                     ----------- ---------- ----------- ---------- ----------
Net income (loss)                                       $71,701    $40,889      $2,999   ($38,147)  ($56,349)
                                                     =========== ========== =========== ========== ==========
 
Net income (loss) per common share - basic                $2.21      $1.40       $0.11     ($1.49)    ($2.28)

Net income (loss) per common share - diluted              $2.05      $1.25       $0.11     ($1.49)    ($2.28)

Weighted average common shares outstanding - basic       32,485     29,192      26,306     25,609     24,683

Weighted average common shares outstanding - diluted     35,003     32,653      26,860     25,609     24,683

</TABLE>


CONSOLIDATED BALANCE SHEET DATA:
In thousands

<TABLE>
<CAPTION>
                                                                       As of December 31,
                                                     --------------------------------------------------------
                                                           2004        2003       2002       2001      2000
                                                     --------------------------------------------------------
<S>                                                      <C>          <C>        <C>        <C>      <C>    
Cash, cash equivalents and marketable securities        $155,419     $196,309    $89,034    $72,961  $83,206
Working capital                                          176,384      196,605     94,130     85,490   96,585
Total assets                                             576,234      348,119    235,803    215,806  266,482
Long-term debt and other liabilities                       1,689          607      1,427     13,020   13,449
Total stockholders' equity                               424,621      227,105    123,564    104,758  137,850

</TABLE>


                                       15

<PAGE>


ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
            RESULTS OF OPERATIONS

OVERVIEW

        We develop, market, sell and support a wide range of software and
hardware for digital media production, management and distribution. Digital
media are video, audio or graphic elements in which the image, sound or picture
is recorded and stored as digital values, as opposed to analog, or tape-based,
signals. Our diverse range of product and service offerings enables customers to
"Make, Manage, and Move Media." We operate our business in two reporting
segments, Video and Film Editing and Effects (Video) and Audio.

        An important part of our strategy for the past few years has included
expanding and enhancing our product lines and increasing revenues through both
acquisitions and internal development of products. In January 2004, we acquired
Munich, Germany-based NXN Software GmbH ("NXN"), a leading provider of asset and
production management systems specifically targeted for the entertainment and
computer graphics industries. This acquisition expands our offering in digital
asset management by enabling our film and video post-production, broadcast,
audio and 3D animation customers to leverage the workflow capabilities of the
Alienbrain(R) product line. NXN has been integrated into our Video segment. In
August 2004, we completed the acquisition of Irwindale, California-based
M-Audio, a leading provider of digital audio and MIDI solutions for electronic
musicians and audio professionals. We have integrated M-Audio into our Audio
segment and will market its line of audio products alongside Digidesign's
digital audio workstations for the professional and home/hobbyist markets.
Finally, in September 2004, we acquired Avid Nordic AB, a Sweden-based
distributor of Avid products operating in the Nordic and Benelux regions of
Europe. This acquisition allows us to directly serve customers in this region.
We previously had no ownership interest in Avid Nordic AB.

        We generally derive approximately half of our revenues from customers
outside the United States. This business is, for the most part, transacted
through international subsidiaries and generally in the currency of the end-user
customers. Therefore, we are exposed to the risk that changes in foreign
currency could materially impact, either positively or adversely, our revenues,
net income (loss) and cash flow. To hedge against the foreign exchange exposure
of certain forecasted receivables, payables and cash balances of our foreign
subsidiaries, we enter into short-term foreign currency forward-exchange
contracts. We record gains and losses associated with currency rate changes on
these contracts in results of operations, offsetting remeasurement gains and
losses on the related assets and liabilities. The success of this hedging
program depends on forecasts of transaction activity in the various currencies.
To the extent that these forecasts are over- or understated during the periods
of currency volatility, we could experience unanticipated currency gains or
losses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        Our consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. We regularly re-evaluate our estimates and judgments,
including those related to revenue recognition; allowances for product returns
and exchanges; allowance for bad debts; the valuation of inventories, goodwill
and other intangible assets, income tax assets; and reserves for recourse under
financing transactions. We base our estimates and judgments on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the amounts of revenue
and expenses that are not readily apparent from other sources. Actual results
may differ from these estimates.

        We believe the following critical accounting policies most significantly
affect the portrayal of our financial condition and involve our most difficult
and subjective judgments.

Revenue Recognition and Allowances for Product Returns and Exchanges

        We recognize revenue from sales of products upon receipt of a signed
purchase order or contract and product shipment to distributors or end users,
provided that collection is reasonably assured, the fee is fixed or
determinable, and all other revenue recognition criteria of SOP 97-2, "Software
Revenue Recognition", as amended, and Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition", are met.
Within our Video segment and for much of our Audio segment, we follow the
guidance of SOP 97-2 for revenue recognition since our products and services are
software-related. However, for certain offerings in our Audio segment, software
is incidental to the delivered products and services. For these products, we
record revenue based on satisfying the criteria in SAB No. 104.

                                       16

<PAGE>

        In connection with many of our product sale transactions, customers
typically purchase a one-year maintenance and support agreement. We recognize
revenue from maintenance contracts on a ratable basis over their term. We
recognize revenue from training, installation or other services as the services
are performed.

        We use the residual method to recognize revenues when an order includes
one or more elements to be delivered at a future date and evidence of the fair
value of all undelivered elements exists. Under the residual method, the fair
value of the undelivered element, typically maintenance and support, is deferred
and the remaining portion of the total arrangement fee is recognized as revenue
related to the delivered element. If evidence of the fair value of one or more
undelivered elements does not exist, we defer all revenues and only recognize
them when delivery of those elements occurs or when fair value can be
established. Fair value is typically based on the price charged when the same
element is sold separately to customers. However, in certain transactions, fair
value is based on the renewal price of the undelivered element that is granted
as a contractual right to the customer. Our current pricing practices are
influenced primarily by product type, purchase volume, term and customer
location. We review services revenues sold separately and corresponding renewal
rates on a periodic basis and update, when appropriate, our fair value for such
services used for revenue recognition purposes to ensure that it reflects our
recent pricing experience.

        In most cases, our products do not require significant production,
modification or customization of software. Installation of the products is
generally routine, requires minimal effort and is not typically performed by us.
However, a growing number of transactions, those typically involving orders from
end-users for a significant number of products for a single customer site, such
as news broadcasters, require that we perform an installation effort that we
deem to be complex and non-routine. In these situations, we do not recognize
revenue for either the products shipped or the installation services until the
installation is complete. In addition, if such orders include a customer
acceptance provision, no revenue is recognized until the customer's acceptance
of the products and services has been received or the acceptance period has
lapsed.

        Telephone support, enhancements and unspecified upgrades typically are
provided at no additional charge during the product's initial warranty period
(generally between 30 days and twelve months), which precedes commencement of
the maintenance contracts. We defer the fair value of this support period and
recognize the related revenue ratably over the initial warranty period. We also
from time to time offer certain customers free upgrades or specified future
products or enhancements. For each of these elements that is undelivered at the
time of product shipment, we defer the fair value of the specified upgrade,
product or enhancement and recognize that revenue only upon later delivery or at
the time at which the remaining contractual terms relating to the upgrade have
been satisfied.

        In 2004, approximately 72% of our revenue was derived from indirect
sales channels, including authorized resellers and distributors. Within our
Video segment, our resellers and distributors are generally not granted rights
to return products to us after purchase, and actual product returns from them
have been insignificant to date. However, distributors of our Avid Xpress DV,
Avid Xpress Pro and Avid Mojo product lines have a contractual right to return a
percentage of prior quarter purchases. The return provision for these
distributors has not had a material impact on our results of operations. In
contrast, some channel partners, particularly those who resell our Audio
products, are offered limited rights of return, stock rotation and price
protection.

        Channel partners within our Audio segment are granted return rights to
return or exchange products on a case-by-case basis but are not provided a
contractual right to do so. In compliance with Statement of Financial Accounting
Standards ("SFAS") No. 48, "Revenue Recognition When Right of Return Exists", we
record a provision for estimated returns and other allowances, as a reduction of
revenues, in the same period that related revenues are recorded. Management
estimates must be made and used in connection with establishing and maintaining
a sales allowance for expected returns and other credits. In making such
estimates, we analyze historical returns and credits and the amounts of products
held by major resellers, and consider the impact of new product introductions,
changes in customer demand, current economic conditions, and other known
factors. We maintain a rolling history of returns on a product-by-product basis
and analyze returns and credits by product category. Material differences may
result in the amount and timing of our revenue for any period if our estimates
of potential product returns or other reseller credits prove to be materially
different from actual experience.

        At the time of a sale transaction, we make an assessment of the
collectibility of the amount due from the customer. Revenue is recognized only
if we are reasonably assured that collection will occur. In making this
assessment, we consider customer credit-worthiness and historical payment
experience. If it is determined from the outset of the arrangement that
collection is not reasonably assured based upon our credit review process,
revenue is recognized on a cash-collected basis to the extent that the other
criteria of SOP 97-2 and SAB 104 are satisfied. At the outset of the

                                       17

<PAGE>

arrangement, we assess whether the fee associated with the order is fixed or
determinable and free of contingencies or significant uncertainties. In
assessing whether the fee is fixed or determinable, we consider the payment
terms of the transaction, our collection experience in similar transactions
without making concessions, and our involvement, if any, in third-party
financing transactions, among other factors. If the fee is not fixed or
determinable, revenue is recognized only as payments become due from the
customer, provided that all other revenue recognition criteria are met. If a
significant portion of the fee is due after our normal payment terms, which are
generally 30, but can be up to 90, days after the invoice date, we evaluate
whether we have sufficient history of successfully collecting past transactions
with similar terms. If that collection history is successful, then revenue is
recognized upon delivery of the products, assuming all other revenue recognition
criteria are satisfied.

        We record as revenue all amounts billed to customers for shipping and
handling costs and record the actual shipping costs as a component of cost of
revenues. We record reimbursements received from customers for out-of-pocket
expenses as revenue, with related costs recorded as cost of revenues.

        With respect to sales of "solutions", we are able to invoice the
customer under a billing plan in advance of providing products and services or
maintenance and support. In these instances, we record invoiced amounts and cash
payments received prior to revenue recognition as deferred revenue.

Allowance for Bad Debts and Reserves for Recourse under Financing Transactions

        We maintain allowances for estimated bad debt losses resulting from the
inability of our customers to make required payments for products or services.
When evaluating the adequacy of the allowances, we analyze accounts receivable
balances, historical bad debt experience, customer concentrations, customer
credit-worthiness and current economic trends. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances could be required.

        We provide third-party, lease financing options to many of our
customers. Avid is not generally a party to the leases; however, during the
terms of these leases, which are generally three years, we remain liable for any
unpaid principal balance upon default by the end-user, but such liability is
limited in the aggregate. See Footnote I to our Consolidated Financial
Statements in Item 8. We record revenue from these transactions upon the
shipment of our products since we believe that our collection experience with
similar transactions supports our assessment that the fee is fixed or
determinable. We have operated these programs for over nine years and to date
defaults under the program have consistently ranged between 2% and 4%. We
maintain reserves for estimated recourse losses under this financing program
based on these historical default rates. While we have experienced insignificant
losses from defaults to date under this program, deterioration in the financial
condition of our customers who participate in the program could require
additional reserves.

Inventories

        Inventory in the digital media market, including our inventory, is
subject to rapid technological change or obsolescence. We regularly review
inventory quantities on hand and write down inventory to its realizable value to
reflect estimated obsolescence or unmarketability based upon assumptions about
future inventory demand (generally for the following twelve months), and market
conditions. If actual future demand or market conditions are less favorable than
estimates by management, additional inventory write-downs may be required.

Business Combinations

        When we acquire new businesses, we use the purchase method of accounting
as required by SFAS No. 141, "Business Combinations". We allocate the purchase
price of businesses acquired to the assets, including intangible assets,
acquired and the liabilities assumed based on their estimated fair values, with
any amount in excess of such allocations designated as goodwill. Significant
management judgments and assumptions are required in determining the fair value
of acquired assets and liabilities, particularly acquired intangible assets. For
example, it is necessary to estimate the portion of development efforts that are
associated with technology that is in process and has no alternative future use.
The valuation of purchased intangible assets is based upon estimates of the
future performance and cash flows from the acquired business. If different
assumptions are used, it could materially impact the purchase price allocation
and our financial position and results of operations.

Goodwill and Intangible Assets

         We assess the impairment of goodwill and identifiable intangible
assets on at least an annual basis and whenever events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable. Factors we consider important that could trigger an impairment

                                       18

<PAGE>

review include significant negative industry or economic trends, unanticipated
competition, loss of key personnel, a more-likely than not expectation that a
reporting unit or component thereof will be sold or otherwise disposed of,
significant underperformance relative to the historical or projected future
operating results, significant changes in the manner of use of the acquired
assets or the strategy for our overall business, a significant decline in our
stock price for a sustained period, a reduction of our market capitalization
relative to our net book value and other such circumstances.

         In accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets", we no longer amortize goodwill and certain intangible assets. The
goodwill impairment test prescribed by SFAS No. 142 requires us to identify
reporting units and to determine estimates of the fair values of our reporting
units as of the date we test for impairment. We have two reporting units that
are currently the same as our operating segments, Video and Audio, as described
in Note N of "Notes to Consolidated Financial Statements." Both of our reporting
units include goodwill.

         In the goodwill impairment analysis, the fair value of each reporting
unit is compared to its carrying value, including goodwill. If the reporting
unit's carrying value exceeds its fair value, we would record an impairment loss
equal to the difference between the carrying value of the goodwill and its
implied fair value. In determining the fair values of our reporting units, we
first estimate the fair value of the total company by reference to the quoted
market price of our stock and then allocate this fair value among our reporting
units using a discounted cash flow valuation model. This model focuses primarily
on estimates of future revenues and profits for each reporting unit. We estimate
these amounts by evaluating historical trends, current budgets, operating plans
and industry data. We completed our annual impairment tests as of the end of the
fourth quarter of each year and concluded that no impairment charge was
required. If future events cause the reporting units' fair value to decline
below its carrying value, an impairment charge may be required.

        In the identifiable intangibles impairment analysis, the fair value of
each asset is compared to its carrying value. If the asset's carrying value is
not recoverable and exceeds its fair value, we would record an impairment loss
equal to the difference between the carrying value of the asset and its fair
value. The carrying value of an asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. We analyzed certain of our identifiable intangible
assets for impairment as of the end of the fourth quarter of 2004 and found some
of them to be impaired as described in Footnote F to our Consolidated Financial
Statements in Item 8.

Income Tax Assets

        We record deferred tax assets and liabilities based on the net tax
effects of tax credits, operating loss carryforwards and temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

        We regularly review deferred tax assets for recoverability taking into
consideration such factors as historical losses after deductions for stock
compensation, projected future taxable income and the expected timing of the
reversals of existing temporary differences. SFAS No. 109, "Accounting for
Income Taxes", requires us to record a valuation allowance when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Based on the level of deferred tax assets as of December 31, 2004, the
level of historical U.S. losses after deductions for stock compensation, and the
level of outstanding stock options, which we anticipate will generate
significant U.S. tax deductions in the future, we have determined that the
uncertainty regarding the realization of these assets is sufficient to warrant
the continued establishment of a full valuation allowance against the U.S. net
deferred tax assets. In the year ended December 31, 2004, we removed the
valuation allowance related to deferred tax assets in our Irish manufacturing
operations. This resulted in a non-cash $2.1 million tax benefit recorded
through our 2004 provision for income taxes. The decision to remove the
valuation allowance was based on the conclusion that it was more likely than not
that the deferred tax asset in Ireland would be realized.

        Our assessment of the valuation allowance on the U.S. deferred tax
assets could change in the future based upon our levels of pre-tax income and
other tax related adjustments. Removal of the valuation allowance in whole or in
part would result in a non-cash reduction in the provision for income taxes
during the period of removal. In addition, because a portion of the valuation
allowance as of December 31, 2004 was established to reserve certain deferred
tax assets resulting from the exercise of employee stock options, in accordance
with SFAS No. 109, removal of the valuation allowance related to these assets
would result in a credit to additional paid-in capital within stockholders'
equity rather than the provision for income taxes. If the valuation allowance of
$140.8 million as of December 31, 2004 were to be removed in its entirety, an
$84.9 million non-cash reduction in income tax expense and a $55.9 million
credit to paid-in capital would be recorded in the period of removal. To the
extent no valuation allowance is established for our deferred tax assets in
future periods, future financial statements would reflect a non-cash increase in
our provision for income taxes.

                                       19

<PAGE>

RESULTS OF OPERATIONS

        The following table sets forth certain items from our consolidated
statements of operations as a percentage of net revenues for the periods
indicated:

<TABLE>
<CAPTION>
                                                          For the Year Ended December 31,
                                                      --------------------------------------
                                                           2004         2003         2002
                                                      --------------------------------------
        <S>                                                <C>          <C>          <C>   
        Net revenues                                       100.0%       100.0%       100.0%
        Cost of revenues                                    43.3%        44.4%        49.5%
                                                      ------------ ------------ ------------
         Gross profit                                       56.7%        55.6%        50.5%
                                                      ------------ ------------ ------------
        Operating expenses:
         Research and development                           16.1%        18.1%        19.7%
         Marketing and selling                              23.0%        23.2%        24.0%
         General and administrative                          5.1%         4.9%         4.7%
         Restructuring and other costs, net                     -         0.7%         0.7%
         Amortization of intangible assets                   0.6%         0.3%         0.3%
         Impairment of intangible assets                     0.2%            -            -
                                                      ------------ ------------ ------------
          Total operating expenses                          45.0%        47.2%        49.4%
                                                      ------------ ------------ ------------
        Operating income                                    11.7%         8.4%         1.1%
        Interest and other income (expense), net             0.2%         0.4%         0.0%
                                                      ------------ ------------ ------------
        Income before income taxes                         11.9 %         8.8%         1.1%
        Provision for (benefit) from income taxes          (0.3%)         0.1%         0.4%
                                                      ------------ ------------ ------------
        Net income                                          12.2%         8.7%         0.7%
                                                      ============ ============ ============
</TABLE>


Net Revenues

        Our net revenues are derived mainly from the sales of computer-based
digital, nonlinear media editing systems and related peripherals, licensing of
related software, and sales of related software maintenance contracts. This
market has been, and we expect it to continue to be, highly competitive. A
significant portion of these revenues is generated by sales near the end of each
quarter, which can impact our ability to accurately forecast revenues on a
quarterly basis. Increasingly, revenues are also being derived from sales of
"solutions" encompassing multiple products and networking capabilities that
enable users to share and manage media throughout a project or organization.
Such solution sales may include training and installation services, as well as
workflow management assistance, to be provided by us or a third party. Depending
upon the complexity of the arrangement and the level of our involvement, the
revenues resulting from these solution sales may be deferred for one or more
quarters while the services are being performed.

        Net revenues increased 24.9%, from $471.9 million in 2003 to $589.6
million, in 2004. Revenues in our Video business increased $60.3 million or
18.2%, to $391.1 million from $330.9 million, while revenues in our Audio
business grew by $57.4 million or 40.7%, to $198.5 million from $141.1 million.
We estimate that approximately 118% or $71.0 million of the growth in the Video
segment during 2004 relates to increased sales volume of our products and
services, including a full year of sales of the Avid DNA family of products
released during the second and third quarters of 2003. This increased volume
growth was partially offset (18% or $10.7 million) by lower average selling
prices of our various products despite favorable foreign currency exchange
rates, especially with respect to the euro. Average selling prices also include
the impact of price changes, discounting, and mix (higher or lower-end) of
products sold. Included in our Video revenues are revenues from services.
Service revenues increased $14.6 million or 31.5% to $61.1 million in 2004 from
$46.5 million in 2003. Service revenues consist primarily of maintenance
contracts, installations and training. For the Audio segment, the revenue growth
in 2004 is attributed to the increased sales volume of Digidesign's core
products as well as the acquisition of M-Audio in August of 2004 (which
accounted for $26.2 million of the Audio revenue growth).

        Net revenues increased 12.7% from $418.7 million in 2002 to $471.9
million in 2003. Revenues in our Video business increased $48.0 million or
17.0%, to $330.9 million from $282.9 million, while revenues in our Audio
business grew by $5.2 million or 3.8%, to $141.1 million from $135.9 million. We
estimate that approximately 73%, or $35.3 million, of the growth in the Video
segment during 2003 relates to increased sales volume of our products and
services, including the new Avid DNA family of products released during 2003.
The remaining 27%, or $12.7 million, of growth is attributed to higher average
selling prices of our various products, which in 2003 was particularly impacted

                                       20

<PAGE>
by favorable foreign currency exchange rates, especially with respect to the
euro. Average selling prices also include the impact of price changes,
discounting, and mix (higher or lower-end) of products sold. Included in our
Video revenues are revenues from services. Service revenues increased $9.6
million or 26.1% to $46.5 million in 2003 from $36.9 million in 2002. Service
revenues consist primarily of maintenance contracts, installations and training.
For the Audio segment, the revenue growth in 2003 is primarily the result of
higher average selling prices of our products, including the favorable impact of
foreign currency exchange rate changes.

        Net revenues derived through indirect channels were approximately 72%
for 2004 compared to 75% for 2003 and 81% for 2002. The increase in direct
selling from 2003 to 2004 was due primarily to the growth in sales to our
broadcast customers, which generally require a longer selling cycle with more
direct support. We expect sales to broadcast customers will be an area of
continued revenue growth in the future.

        International sales (i.e., sales to customers outside the United States)
accounted for 51% of our 2004 net revenues, compared to 49% for 2003 and 50% for
2002. International sales increased by $68.9 million or 29.5% in 2004 compared
to 2003 and increased by $25.5 million or 12.2% in 2003 compared to 2002. The
increase in international sales in 2004 occurred in Europe and Asia, with the
impact of currency translation and the acquisition of M-Audio being factors. The
increase in international sales in 2003 occurred principally in Europe, with the
impact of currency translation being a factor.

Gross Margin

        Cost of revenues consists primarily of costs associated with the
procurement of components; post-sales customer support costs related to
maintenance contract revenue and other services; the assembly, testing, and
distribution of finished products; warehousing; and royalties for third-party
software included in our products. The resulting gross margin fluctuates based
on factors such as the mix of products sold, the cost and proportion of
third-party hardware and software included in the systems sold, the offering of
product upgrades, price discounts and other sales promotion programs, the
distribution channels through which products are sold, the timing of new product
introductions, sales of aftermarket hardware products such as disk drives, and
currency exchange rate fluctuations.

        Our gross margin increased to 56.7% in 2004 from 55.6% in 2003, which
had increased from 50.5% in 2002. The gross margin increase in 2004 reflects
primarily a favorable impact of foreign currency exchange rates on revenue,
especially with respect to the euro. We also achieved reduced material and
manufacturing overhead costs in the Video segment in 2004 as compared to 2003.
The gross margin increase in 2003 primarily reflects a positive impact from
higher average selling prices of our products, which in 2003 was particularly
impacted by favorable foreign currency exchange rates, especially with respect
to the euro. Average selling prices also include the impact of price changes,
discounting, and mix (higher or lower-end) of products sold. We also achieved
reduced material and manufacturing overhead costs in the Video segment in 2003
as compared to 2002.

Research and Development

        Research and development expenses increased by $9.4 million or 11.0% in
2004 compared to 2003 and by $3.2 million or 3.9% in 2003 compared to 2002. The
increase in expenditures in 2004 was primarily due to higher personnel-related
costs partly due to the acquisitions of NXN and M-Audio during 2004 as well as
to our 2004 bonus plan. These costs were somewhat offset by reduced consulting
fees. The increase in expenditures in 2003 was primarily due to higher
personnel-related costs, in particular accrued expenses associated with our 2003
bonus plan. These costs were somewhat offset by reductions in other spending
categories. Research and development expenses decreased as a percentage of net
revenues, to 16.1% in 2004 from 18.1% in 2003, and to 18.1% in 2003 from 19.7%
in 2002, primarily as a result of the higher revenue base in 2004 compared to
2003 and 2003 compared to 2002.

Marketing and Selling

        Marketing and selling expenses increased $26.1 million or 23.8% in 2004
compared to 2003, and increased $8.9 million or 8.9% in 2003 compared to 2002.
The increase in 2004 was primarily due to higher personnel-related costs,
including salaries and related taxes and benefits, partly due to the
acquisitions of NXN, M-Audio and Avid Nordic during 2004, expenses associated
with our 2004 bonus plan and commissions expense (due to higher revenues).
Various marketing programs and increased advertising also contributed to the
increase. The increase in 2003 was primarily due to higher personnel-related
costs, including salaries and related taxes and benefits as well as expenses
associated with our bonus plan and commissions expense (due to higher revenues).
We also had higher net foreign exchange losses (specifically, remeasurement
gains and losses on net monetary assets denominated in foreign currencies,
offset by hedging gains and losses), which are included in marketing and selling
expenses, in 2003. These increases were partially offset by lower marketing
expenses such as advertising and direct mailings. Marketing and selling expenses
decreased slightly as a percentage of net revenues, to 23.0% in 2004 from 23.2%
in 2003, and to 23.2% in 2003 from 24.0% in 2002, primarily as a result of the
higher revenue base in 2004 compared to 2003 and 2003 compared to 2002.

                                       21

<PAGE>

General and Administrative

        General and administrative expenses increased by $6.6 million or 28.3%
in 2004 compared to 2003, and increased by $3.4 million, or 17.1% in 2003
compared to 2002. The increase in expenditures in 2004 was primarily due to
higher audit and legal fees as a result of complying with the Sarbanes-Oxley Act
of 2002, and personnel-related costs, in particular expenses associated with our
2004 bonus plan. The increase in expenditures in 2003 was primarily due to
higher personnel-related costs, in particular expenses associated with our 2003
bonus plan and, to a lesser extent, higher insurance costs and external legal
fees as a result of complying with the Sarbanes-Oxley Act of 2002. General and
administrative expenses increased slightly to 5.1% of net revenues in 2004 as
compared to 4.9% in 2003. This percentage increase was due to the increases
discussed above, with the impact being offset by the higher revenue base in
2004. General and administrative expenses increased as a percentage of net
revenues to 4.9% in 2003 from 4.7% in 2002, primarily due to the increases in
expenses discussed above.

Restructuring and Other Costs

        Restructuring activity in 2004 was primarily related to paying down
existing obligations on vacated facilities. Additionally, in September 2004, we
recorded a charge of $0.2 million to reflect the decrease in rent to be received
from one of our subtenants and reversed a charge of $0.2 million associated with
unutilized space in Tewksbury. Our restructuring actions during 2003 consisted
of severance and facility charges made to increase efficiencies and reduce
expenses, and a revision to a previous restructuring charge recorded on
unutilized space. In the first quarter of 2003, we recorded a charge of $1.2
million for employee terminations and $0.6 million for unutilized space in Santa
Monica, California that included a write-off of leasehold improvements of $0.4
million. Also during 2003, we recorded charges of $1.5 million related to a
revision of our estimate of the timing and amount of future sublease income
associated with the Daly City facility discussed below based on working with a
real estate broker during the year to attempt to sublease the space.

        In December 2002, we recorded a charge of approximately $3.3 million in
connection with vacating excess space in our Daly City, California; Tewksbury,
Massachusetts; and Montreal, Canada facilities. The Tewksbury charge of $0.5
million was a revision of our estimate related to the August 2001 restructuring
action discussed below, based on our attempts to sublet the related space during
2002. The remaining portion of the charge for Daly City and Montreal was the
result of our ceasing to use a portion of each facility in December 2002 and
hiring real estate brokers to assist in finding subtenants. We believe the Daly
City charge of $2.4 million reflected a depressed real-estate market in the
area.

        During 2001, we implemented various restructuring plans to decrease
costs through the consolidation of operations and the reduction of approximately
194 jobs worldwide. In connection with these plans, we recorded charges to
operating expenses totaling $10.0 million. The restructuring charges included
approximately $7.4 million for severance and related costs of terminated
employees and $2.6 million for facility vacancy costs, of which $1.0 million
represented non-cash charges relating to the disposition of leasehold
improvements that were abandoned upon vacating the related properties in 2001
and 2002. These restructuring actions were expected to result in annual cost
savings of approximately $11.0 million, and management believes that these
savings were achieved. In connection with these and prior plans, we made cash
payments in 2001 of $6.2 million related to personnel severance-related costs
and $0.6 million related to vacated facilities. In 2002, we made severance
related payments of $1.2 million, facilities-related payments of $0.7 million
and wrote off $1.0 million of leasehold improvements. In 2003, we made
severance-related payments of $1.5 million and facilities-related payments of
$1.7 million. In 2004, we made facilities-related payments of $1.4 million.

        As of December 31, 2004, we have an aggregate obligation under leases
for which we have vacated the underlying facilities of approximately $18.6
million, including facilities in Daly City, California; Tewksbury,
Massachusetts; London, England and Montreal; Canada. We have a remaining
restructuring accrual balance for vacated facilities at December 31, 2004 of
$3.5 million, which represents the difference between this aggregate obligation
and expected future sublease income under actual or estimated potential sublease
agreements. See Notes I and M to our Consolidated Financial Statements.

                                       22

<PAGE>

Amortization of and Impairment of Intangible Assets

        In August 2004, we acquired M-Audio, a leading provider of digital audio
and MIDI solutions for electronic musicians and audio professionals, for cash,
net of cash acquired, of $79.6 million and stock and stock options with a fair
value of $96.5 million. As part of the purchase accounting allocation, we
recorded $38.4 million of identifiable intangible assets, consisting of
completed technologies, customer relationships, a trade name and a non-compete
covenant. The unamortized balance of the identifiable intangible assets relating
to this acquisition was $36.6 million at December 31, 2004.

        In September 2004, we acquired Avid Nordic AB for cash, net of cash
acquired, of Euro 6.1 million ($7.4 million). As part of the purchase price
allocation, we recorded $4.7 million of identifiable intangible assets
consisting solely of customer relationships. The unamortized balance was $4.4
million at December 31, 2004.

        In January 2004, we acquired NXN Software GmbH, a leading provider of
asset and production management systems specifically targeted for the
entertainment and computer graphics industries, for cash consideration of Euro
35 million ($43.7 million), less cash acquired. As part of the purchase
accounting allocation, we recorded $7.2 million of identifiable intangible
assets, consisting of completed technologies, customer relationships and a trade
name. In December 2004, the customer relationships and the trade name were
analyzed in accordance with FAS 144, and were determined to be impaired. See
Note F to our Consolidated Financial Statements in Item 8. We recorded an
impairment charge of $1.2 million for the quarter ended December 31, 2004. The
remaining unamortized balance of the identifiable intangible assets relating to
this acquisition was $4.8 million at December 31, 2004.

        From 2000 to 2003, we recorded intangible assets as we acquired the
following companies or their assets: Rocket Network, Inc. and Bomb Factory
Digital, Inc. in 2003; iKnowledge, Inc. in 2002; iNews, LLC in 2001; and The
Motion Factory, Inc. in 2000. In connection with these acquisitions, we
allocated $7.7 million to identifiable intangible assets consisting of completed
technologies and work force, and $2.2 million to goodwill. As of January 1,
2002, in connection with the adoption of SFAS 142, we reclassified $1.1 million
of the previously recorded assembled work force intangible to goodwill and, as a
result, ceased amortizing this amount. The unamortized balance of the
identifiable intangible assets relating to these acquisitions was $1.0 million
at December 31, 2004.

        Included in the operating results for 2004, 2003 and 2002 is
amortization of these intangible assets of $4.0 million, $1.3 million and $1.2
million, respectively. The increased levels of amortization primarily reflect
the addition of the M-Audio assets acquired in August 2004 and the NXN assets
acquired in January 2004. The unamortized balance of the identifiable intangible
assets relating to all acquisitions was $46.9 million at December 31, 2004. We
expect amortization of these intangible assets to be approximately $7.5 million
in 2005, $7.0 million in 2006 and $6.2 million in 2007.

Other Income and Expense, Net

        Other income and expense, net, generally consists of interest income,
interest expense and equity in income of non-consolidated companies. During
2004, other income and expense, net, decreased $0.5 million from $1.9 million of
income on a net basis in 2003 to $1.3 million in 2004. This decrease was due to
a charge in 2004 of $1.1 million related to the settlement of a lawsuit, which
was partly offset by increased interest income earned on higher average cash and
investment balances.

        During 2003, other income and expense, net, increased $1.7 million from
$0.2 million in 2002. This increase was due to increased interest income earned
on higher average cash and investment balances, as well as to the absence in
2003 of a $1.0 impairment charge recorded in 2002 to write down an investment in
an unconsolidated entity accounted for under the cost method.

Provision for (Benefit from) Income Taxes

        We account for income taxes under SFAS No. 109, "Accounting for Income
Taxes." SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in our financial statements or
tax returns. We account for investment tax credits as a reduction of income
taxes of the year in which the credit arises.

        Our effective tax rate was (2)%, 1%, and 36%, respectively, for 2004,
2003, and 2002. The tax rate in each year is significantly affected by net
changes in the valuation allowance against our deferred tax assets. We regularly
review our deferred tax assets for recoverability taking into consideration such
factors as historical losses after deductions for stock compensation, projected

                                       23

<PAGE>

future taxable income and the expected timing of the reversals of existing
temporary differences. SFAS No. 109 requires us to record a valuation allowance
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based on the level of deferred tax assets as of
December 31, 2004, the level of historical U.S. losses after deductions for
stock compensation, and the level of outstanding stock options, which we
anticipate will generate significant U.S. tax deductions in the future, we have
determined that the uncertainty regarding the realization of these assets is
sufficient to warrant the continued establishment of a full valuation allowance
against the U.S. net deferred tax assets. In the quarter ended December 31,
2004, we removed the valuation allowance related to deferred tax assets in our
Irish manufacturing operations. This resulted in a non-cash $2.1 million tax
benefit reflected in the rate indicated above. The decision to remove the
valuation allowance was based on the conclusion that it was more likely than not
that the deferred tax asset in Ireland would be realized. Due to the removal of
the valuation allowance, in future periods, we will have a non-cash increase to
provision for income taxes related to our Irish operations.

        Excluding the impact of the valuation allowance, our effective tax rate
would have been 28% for 2004 and 26% for 2003. These rates differ from the
Federal statutory rate of 35% primarily due to income in foreign jurisdictions,
which have lower tax rates. Excluding the impact of the valuation allowance, our
effective tax rate would have been 43% for 2002. This differs from the Federal
statutory rate of 35% primarily due to state taxes, while savings due to the
U.S. Federal Research Tax Credit more than offset a higher level of taxes from
our foreign subsidiaries, which are taxed at different rates.

LIQUIDITY AND CAPITAL RESOURCES

        We have funded our operations to date through both private and public
sales of equity securities, including stock option exercises from our employee
stock plans, as well as through cash flows from operations. As of December 31,
2004, our principal sources of liquidity included cash, cash equivalents and
marketable securities totaling $155.4 million.

        Net cash provided by operating activities was $81.4 million in 2004
compared to $58.6 million in 2003 and $25.4 million in 2002. In each case, cash
generated from operating activities primarily reflects net income after
adjustment for depreciation and amortization. In addition, 2004 cash flows
reflect cash generated through increases in accounts payable and accrued
expenses, partially offset by increases in accounts receivable and prepaid
expenses and other current assets. In 2003, cash flows also reflect cash
generated through increases in deferred revenues and accrued expenses, partially
offset by a decrease in accounts payable. In 2002, cash flows also reflect cash
generated through a decrease in accounts receivable and increases in accounts
payable and deferred revenues. This was partially offset by an increase in
inventories during 2002.

        At December 31, 2004 and 2003, we held inventory in the amounts of $53.9
million and $38.3 million, respectively. These balances include stockroom,
spares and demonstration equipment inventories at various locations, and
inventory at customer sites related to shipments for which we have not yet
recognized revenue. We review these balances regularly for excess quantities or
potential obsolescence and make appropriate adjustments to write down the
inventories to reflect their estimated realizable value. Of the $15.7 million
increase in inventories from December 31, 2003 to 2004, approximately $11.3
million relates to the acquisition of M-Audio.

        Accounts receivable increased by $28.3 million to $97.5 million at
December 31, 2004 from $69.2 million at December 31, 2003, driven primarily by
the year-over-year increase in net revenues. These balances are net of
allowances for sales returns, bad debts and customer rebates, all of which we
estimate and record based on historical experience. Days sales outstanding in
accounts receivable increased from 49 days at December 31, 2003 to 50 days at
December 31, 2004.

        Net cash flow used in investing activities was $107.1 million in 2004,
compared to $73.9 million in 2003 and $34.5 million in 2002. In 2004, we had net
sales of marketable securities in the amount of $44.2 million. The marketable
securities in which we invest our excess cash typically include corporate
obligations, asset backed securities, commercial paper, taxable municipal
obligations and U.S. Treasuries and other governmental obligations. We also
expended cash of $135.5 million in 2004 for the acquisitions of M-Audio, NXN,
and Avid Nordic and the final payment for Bomb Factory Digital. We purchased
$15.2 million of property and equipment during 2004, compared to $8.0 million
during 2003, and $9.4 million in 2002. Purchases of property and equipment in
both 2004 and 2003 were primarily of computer hardware and software to support
research and development activities and our information systems. Our capital
spending program for 2005 is currently expected to be approximately $16.2
million, including purchases of hardware and software to support activities in
the research and development, information systems and manufacturing areas, as
well as for facilities renovations. However, this amount could increase in the
event we enter into strategic business acquisitions or for other reasons.

                                       24

<PAGE>

        During 2002, we made a cash payment of approximately $0.4 million to
acquire selected assets of iKnowledge, Inc. As part of the purchase agreement,
we were required to make certain contingent cash payments, depending upon the
future revenues of the products acquired from iKnowledge through December 2004.
As of December 31, 2004, contingent payments paid to date or owed were
immaterial. In connection with the acquisition of The Motion Factory in 2000, we
might have been required to make future contingent cash payments limited in the
aggregate to $10.0 million, depending upon future revenues and/or gross margin
levels through December 2004 of the products including technology we acquired
from The Motion Factory. No contingent payments were paid or are owed through
December 31, 2004.

        During 2004, 2003 and 2002, we generated cash of approximately $29.4
million, $54.7 million and $12.7 million, respectively, from the issuance of
common stock related to the exercise of stock options and our employee stock
purchase plan. In 2002, we made a prepayment in full satisfaction of a $13.0
million note to Microsoft.

        In connection with restructuring efforts during 2001 and prior periods,
as well as with the identification in 2003 and 2002 of excess space in various
locations, we have cash obligations of approximately $18.6 million under leases
for which we have vacated the underlying facilities. We have an associated
restructuring accrual of $3.5 million at December 31, 2004 representing losses
to be incurred or expected to be incurred on subleases of space or lease
vacancies. These payments will be made over the remaining terms of the leases,
which have varying expiration dates through 2010, unless we are able to
negotiate an earlier termination. All restructuring related payments will be
funded through working capital. See Notes I and M to our consolidated financial
statements.
        
        Our cash requirements vary depending upon factors such as our planned
growth, capital expenditures, the possible acquisition of businesses or
technologies complementary to our business and obligations under past
restructuring programs. We believe our existing cash, cash equivalents,
marketable securities and funds generated from operations will be sufficient to
meet our operating cash requirements for at least the next twelve months. In the
event we require additional financing, we believe that we will be able to obtain
such financing; however, there can be no assurance that we would be successful
in doing so, or that we could do so on favorable terms.

CONTRACTUAL AND COMMERCIAL OBLIGATIONS INCLUDING OFF-BALANCE SHEET ARRANGEMENTS

The following table sets forth future payments that we are obligated to make, as
of December 31, 2004, under existing debt agreements, leases and other
arrangements (in thousands):

<TABLE>
<CAPTION>

                                                     Less than                                   After  
                                         Total         1 Year     1 - 3 Years   3 - 5 Years     5 Years 
                                      ------------  -----------  ------------  ------------  -----------
<S>                                      <C>           <C>           <C>           <C>          <C>     
Capital lease obligations                    $667         $502          $165             -            - 
Operating leases                           95,044       20,582        35,850       $27,898      $10,714 
Unconditional purchase obligations         25,035       25,035             -             -            - 
                                      ------------  -----------  ------------  ------------  -----------
                                         $120,746      $46,119       $36,015       $27,898      $10,714 
                                      ============  ===========  ============  ============  ===========
</TABLE>


        Other contractual arrangements that may result in cash payments or the
issuance of Avid stock or options to purchase Avid stock consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                    Total      Less than 1 Year   1 - 3 Years 
                                                -------------  ----------------  -------------
<S>                                                 <C>               <C>            <C>      
 Transactions with recourse                          $17,199           $17,199              - 
 Stand-by letter of credit                             4,300                 -         $4,300 
 Contingent consideration for acquisitions            46,763             1,763         45,000 
                                                -------------  ----------------  -------------
                                                     $68,262           $18,962        $49,300 
                                                =============  ================  =============
</TABLE>


        Through a third party, we offer lease financing options to our
customers. During the terms of these financing arrangements, which are generally
for three years, we remain liable for any unpaid principal balance in the event
of a default on the lease by the end-user. Our liability is limited in the
aggregate based on a percentage of initial amounts funded or, in certain cases,
amounts of unpaid balances. As of December 31, 2004, our maximum exposure under
this program was $17.2 million.

        We have a stand-by letter of credit at a bank that is used as a security
deposit in connection with our Daly City, California office space lease. In the
event of a default on our lease the landlord would, as of December 31, 2004, be

                                       25

<PAGE>

eligible to draw against this letter of credit to a maximum of $4.3 million,
subject to an annual reduction of approximately $0.8 million but not below $2.0
million. The letter of credit will remain at $2.0 million throughout the
remaining lease period, which runs through September 2009. As of December 31,
2004, we were not in default of this lease.

        We conduct our business globally and, consequently, our results from
operations are exposed to movements in foreign currency exchange rates. We enter
into forward exchange contracts, which generally have one-month maturities, to
reduce exposures associated with the foreign exchange exposures of certain
forecasted third-party and intercompany receivables, payables and cash balances.
At December 31, 2004, there were no open forward exchange contracts in place.

        As part of the purchase agreements of both M-Audio and Avid Nordic AB,
Avid may be required to make additional payments of up to $46.8 million
contingent upon the operating results of M-Audio through December 31, 2005 and
of Avid Nordic through August 31, 2005. See Note F to our Consolidated Financial
Statements in Item 8.

RECENT ACCOUNTING PRONOUNCEMENTS

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs", an
amendment of ARB No. 43, which is the result of its efforts to converge U.S.
accounting standards for inventories with International Accounting Standards.
SFAS No. 151 requires idle facility expenses, freight, handling costs, and
wasted material (spoilage) costs to be recognized as current-period charges. It
also requires that the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
No. 151 will be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. We are currently evaluating the impact of SFAS
No. 151 on our consolidated financial statements.

        On December 16, 2004, the FASB released SFAS No. 123R. This new
accounting standard requires all forms of stock compensation, including stock
options issued to employees, to be reflected as an expense in the Company's
financial statements. Public companies must adopt the standard by their first
fiscal period beginning after June 15, 2005. SFAS No. 123R allows three
alternative methods of transitioning to the standard: modified prospective
application (MPA), without restatement of prior interim periods in the year of
adoption; MPA with restatement of prior interim periods in the year of adoption;
or modified retrospective application. The Company intends to use the MPA
without restatement alternative and to apply the revised standard beginning in
the quarter ending September 30, 2005. Although the Company has not finalized
its analysis, it expects that the adoption of the revised standard will result
in higher operating expenses and lower earnings per share. See Note B to our
Consolidated Financial Statements for the pro forma impact on net income (loss)
and income (loss) per common share as if we had historically applied the fair
value recognition provisions of SFAS No. 123 to stock based employee awards.

        On October 22, 2004, the President signed the American Jobs Creation 
Act of 2004 ("the Act"). The Act creates a temporary incentive for U.S. 
corporations to repatriate accumulated income earned abroad by providing an 85 
percent dividends-received deduction for certain dividends from controlled 
foreign corporations. Although the deduction is subject to a number of 
limitations and significant uncertainty remains as to how to interpret numerous 
provisions in the Act, as of December 31, 2004, the Company believes that it has
the information necessary to make an informed decision on the impact of the Act.
Based on the information available, the Company has determined that its cash
position in the U.S. is sufficient to fund anticipated needs. The Company also
believes that the repatriation of income earned abroad would result in
significant foreign withholding taxes that otherwise would not have been
incurred as well as additional U.S. tax liabilities that may not be sufficiently
offset by foreign tax credits. Therefore, the Company does not currently plan to
repatriate any income earned abroad. These initial findings could change based
on clarification of the rules and changes in facts and circumstances of the
Company's operations and/or cash requirements in the U.S.

                                       26

<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

        Some of the statements in this Form 10-K relating to our future
performance constitute forward-looking statements. Such forward-looking
statements are based upon management's current expectations and involve known
and unknown risks. Realization of any of these risks may cause actual results to
differ materially from the results described in the forward-looking statements.
Certain of these risks are as follows:

Poor global economic conditions could adversely affect demand for our products
and the financial condition of our suppliers, distributors and resellers.

        The revenue growth and profitability of our business depends primarily
on the overall demand for our products. If global economic conditions worsen,
demand for our products may weaken, as could the financial health of our
suppliers, distributors and resellers, and our business and results of
operations could suffer.

Our performance will depend in part on continued market acceptance of our
digital nonlinear editing products.

        We continue to introduce new digital non-linear products based on our
Digital Nonlinear Accelerator architecture, including upgrades and enhancements
to our Media Composer Adrenaline and NewsCutter Adrenaline systems, as well as
Avid Xpress Pro with Avid Mojo and Avid DS Nitris hardware. We will need to
continue to focus marketing and sales efforts on educating potential customers
and our resellers about the uses and benefits of these products. The future
success of certain of these products, such as Avid DS Nitris, which enable
high-definition production, will also depend on demand for high definition
content and appliances, such as television sets and monitors, that utilize the
high definition standard. In addition, there are several other risks involved
with offering new products in general, including, without limitation, the
possibility of defects or errors, failure to meet customer expectations, delays
in shipping new products and the introduction of similar products by our
competitors. At the same time, the introduction and transition to new products
could have a negative impact on the market for our existing products, which
could adversely affect our revenues and business.

The broadcast market is large, widely dispersed, and highly competitive, and we
may not be successful in growing our customer base or predicting customer demand
in this market.

        We are continuing to enhance our presence in the digital broadcast
market and have augmented our NewsCutter product offering with the Avid Unity
for News products, and other server, newsroom, and browser products. The
broadcast market is distinguished from our traditional video business in that
turnkey, fully integrated, complex solutions (including the configuration of
unique workflows), rather than discrete point products, are frequently required
by the customer. Success in this market will require, among other things,
creating and implementing compelling solutions and developing a strong, loyal
customer base.

        In addition, large, complex broadcast orders often require us to devote
significant sales, engineering, manufacturing, installation, and support
resources to ensure their successful and timely fulfillment. As the broadcast
market converts from analog to digital, our strategy has been to build our
broadcast solutions team in response to customer demand. To the extent that
customer demand for our broadcast solutions exceeds our expectations, we may
encounter difficulties in the short run meeting our customers' needs. Meanwhile,
our competitors may devote greater resources to the broadcast market than we do,
or may be able to leverage their market presence more effectively. If we are
unsuccessful in expanding our share of this digital broadcast market or in
predicting and satisfying customer demand, our business and revenues could be
adversely affected.

A portion of our revenue is dependent on sales of large, complex solutions.

        We expect sales of large, complex solutions to continue to constitute a
material portion of our net revenue, particularly as news stations convert from
analog, or tape-based, processes to digital formats. Our quarterly and annual
revenues could fluctuate if:

        o   sales to one or more of our customers are delayed or are not
            completed within a given quarter;
        o   the contract terms preclude us from recognizing revenue during that
            quarter;
        o   news stations' migrations to networked digital infrastructure slows
            down;
        o   we are unable to complete complex customer installations on
            schedule;
        o   our customers reduce their capital investments in our products in
            response to slowing economic growth; and
        o   any of our large customers terminate their relationship with us or
            significantly reduce the amount of business they do with us.

                                       27

<PAGE>

When we acquire other companies or businesses, we become subject to potential
events or circumstances that could hurt our business.

        We periodically acquire other companies or businesses. For example, in
January 2004, we acquired NXN Software GmbH, a company that manufactures asset
and production management systems specifically targeted for the entertainment
and computer graphics industries, and in August 2004, we acquired Midiman, Inc.
(d/b/a M-Audio), a leading provider of digital audio and MIDI solutions for
electronic musicians and audio professionals. The risks associated with such
acquisitions include, among others:

        o   the difficulty of assimilating the operations, policies and
            personnel of the target companies;
        o   the failure to realize anticipated returns on investment, cost
            savings and synergies;
        o   the diversion of management's time and attention;
        o   the dilution existing stockholders may experience if we issue shares
            of our common stock or other rights to purchase our common stock as
            consideration in the acquisition;
        o   the potential loss of key employees of the target company;
        o   the difficulty in complying with a variety of foreign laws and
            regulations;
        o   the impairment of relationships with customers or suppliers;
        o   the risks associated with contingent payments and earnouts;
        o   the possibility of incurring debt and amortization expenses related 
            to goodwill and other intangible assets; and
        o   unidentified issues not discovered in our due diligence process,
            which may include product quality issues and legal contingencies.

        Such acquisitions often involve significant transaction-related costs
and could cause disruption to normal operations. In the future, we may also make
debt or equity investments. If so, we may fail to realize anticipated returns on
such investments. If we are unable to overcome or mitigate these risks, they
could undermine our business and lower our operating results.

The markets for our products are competitive, and we expect competition to
intensify in the future.

        The digital video and, audio markets are highly competitive, with
limited barriers to entry, and are characterized by pressure to reduce prices,
incorporate new features, and accelerate the release of new products. Some of
our current and potential competitors have substantially greater financial,
technical, distribution, support, and marketing resources than we do. Such
competitors may use these resources to lower their product costs, allowing them
to reduce prices to levels at which we could not operate profitably. Delays or
difficulties in product development and introduction may also harm our business.
In addition to price, our products must also compete favorably with our
competitors' products in terms of reliability, performance, ease of use, range
of features, product enhancements, reputation and training. If we are unable to
compete effectively in our target markets, our business and results of
operations could suffer.

        New product announcements by our competitors and by us also could have
the effect of reducing customer demand for our existing products. New product
introductions require us to devote time and resources to training our sales
channels in product features and target customers, with the temporary result
that the sales channels may have less time to devote to selling our products. In
addition, our introduction of new products and expansion into new markets can
put us into competition with companies with whom we formerly collaborated. To
the extent such companies discontinue their alliances with Avid, it could have a
negative impact on our business.

Our products are complex, and may contain errors or defects resulting from such
complexity.

        As we continue to enhance and expand our product offerings, our products
have grown increasingly complex and, despite extensive testing and quality
control, may contain errors or defects. Such errors or defects could cause us to
issue corrective releases and could result in loss of revenues, delay of revenue
recognition, increased product returns, lack of market acceptance, and damage to
our reputation.

We have a significant share of the audio market, and therefore our growth in
this market will depend in part on our ability to successfully introduce new
products.

        Products from our Digidesign division have captured a significant
portion of the audio market, due in large part to a series of successful product
introductions. Our future success will depend in part upon our ability to offer,
on a timely and cost-effective basis, new audio products and enhancements of our
existing audio products. This can be a complex and uncertain process, and we
could experience design, manufacturing, marketing, or other difficulties that
delay or prevent the introduction of new or enhanced products, or the
integration of acquired products, which, in turn, could harm our business.

                                       28

<PAGE>

A component of M-Audio's business strategy is to expand into the highly
competitive consumer market channel, a sales channel in which we have limited
experience.

        Historically, a significant portion of our audio revenues has been
derived from sales to professional musicians and studios. M-Audio is currently
expanding its sales channel to include sales through the broader consumer market
channel. Members of M-Audio's senior staff have experience in this market, but
our overall experience addressing the consumer market channel is limited, and
the process of developing a channel for non-specialty stores and establishing
our products in these stores will be difficult. While we are not anticipating
that a material portion of our revenues will come through this channel in the
near term, there are costs related to pursuing the consumer market channel which
are, to a large extent, fixed. As a result, we may be unable to adjust our
spending in a timely manner to compensate for any unexpected revenue shortfall,
which would harm our operating results. Also, to the extent we increase sales of
our audio products through the consumer market channel, we expect to experience
greater seasonality in sales of such products. Typically, sales of consumer
electronics and software increase in the second half of the year, reaching their
peak during the year-end holiday season.

Our use of independent firms and contractors to perform some of our product
development and manufacturing activities could expose us to risks that could
adversely impact our revenues.

        Independent firms and contractors, some of whom are located in other
countries, perform some of our product development and manufacturing activities.
We generally own the software developed by these contractors. The use of
independent firms and contractors, especially those located abroad, could expose
us to risks related to governmental regulation (including tax regulation),
intellectual property ownership and rights, exchange rate fluctuation, political
instability and unrest, natural disasters, and other risks, which could
adversely impact our revenues.

An interruption of our supply of certain products or key components from our
sole source suppliers, or a price increase in such products or components, could
hurt our business.

        We are dependent on a number of specific suppliers for certain products
and key components of our products. We purchase these sole source products and
components pursuant to purchase orders placed from time to time. We generally do
not carry significant inventories of these sole source products and components
and have no guaranteed supply arrangements. If any of our sole source vendors
should fail to produce such products or to supply or enhance such components, it
could imperil our supply and our ability to continue selling and servicing
products that use these components. Similarly, if any of our sole source vendors
should encounter technical, operating or financial difficulties, it could
threaten our supply of these products or components. While we believe that
alternative sources for these products and components could be developed, or our
products could be redesigned to permit the use of alternative components, an
interruption of our supply could damage our business and negatively affect our
operating results.

        Our gross profit margin varies from product to product depending
primarily on the proportion and cost of third-party hardware included in each
product. From time to time, we add functionality and features to our products.
If we effect such additions through the use of more, or more costly, third-party
hardware, and are not able to increase the price of such products to offset
these increased costs, our gross profit margin on these products could decrease
and our operating results could be adversely affected.

We rely on third party software for some of our products and if we are unable to
use or integrate such software, our product and service development may be
delayed.

        We rely on certain software that we license from third parties,
including software that is bundled with our products and sold to end users and
software that is integrated with internally developed software and used in our
products to perform key functions. These third-party software licenses may not
continue to be available on commercially reasonable terms, and the software may
not be appropriately supported, maintained or enhanced by the licensors. The
loss of licenses to, or inability to support, maintain and enhance any such
software, could result in increased costs, or in delays or reductions in product
shipments until equivalent software could be developed, identified, licensed and
integrated, which would likely harm our business.

                                       29

<PAGE>

Qualifying and supporting our products on multiple computer platforms is time
consuming and expensive.

        Our software engineers devote significant time and effort to qualify and
support our products on various computer platforms, including most notably,
Microsoft and Apple platforms. Computer platform modifications and upgrades
require additional time to be spent to ensure that our products will function
properly. To the extent that the current configuration of the qualified and
supported platforms changes or we need to qualify and support new platforms, we
could be required to expend valuable engineering resources, which could
adversely affect our operating results.

Our operating results are dependent on several unpredictable factors.

The revenue and gross profit from our products depend on many factors,
including:

        o   mix of products sold;
        o   cost and proportion of third-party hardware and software included in
            such products;
        o   product distribution channels;
        o   acceptance of our new product introductions;
        o   product offers and platform upgrades;
        o   price discounts and sales promotion programs;
        o   volume of sales of aftermarket hardware products;
        o   costs of swapping or fixing products released to the market with
            defects;
        o   provisions for inventory obsolescence; o competitive pressure on
            product prices;
        o   costs incurred in connection with "solution" sales, which typically
            have longer selling and implementation cycles; and
        o   timing of delivery of "solutions" to customers.

Changes in any of these factors could affect our operating results.

Our international operations expose us to significant exchange fluctuations,
regulatory, intellectual property and other risks which could harm our operating
results.

        We generally derive approximately half of our revenues from customers
outside of the United States. This business is, for the most part, transacted
through international subsidiaries and generally in the currency of the end-user
customers. Therefore, we are exposed to the risks that changes in foreign
currency could adversely impact our revenues, net income (loss), and cash flow.
To hedge against the foreign exchange exposure of certain forecasted
receivables, payables and cash balances of our foreign subsidiaries, we enter
into foreign currency forward-exchange contracts. The success of our hedging
program depends on forecasts of transaction activity in the various currencies.
To the extent that these forecasts are over- or understated during the periods
of currency volatility, we could experience currency gains or losses.

        Other risks inherent in our international operations include changes in
regulatory practices, environmental laws, tax laws, trade restrictions and
tariffs, longer collection cycles for accounts receivable, and greater
difficulty in protecting intellectual property.

Our operating costs are tied to projections of future revenues, which may differ
from actual results.

        Our operating expense levels are based, in part, on our expectations of
future revenues. Such future revenues are difficult to predict. A significant
portion of our business occurs near the end of each quarter, which can impact
our ability to precisely forecast revenues on a quarterly basis. Further, we are
generally unable to reduce quarterly operating expense levels 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, our results of operations could be adversely
affected.

Terrorism, acts of war, and other catastrophic events may seriously harm our
business.

        Terrorism, acts of war, or other catastrophic events may disrupt our
business and harm our employees, facilities, suppliers, distributors, resellers
or customers, which could significantly impact our revenue and operating
results. The increasing presence of these threats has created many economic and
political uncertainties that could adversely affect our business and stock price
in ways that cannot be predicted. We are predominantly uninsured for losses and
interruptions caused by terrorism, acts of war, and other conflicts and events.

                                       30

<PAGE>

If we fail to maintain strong relationships with our resellers, distributors,
and suppliers, our ability to successfully deploy our products may be harmed.

        We sell many of our video products and services, and substantially all
of our audio products and services, indirectly through resellers and
distributors. In our audio segment, a few distributors account for a significant
portion of the revenue from sales of our audio products. The loss of one or more
key distributors could reduce our revenues. The resellers and distributors of
our video segment products typically purchase Avid software and Avid-specific
hardware from us, and third-party components from various other vendors, in
order to produce complete systems for resale. Any disruption to our resellers
and distributors, or their third-party suppliers, could reduce our revenues.
Increasingly, we are distributing our products directly, which could put us in
competition with our resellers and distributors and could adversely affect our
revenues. In addition, our resellers could diversify the manufacturers from whom
they purchase products to sell to the final end-users, which could lead to a
weakening of our relationships with our resellers and could adversely affect our
revenues.

        Most of the resellers and distributors of our video products are not
granted rights to return products after purchase, and actual product returns
from such resellers and distributors have been insignificant to date. However,
our revenue from sales of audio products is generally derived from transactions
with distributors and authorized resellers that typically allow limited rights
of return, inventory stock rotation and price protection. Accordingly, reserves
for estimated returns, exchanges and credits for price protection are recorded
as a reduction of revenues upon shipment of the related products to such
distributors and resellers, based upon our historical experience. To date,
actual returns have not differed materially from management's estimates.
However, if returns of our audio segment products were to exceed estimated
levels, our revenues and operating results could be adversely impacted.

Changes in accounting rules could adversely affect our future operating results.

        Our financial statements are prepared in accordance with U.S. generally
accepted accounting principles. These principles are subject to interpretation
by various governing bodies, including the Financial Accounting Standards Board
and the Securities and Exchange Commission, which promulgate and interpret
appropriate accounting regulations. A change from current accounting
regulations, including accounting for stock-based compensation, will have a
significant effect on our reported financial results.

Our future growth could be harmed if we lose the services of certain employees.

        Our success depends upon the services of a talented and dedicated
workforce, including members of our executive team and those in more technical
positions. The loss of the services of one or more key employees could harm our
business. Our success also depends upon our ability to attract and retain highly
skilled new employees. Competition for such employees is intense in the
industries and geographic areas in which we operate. In the past, we have relied
on our ability to grant stock options as one mechanism for recruiting and
retaining highly skilled talent. Newly issued accounting regulations which will
require us to expense stock options will impair our ability to provide these
incentives without incurring compensation costs. If we are unable to compete
successfully for talented employees, our business could suffer.

If we fail to manage our growth effectively, our business could be harmed.

        Our success depends on our ability to effectively manage the growth of
our operations. As a result of our acquisitions and increasing demand for our
products and services, the scope of our operations has grown both domestically
and internationally. Our management team will face challenges inherent in
efficiently managing an increased number of employees over larger geographic
distances. These challenges include implementing effective operational systems,
procedures and controls, as well as training new personnel. Inability to
successfully respond to these challenges could have a material adverse effect on
the growth of our business.

Our websites could subject us to legal claims that could harm our business.

        Some of our websites provide interactive information and services to our
customers. To the extent that materials may be posted on and/or downloaded from
these websites and distributed to others, we may be subject to claims for
defamation, negligence, copyright or trademark infringement, personal injury, or
other theories of liability based on the nature, content, publication or
distribution of such materials. In addition, although we have attempted to limit
our exposure by contract, we may also be subject to claims for indemnification
by end users in the event that the security of our websites is compromised. As
these websites are available on a worldwide basis, they could potentially be
subject to a wide variety of international laws.

                                       31

<PAGE>

We could incur substantial costs protecting our intellectual property or
defending against a claim of infringement.

        Our ability to compete successfully and achieve future revenue growth
depends, in part, on our ability to protect our proprietary technology and
operate without infringing upon the intellectual property rights of others. We
rely upon a combination of patent, copyright, trademark and trade secret laws,
confidentiality procedures, and contractual provisions, as well as required
hardware components and security keys, to protect our proprietary technology.
However, our means of protecting our proprietary rights may not be adequate. In
addition, the laws of certain countries do not protect our proprietary
technology to the same extent as do the laws of the United States. From time to
time unauthorized parties have obtained, copied, and used information that we
consider proprietary. Policing the unauthorized use of our proprietary
technology is costly and time-consuming and we are unable to measure the extent
to which piracy of our software exists. We expect software piracy to be a
persistent problem.

        We occasionally receive communications suggesting that our products may
infringe the intellectual property rights of others. It is our practice to
investigate the factual basis of such communications and negotiate licenses
where appropriate. While it may be necessary or desirable in the future to
obtain licenses relating to one or more products or relating to current or
future technologies, we may be unable to do so on commercially reasonable terms.
If we are unable to protect our proprietary technology or unable to negotiate
licenses for the use of others' intellectual property, our business could be
impaired.

        We also may be liable to some of our customers for damages that they
incur in connection with intellectual property claims. Although we attempt to
limit our exposure to liability arising from infringement of third-party
intellectual property rights in our agreements with customers, we may not always
be successful. If we are required to pay damages to our customers, or indemnify
our customers for damages they incur, our business could be harmed. Moreover,
even if a particular claim falls outside of our indemnity or warranty
obligations to our customers, our customers may be entitled to additional
contractual remedies against us.

Our association with industry organizations could subject us to litigation.

        We are members of several industry organizations, trade associations and
standards consortia. Membership in these and similar groups could subject us to
litigation as a result of the group's activities. For example, in connection
with our anti-piracy program, designed to enforce copyright protection of our
software, we are a member of the Business Software Alliance (BSA). From time to
time the BSA undertakes litigation against suspected copyright infringers. These
lawsuits could lead to counterclaims alleging improper use of litigation or
violation of other local law. To date, none of these lawsuits or counterclaims
have had an adverse effect on our results of operations, but should we become
involved in material litigation, our cash flows or financial position could be
adversely effected.

Compliance with rules and regulations concerning corporate governance has caused
our operating expenses to increase and has put additional demands on our
management.

        The Sarbanes-Oxley Act of 2002 and the rules and regulations of the
Securities and Exchange Commission and the NASDAQ stock market increase the
scope, complexity and cost of our corporate governance, reporting and disclosure
practices. These laws, rules and regulations also may divert management's
attention from business operations, increase the cost of obtaining director and
officer liability insurance and make it more difficult for us to attract and
retain qualified executive officers, key personnel and members of our board of
directors.

If we experience problems with our third-party leasing program, our revenues
could be adversely impacted.

        We have an established leasing program with a third party that allows
certain of our customers who choose to do so to finance their purchases. If this
program ended abruptly or unexpectedly, some of our customers might be unable to
purchase our products unless or until they were able to arrange for alternative
financing, and this could adversely impact our revenues.

Our stock price may continue to be volatile.

        The market price of our common stock has experienced volatility in the
past and could continue to fluctuate substantially in the future based upon a
number of factors, most of which are beyond our control. These factors include:

                                       32

<PAGE>

        o   changes in our quarterly operating results;
        o   shortfalls in revenues or earnings compared to securities analysts'
            expectations;
        o   changes in analysts' recommendations or projections;
        o   fluctuations in investors' perceptions of us or our competitors;
        o   shifts in the markets for our products;
        o   development and marketing of products by our competitors;
        o   changes in our relationships with suppliers, distributors,
            resellers, system integrators, or customers;
        o   a shift in financial markets; and
        o   global macroeconomic conditions.

Further, the stock market has experienced volatility with respect to the price
of equity securities of high technology companies generally, and this volatility
has, at times, appeared to be unrelated to or disproportionate to any of the
factors above.

                                       33

<PAGE>


I
TEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market Risk

        Our primary exposures to market risk are financial, including the effect
of volatility in currencies on asset and liability positions and revenue and
operating expenses of our international subsidiaries that are denominated in
foreign currencies, and the effect of fluctuations in interest rates earned on
our cash equivalents and marketable securities.

Foreign Currency Exchange Risk

        We generally derive nearly half of our revenues from customers outside
the United States. This business is, for the most part, transacted through
international subsidiaries and generally in the currency of the end-user
customers. Therefore, we are exposed to the risks that changes in foreign
currency could adversely impact our revenues, net income (loss) and cash flow.
To hedge against the foreign exchange exposure of certain forecasted
receivables, payables and cash balances of our foreign subsidiaries, we enter
into short-term foreign currency forward-exchange contracts. There are two
objectives of our foreign currency forward-exchange contract program: (1) to
offset any foreign exchange currency risk associated with cash receipts expected
to be received from our customers over the next 30 day period and (2) to offset
the impact of foreign currency exchange on the Company's net monetary assets
denominated in currencies other than the U.S. dollar. These forward-exchange
contracts typically mature within 30 days of purchase. We record gains and
losses associated with currency rate changes on these contracts in results of
operations, offsetting gains and losses on the related assets and liabilities.
The success of this hedging program depends on forecasts of transaction activity
in the various currencies, and contract rates versus financial statement rates.
To the extent that these forecasts are over- or understated during the periods
of currency volatility, we could experience unanticipated currency gains or
losses.

        At December 31, 2004, there were no forward-exchange contracts
outstanding. For the year ended December 31, 2004, net losses of $4.7 million
resulting from forward-exchange contracts were recorded, which offset net
transaction and remeasurement gains of $3.0 million on the related assets and
liabilities. A hypothetical 10% change in foreign currency rates would not have
a material impact on our results of operations, assuming the above-mentioned
forecast of foreign currency exposure is accurate, because the impact on the
forward contracts as a result of a 10% change would at least partially offset
the impact on the asset and liability positions of our foreign subsidiaries.

Interest Rate Risk

        At December 31, 2004, we held $155.4 million in cash, cash equivalents
and marketable securities, including short-term corporate obligations,
asset-backed securities, commercial paper and U.S. and Canadian government and
government agency obligations. Marketable securities are classified as
"available for sale" and are recorded on the balance sheet at market value, with
any unrealized gain or loss recorded in other comprehensive income (loss). A
hypothetical 10% increase or decrease in interest rates would not have a
material impact on the fair market value of these instruments due to their short
maturity.

                                       34

<PAGE>

                              AVID TECHNOLOGY, INC.

                           ANNUAL REPORT ON FORM 10-K

                          YEAR ENDED DECEMBER 31, 2004


                                     ITEM 8

          FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION

                                       35

<PAGE>

                              AVID TECHNOLOGY, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE


CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:

Management's Report on Internal Control Over Financial Reporting..........   37

Report of Independent Registered Public Accounting Firm...................   38

Consolidated Statements of Operations for the years ended 
  December 31, 2004, 2003 and 2002........................................   40

Consolidated Balance Sheets as of December 31, 2004 and 2003..............   41

Consolidated Statements of Stockholders' Equity for the years 
  ended December 31, 2004, 2003 and 2002..................................   42

Consolidated Statements of Cash Flows for the years ended 
  December 31, 2004, 2003 and 2002........................................   43

Notes to Consolidated Financial Statements................................   44


CONSOLIDATED FINANCIAL STATEMENT SCHEDULE INCLUDED IN ITEM 15(d):


Schedule II - Valuation and Qualifying Accounts for the years ended December 31,
2004, 2003 and 2002 F-1


Schedules other than that listed above have been omitted since the required
information is not present, or not present in amounts sufficient to require
submission of the schedule, or because the information required is included 
in the consolidated financial statements or the notes thereto.

                                       36

<PAGE>

        Management's Report on Internal Control Over Financial Reporting



        The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated
under the Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers and effected by the Company's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:

o Pertain to the maintenance of records that in reasonable detail accurately and
  fairly reflect the transactions and dispositions of the assets of the company;

o Provide reasonable assurance that transactions are recorded as necessary
  to permit preparation of financial statements in accordance with
  generally accepted accounting principles, and that receipts and
  expenditures of the Company are being made only in accordance with
  authorizations of management and directors of the Company; and

o Provide reasonable assurance regarding prevention or timely detection of
  unauthorized acquisition, use or disposition of the Company's assets
  that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

        The Company's management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004. In making
this assessment, the Company's management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Management's assessment of internal
control over financial reporting excluded Midiman, Inc. (doing business as
M-Audio) and its subsidiaries because M-Audio was acquired by the Company in a
purchase business combination during 2004. M-Audio and its subsidiaries
represented 33% and 4% of the Company's total assets and total revenues,
respectively as of and for the year ended December 31, 2004.  Excluding
identifiable intangible assets and goodwill recorded in the business
combination, M-Audio and its subsidiaries represented 5% of the Company's total
assets as of December 31, 2004.

        Based on our assessment, management has concluded that, as of December
31, 2004, the Company's internal control over financial reporting is effective
based on the criteria set forth by the COSO.

        Our management's assessment of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004 has been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears on page 38 of this
Annual Report on Form 10-K.

                                       37

<PAGE>


             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------

To the Board of Directors and Stockholders of Avid Technology, Inc.:

We have completed an integrated audit of Avid Technology, Inc.'s 2004
consolidated financial statements and of its internal control over financial
reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.

Consolidated financial statements and financial statement schedule
------------------------------------------------------------------

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Avid
Technology, Inc. and its subsidiaries at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit of
financial statements includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

Internal control over financial reporting
-----------------------------------------

Also, in our opinion, management's assessment, included in "Management's Report
on Internal Control Over Financial Reporting" appearing under Item 8, that the
Company maintained effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
company's assets that could have a material effect on the financial statements.

                                       38

<PAGE>

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

As described in "Management's Report on Internal Control Over Financial
Reporting," management has excluded M-Audio, Inc. and its subsidiaries from its
assessment of internal control over financial reporting as of December 31, 2004
because the entity was acquired by the Company in a purchase business
combination during 2004. We have also excluded M-Audio, Inc. and its
subsidiaries from our audit of internal control over financial reporting.
M-Audio, Inc. and its subsidiaries are wholly-owned subsidiaries whose total
assets and total revenues represent 33% and 4%, respectively, of the related
consolidated financial statement amounts of Avid Technology, Inc. as of and for
the year ended December 31, 2004.


PricewaterhouseCoopers LLP

Boston, Massachusetts
March 15, 2005


                                       39

<PAGE>

AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>

                                                        For the Year Ended December 31,
                                                      ------------------------------------
                                                         2004          2003        2002
                                                      ----------    ----------  ----------
<S>                                                     <C>           <C>         <C>     
Net revenues:
 Product                                               $528,463      $425,403    $381,851
 Services                                                61,142        46,509      36,868
                                                      ----------    ----------  ----------
  Total net revenues                                    589,605       471,912     418,719
                                                      ----------    ----------  ----------

Cost of revenues:
 Product                                                220,246       183,304     185,293
 Services                                                34,842        26,069      21,943
 Amortization of intangible assets                          408             -           -
                                                      ----------    ----------  ----------
  Total cost of revenues                                255,496       209,373     207,236
                                                      ----------    ----------  ----------
  Gross profit                                          334,109       262,539     211,483
                                                      ----------    ----------  ----------

Operating expenses:
 Research and development                                94,940        85,552      82,346
 Marketing and selling                                  135,811       109,704     100,761
 General and administrative                              29,780        23,208      19,819
 Restructuring and other costs, net                           -         3,194       2,923
 Amortization of intangible assets                        3,641         1,316       1,153
 Impairment of intangible assets                          1,187             -           -
                                                      ----------    ----------  ----------
  Total operating expenses                              265,359       222,974     207,002
                                                      ----------    ----------  ----------

Operating income                                         68,750        39,565       4,481

Interest income                                           2,501         2,011       1,163
Interest expense                                           (342)         (318)       (203)
Other income (expense), net                                (820)          181        (742)
                                                      ----------    ----------  ----------
Income before income taxes                               70,089        41,439       4,699

Provision for (benefit from) income taxes                (1,612)          550       1,700
                                                      ----------    ----------  ----------

Net income                                              $71,701       $40,889      $2,999
                                                      ==========    ==========  ==========

Net income per common share - basic                       $2.21         $1.40       $0.11

Net income per common share - diluted                     $2.05         $1.25       $0.11

Weighted average common shares outstanding - basic       32,485        29,192      26,306

Weighted average common shares outstanding - diluted     35,003        32,653      26,860

<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>


                                       40

<PAGE>

AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)

<TABLE>
<CAPTION>
                                                                     December 31,
                                                          -----------------------------------
                                                               2004               2003
                                                          ---------------     ---------------
<S>                                                             <C>                 <C>     
ASSETS
Current assets:
 Cash and cash equivalents                                       $79,058             $77,124
 Marketable securities                                            76,361             119,185
 Accounts receivable, net of allowances of $9,334 and
  $9,161 at December 31, 2004 and 2003, respectively              97,536              69,230
 Inventories                                                      53,946              38,292
 Deferred tax assets, net                                            653               1,032
 Prepaid expenses                                                  7,550               5,117
 Other current assets                                             11,204               7,032
                                                          ---------------     ---------------
  Total current assets                                           326,308             317,012

 Property and equipment, net                                      29,092              23,223
 Intangible assets, net                                           46,884               1,815
 Goodwill                                                        165,803               3,335
 Long-term deferred tax assets, net                                4,184                   -
 Other assets                                                      3,963               2,734
                                                          ---------------     ---------------
  Total assets                                                  $576,234            $348,119
                                                          ===============     ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                                                $26,517             $15,755
 Accrued compensation and benefits                                30,468              23,753
 Accrued expenses and other current liabilities                   34,902              27,452
 Income taxes payable                                              9,357               8,504
 Deferred revenues                                                48,680              44,943
                                                          ---------------     ---------------
  Total current liabilities                                      149,924             120,407

Long-term debt and other liabilities                               1,689                 607
                                                          ---------------     ---------------
  Total liabilities                                              151,613             121,014
                                                          ---------------     ---------------

Commitments and contingencies (Notes F, H and I)

Stockholders' equity:
 Preferred stock, $0.01 par value, 1,000 shares
   authorized;  no shares issued or outstanding                        -                   -
 Common stock, $0.01 par value, 50,000 shares authorized;
   34,837 and 31,063 shares issued and outstanding
   at December 31, 2004 and 2003, respectively                       348                 311
 Additional paid-in capital                                      546,849             419,981
 Accumulated deficit                                            (122,775)           (194,476)
 Deferred compensation                                            (4,392)                (30)
 Accumulated other comprehensive income                            4,591               1,319
                                                          ---------------     ---------------
  Total stockholders' equity                                     424,621             227,105
                                                          ---------------     ---------------
  Total liabilities and stockholders' equity                    $576,234            $348,119
                                                          ===============     ===============

<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>


                                       41

<PAGE>

AVID TECHNOLOGY, INC.
Consolidated Statements of Stockholders' Equity
(in thousands)

<TABLE>
<CAPTION>
                                                                                                                Accumulated
                                                                                                                  Other      Total
                                         Shares of                Additional                                     Compre-     Stock-
                                        Common Stock      Common   Paid-in   Accumulated  Treasury   Deferred    hensive    holders'
                                     Issued  In Treasury   Stock   Capital     Deficit     Stock   Compensation Income(Loss) Equity
                                    ------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>       <C>    <C>        <C>          <C>         <C>        <C>       <C>  
Balances at December 31, 2001         26,591     (506)     $266   $357,446   ($235,926)   ($8,035)    ($1,294)   ($7,699)  $104,758
                                    
Stock issued pursuant to employee
  stock plans                            677      510         7      7,085      (2,438)     8,035                            12,689
Restricted stock grants canceled
  and compensation expense                         (4)                 (50)                             1,078                 1,028
Comprehensive income:
  Net income                                                                     2,999                                        2,999
   Net change in unrealized gain 
    (loss)on marketable securities                                                                                   (20)       (20)
   Translation adjustment                                                                                          2,110      2,110
                                                                                                                             -------
  Other comprehensive income                                                                                                  2,090
                                                                                                                             -------
Comprehensive income                                                                                                          5,089
                                    ------------------------------------------------------------------------------------------------
Balances at December 31, 2002         27,268        -       273    364,481    (235,365)        -         (216)    (5,609)   123,564

Stock issued pursuant to employee
  stock plans                          3,802                 38     54,680                                                   54,718
Restricted stock grants canceled
  and compensation expense                (7)                           (5)                               186                   181
Tax benefits on stock options                                          825                                                      825
Comprehensive income:
  Net income                                                                    40,889                                       40,889
  Net change in unrealized gain
    (loss) on marketable securities                                                                                   44         44
   Translation adjustment                                                                                          6,884      6,884
                                                                                                                             -------
  Other comprehensive income                                                                                                  6,928
                                                                                                                             -------
Comprehensive income                                                                                                         47,817
                                    ------------------------------------------------------------------------------------------------
Balances at December 31, 2003         31,063        -       311    419,981    (194,476)        -          (30)     1,319    227,105

Stock issued pursuant to employee
  stock plans                          1,780                 17     29,359                                                   29,376
Issuance of common stock in 
  connection with acquisition          1,974                 20     96,459                             (5,500)               90,979
Issuance of restricted stock              20                         1,134                             (1,134)                    -
Amortization of and reversal of
  deferred compensation                                               (824)                             2,272                 1.448
Tax benefits on stock options                                          740                                                      740
Comprehensive income:
  Net income                                                                    71,701                                       71,701
  Net change in unrealized gain
    (loss) on marketable securities                                                                                 (197)      (197)
   Translation adjustment                                                                                          3,469      3,469
                                                                                                                             -------
  Other comprehensive income                                                                                                  3,272
                                                                                                                             -------
Comprehensive income                                                                                                         74,973
                                    ------------------------------------------------------------------------------------------------
Balances at December 31, 2004         34,837        -      $348   $546,849   ($122,775)        -      ($4,392)    $4,591   $424,621
                                    ================================================================================================
<FN>
     The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>


                                       42

<PAGE>

AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 

<TABLE>
<CAPTION>
                                                                                            For the Year Ended December 31,    
                                                                                        -------------------------------------- 
                                                                                           2004         2003          2002     
                                                                                        -----------  ------------  ----------- 
<S>                                                                                        <C>           <C>          <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                          
 Net income                                                                                $71,701       $40,889       $2,999  
 Adjustments to reconcile net income to net cash provided by operating activities:                                             
  Depreciation and amortization                                                             16,292        12,391       12,974  
  Impairment of intangible assets                                                            1,187             -            -  
  Provision for (recovery of) doubtful accounts and recourse obligations                      (201)          624        1,073  
  Compensation expense from stock grants and options                                         1,448           181        1,028  
  Changes in deferred tax assets and liabilities, net of effects of acquisitions            (1,286)         (280)         104  
  Tax benefit of stock option exercises                                                        740           603            -  
  Equity in income of non-consolidated company                                                (221)         (192)        (199) 
  Gain on sale of business                                                                       -             -         (327) 
  Write-down of investment in non-consolidated company                                           -             -        1,000  
  Changes in operating assets and liabilities, net of effects of acquisitions:                                                 
   Accounts receivable                                                                     (15,450)         (668)      13,370  
   Inventories                                                                                 620          (209)     (16,170) 
   Prepaid expenses and other current assets                                                (4,804)         (358)         346  
   Accounts payable                                                                          3,300        (8,574)       4,969  
   Income taxes payable                                                                        141          (207)      (1,936) 
   Accrued expenses, compensation and benefits                                               8,634         5,016         (232) 
   Deferred revenues                                                                          (732)        9,429        6,399  
------------------------------------------------------------------------------------------------------------------------------ 
 NET CASH PROVIDED BY OPERATING ACTIVITIES                                                  81,369        58,645       25,398  
------------------------------------------------------------------------------------------------------------------------------ 
                                                                                                                               
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                          
 Purchases of property and equipment                                                       (15,177)       (7,951)      (9,356) 
 Payments for other long-term assets                                                          (656)         (300)        (196) 
 Dividend from non-consolidated company                                                          -           196           59  
 Proceeds from sale of business                                                                  -             -          327  
 Payments for business acquisitions, net of cash acquired                                 (135,515)       (2,282)        (425) 
 Purchases of marketable securities                                                        (61,407)     (121,038)     (58,900) 
 Proceeds from sales and maturities of marketable securities                               105,644        57,461       34,027  
------------------------------------------------------------------------------------------------------------------------------ 
 NET CASH USED IN INVESTING ACTIVITIES                                                    (107,111)      (73,914)     (34,464) 
------------------------------------------------------------------------------------------------------------------------------ 
                                                                                                                               
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                          
 Payments on capital lease obligations                                                        (610)         (619)           -  
 Payments on debt                                                                           (1,203)            -            -  
 Payments on note issued in connection with acquisition                                          -             -      (13,020) 
 Proceeds from issuance of common stock under employee stock plans                          29,376        54,718       12,689  
------------------------------------------------------------------------------------------------------------------------------ 
 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                        27,563        54,099         (331) 
------------------------------------------------------------------------------------------------------------------------------ 
Effects of exchange rate changes on cash and cash equivalents                                  113         1,545          533  
------------------------------------------------------------------------------------------------------------------------------ 
Net increase (decrease) in cash and cash equivalents                                         1,934        40,375       (8,864) 
Cash and cash equivalents at beginning of year                                              77,124        36,749       45,613  
------------------------------------------------------------------------------------------------------------------------------ 
Cash and cash equivalents at end of year                                                   $79,058       $77,124      $36,749  
============================================================================================================================== 
<FN>
See Notes G, H and Q for supplemental disclosures.
</FN>

<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>


                                       43

<PAGE>

                              AVID TECHNOLOGY, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.     ORGANIZATION AND OPERATIONS

Avid Technology, Inc. ("Avid" or the "Company") develops, markets, sells and
supports a wide range of software and hardware for digital media production,
management and distribution. Digital media are video, audio or graphic elements
in which the image, sound or picture is recorded and stored as digital values,
as opposed to analog, or tape-based, signals. Our products are used worldwide in
production and post-production facilities; film studios; network, affiliate,
independent and cable television stations; recording studios; advertising
agencies; government and educational institutions; corporate communication
departments; and game developers and Internet professionals. Projects produced
using our products include major motion pictures and prime-time television,
music, video, and other recordings.

B.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's significant accounting policies follows:

Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Intercompany balances and transactions have been
eliminated. Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.

The Company's preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures 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 reflected
in these financial statements include revenue recognition, accounts receivable
and sales allowances, inventory valuation and income tax valuation allowances.
Actual results could differ from those estimates.

In connection with preparation of the accompanying financial statements, the
Company concluded that it was appropriate to classify its investments in auction
rate securities as marketable securities. Previously, such investments were
classified as cash and cash equivalents. Accordingly, the Company has revised
the classification to exclude from cash and cash equivalents $25.5 million and
$25.4 million of auction rate securities at December 31, 2003, and 2002,
respectively, and to include such amounts as marketable securities. In addition
the Company has made corresponding adjustments to the accompanying statement of
cash flows to reflect the gross purchases and sales of these securities as
investing activities. As a result, cash used in investing activities increased
by $0.1 million and $25.4 million in 2003 and 2002, respectively. This change in
classification does not affect previously reported cash flows from operations or
from financing activities.

Translation of Foreign Currencies

The functional currency of each of the Company's foreign subsidiaries is the
local currency, except for the Irish manufacturing branch whose functional
currency is the U.S. dollar. The assets and liabilities of the subsidiaries
whose functional currencies are other than the U.S. dollar are translated into
U.S. dollars at the current exchange rate in effect at the balance sheet date.
Income and expense items for these entities are translated using the average
exchange rate for the period. Cumulative translation adjustments are included in
accumulated other comprehensive income (loss), which is reflected as a separate
component of stockholders' equity.

The Irish manufacturing branch and the U.S parent company, both of whose
functional currency is the U.S. dollar, carry monetary assets and liabilities
denominated in currencies other than the U.S. dollar. These assets and
liabilities typically include cash, accounts receivable, and intercompany
operating balances denominated in euros, pounds sterling, Japanese yen, Canadian
dollars, Australian dollars, Swedish Krona, Danish Kroner, Norwegian Krone and
Korean Won. These assets and liabilities are remeasured into the U.S dollar at
the current exchange rate in effect at the balance sheet date. Foreign
currency transaction and remeasurement gains and losses are included within
marketing and selling expenses in the results of operations. For the year ended
December 31, 2004, net losses of $4.7 million resulting from forward-exchange
contracts were recorded, which offset net transaction and remeasurement gains of
$3.0 million on the related assets and liabilities.

                                       44

<PAGE>

The U.S. parent company and various other wholly owned subsidiaries have
long-term intercompany loan balances denominated in foreign currencies, which
are remeasured into the US dollar at the current exchange rate in effect at the
balance sheet date. Any gains and losses relating to these loans are included in
the cumulative translation adjustment account in the balance sheet.

Cash, Cash Equivalents and Marketable Securities

Cash equivalents consist primarily of government and government agency
obligations. The Company considers all debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Marketable
securities consist of U.S. and Canadian government and government agency
obligations, corporate obligations, municipal obligation, and asset-backed
securities (see Note C). The Company generally invests in securities that mature
within one year from the date of purchase. The Company classifies its cash
equivalents and marketable securities as "available for sale" and reports them
at fair value, with unrealized gains and losses excluded from earnings and
reported as an adjustment to other comprehensive income (loss), which is
reflected as a separate component of stockholders' equity. Amortization or
accretion of premium or discount is included in interest income (expense) in the
results of operations.

Concentration of Credit Risk and Fair Value of Financial Instruments

Financial instruments which potentially subject the Company to concentrations of
credit risk consist of cash investments and trade receivables. The Company
places its excess cash in marketable investment grade securities. There are no
significant concentrations in any one issuer of debt securities. The Company
places its cash, cash equivalents and investments with financial institutions
with high credit standing. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base, and their dispersion across different regions. No
individual customer comprised more than 10% of our net accounts receivable as of
December 31, 2004 or 2003. The Company also maintains reserves for potential
credit losses and such losses have been within management's expectations.

Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market value. Our management regularly reviews inventory quantities on
hand and writes down inventory to its realizable value to reflect estimated
obsolescence or unmarketability based upon assumptions about future inventory
demand (generally for the following twelve months), and market conditions.
Inventory in the digital media market, including the Company's inventory, is
subject to rapid technological change or obsolescence; therefore, utilization of
existing inventory may differ from the Company's estimates.

Property and Equipment

Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful life of the asset. Leasehold
improvements are amortized over the shorter of the useful life of the
improvement or the remaining term of the lease. Property and equipment held
under capital leases is stated at the lower of the fair market value of the
related asset or the present value of the minimum lease payments at the
inception of the lease and is amortized on a straight-line basis over the
shorter of the life of the related asset or the term of the lease. Expenditures
for maintenance and repairs are expensed as incurred. Upon retirement or other
disposition of assets, the cost and related accumulated depreciation are
eliminated from the accounts and the resulting gain or loss is reflected in
other income (expense) in the results of operations. A significant portion of
the property and equipment is subject to rapid technological obsolescence; as a
result, the depreciation and amortization periods could ultimately be shortened
to reflect changes in future technology.

Acquisition-related Intangible Assets and Goodwill

Acquisition-related intangible assets, which consists primarily of customer
relationships and completed technology, result from the Company's acquisitions
of the following companies or their assets: M-Audio, NXN Software, Avid Nordic
AB, The Motion Factory, iNews, iKnowledge, Rocket Network, Inc., and Bomb
Factory Digital, Inc. (see Note F), which were accounted for under the purchase
method. Acquisition-related intangible assets are reported at fair value, net of
accumulated amortization. Identifiable intangible assets are amortized on a
straight-line basis over their estimated useful lives of two to twelve years. 
Straight-line amortization is used because no other pattern over which the 
economic benefits will be consumed can be reliably determined.

                                       45

<PAGE>

Goodwill is the amount by which the cost of acquired net assets exceeded the
fair value of those net assets on the date of acquisition. The Company assesses
goodwill for impairment on a reporting unit basis annually during the fourth
quarter of each year, or more frequently when events and circumstances occur
indicating that the recorded goodwill may be impaired. If the book value of a
reporting unit exceeds its fair value, which is estimated on a total-Company
basis by reference to the quoted market price of the Company's stock and then
allocated among reporting units based on the discounted expected future cash
flows of the reporting unit, the implied fair value of goodwill is compared with
the carrying amount of goodwill. If the carrying amount of goodwill exceeds the
implied fair value, an impairment loss is recorded in an amount equal to that
excess.

Long-Lived Assets

The Company periodically evaluates its long-lived assets, other than goodwill,
for events and circumstances that indicate a potential impairment. A long-lived
asset is assessed for impairment when the undiscounted expected future cash
flows derived from that asset are less than its carrying value. The cash flows
used for this analysis take into consideration a number of factors including
past operating results, budgets and economic projections, market trends and
product development cycles. The amount of any impairment would be equal to the
difference between the estimated fair value of the asset, based on a discounted
cash flow analysis, and its carrying value.

Revenue Recognition and Allowance for Doubtful Accounts

The Company recognizes revenue from sales of products upon receipt of a signed
purchase order or contract and product shipment to distributors or end users,
provided that collection is reasonably assured, the fee is fixed or
determinable, and all other revenue recognition criteria of Statement of
Position ("SOP") 97-2, "Software Revenue Recognition", as amended, and
Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No.
104, "Revenue Recognition", are met. Within the Video segment and a portion of
the Audio segment, the Company follows the guidance of SOP 97-2 for revenue
recognition on most of its products and services since they are
software-related. However, for certain offerings in the Company's Audio segment,
software is incidental to the delivered products and services. For these
products, the Company records revenue based on satisfying the criteria in SAB
No. 104.

In connection with many of the Company's product sale transactions, customers
typically purchase a one-year maintenance and support agreement. The Company
recognizes revenue from maintenance contracts on a ratable basis over their
term. The Company recognizes revenue from training, installation or other
services as the services are performed.


The Company uses the residual method to recognize revenues when an order
includes one or more elements to be delivered at a future date and evidence of
the fair value of all undelivered elements exists, including arrangements that
include both products and maintenance contracts. Under the residual method, the
fair value of the undelivered elements is deferred and the remaining portion of
the total arrangement fee is recognized as revenues related to the delivered
elements. If evidence of the fair value of one or more undelivered elements does
not exist, revenues are deferred and recognized when delivery of those elements
occurs or when fair value can be established. Fair value is typically based on
the price charged when the same element is sold separately to customers.
However, in certain transactions, fair value is based on the renewal price of
the undelivered element that is granted as a contractual right to the customer.
The Company's current pricing practices are influenced primarily by product
type, purchase volume, term and customer location. Management reviews services
revenues sold separately and corresponding renewal rates on a periodic basis and
updates, when appropriate, the fair value for such services used for revenue
recognition purposes to ensure that it reflects the Company's recent pricing
experience.


In most cases the Company's products do not require significant production,
modification or customization of software. Installation of the products is
generally routine, requires minimal effort and is not typically performed by the
Company. However, a growing number of transactions, those typically involving
orders from end-users for a significant number of products for a single customer
site, such as news broadcasters, may require that we perform an installation
effort that we deem to be non-routine and complex. In these situations, the
Company does not recognize revenue for either the products shipped or the
installation services until the installation is complete. In addition, if such
orders include a customer acceptance provision, no revenue is recognized until
the customer's acceptance of the products and services has been received or the
acceptance period has lapsed.

                                       46

<PAGE>

Telephone support, enhancements and unspecified upgrades typically are provided
at no additional charge during the product's initial warranty period (generally
between 30 days and twelve months), which precedes commencement of the
maintenance contracts. The Company defers the fair value of this support period
and recognizes the related revenue ratably over the initial warranty period. The
Company also from time to time offers certain customers free upgrades or
specified future products or enhancements. For each of these elements that are
undelivered at the time of product shipment, the Company defers the fair value
of the specified upgrade, product or enhancement and recognize that revenue only
upon later delivery or at the time at which the remaining contractual terms
relating to the upgrade have been satisfied.

A significant portion of the Company's revenue is derived from indirect sales
channels, including authorized resellers and distributors. Most of the Company's
resellers and distributors of Video and Film Editing and Effects products are
not granted rights to return products after purchase, and actual product returns
from them have been insignificant to date. However, the Company's revenue from
sales of Audio products is generally derived from transactions with distributors
and authorized resellers that typically allow limited rights of return,
inventory stock rotation and price protection. Accordingly, reserves for
estimated returns, exchanges and credits for price protection are provided, as a
reduction of revenues, upon shipment of the related products to such
distributors and resellers, based upon the Company's historical experience. To
date, actual returns have not differed materially from management's estimates.

The Company from time to time offers rebates on purchases of certain products or
rebates based on purchasing volume, which are accounted for as reductions to
revenue upon shipment of related products or expected achievement of purchasing
volumes. In accordance with Emerging Issues Task Force Issue 01-09, Accounting
for Consideration Given by a Vendor to a Customer (including a Reseller of the
Vendor's Products), consideration given to customers or resellers under the
rebate program is recorded as a reduction to revenue because the Company does
not receive an identifiable benefit that is sufficiently separable from the sale
of the Company's products.

At the time of a sale transaction, the Company makes an assessment of the
collectibility of the amount due from the customer. Revenue is recognized only
if the Company is reasonably assured that collection will occur. In making this
assessment, the Company considers customer credit-worthiness and historical
payment experience. If it is determined from the outset of the arrangement that
collection is not reasonably assured based upon our credit review process,
revenue is recognized on a cash-collected basis to the extent that the other
criteria of SOP 97-2 and SAB 104 are satisfied. At the outset of the
arrangement, the Company assesses whether the fee associated with the order is
fixed or determinable and free of contingencies or significant uncertainties. In
assessing whether the fee is fixed or determinable, the Company considers the
payment terms of the transaction, collection experience in similar transactions
without making concessions, and the Company's involvement, if any, in
third-party financing transactions, among other factors. If the fee is not fixed
or determinable, revenue is recognized only as payments become due from the
customer, provided that all other revenue recognition criteria are met. If a
significant portion of the fee is due after our normal payment terms, which are
generally 30, but can be up to 90, days after the invoice date, the Company
evaluates whether there is sufficient history of successfully collecting past
transactions with similar terms. If that collection history is successful, then
revenue is recognized upon delivery of the products, assuming all other revenue
recognition criteria are satisfied.

The Company maintains allowances for estimated bad debt losses resulting from
the inability of its customers to make required payments for products or
services. When evaluating the adequacy of the allowances, the Company analyzes
accounts receivable balances, historical bad debt experience, customer
concentrations, customer credit-worthiness and current economic trends. If the
financial condition of certain customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances could be
required.

The Company records as revenue all amounts billed to customers for shipping and
handling cost and records its actual shipping costs as a component of cost of
revenues. The Company records reimbursements received from customers for
out-of-pocket expenses as revenue, with related costs recorded as cost of
revenues.

With respect to sales of "solutions", the Company is able to invoice the
customer under a billing plan in advance of providing products and services or
maintenance and support. In these instances, the Company records invoiced
amounts and cash payments received prior to revenue recognition as deferred
revenue.

Advertising Expenses

All advertising costs are expensed as incurred and are classified as selling and
marketing expenses. Advertising expenses during 2004, 2003 and 2002 were $8.1
million, $6.0 million and $6.9 million, respectively.

                                       47

<PAGE>

As part of its advertising initiatives, the Company maintains a cooperative
marketing program for certain resellers in the Video and Film Editing and
Effects segment. Under this program, participating resellers can earn
reimbursement credits of up to 1% of qualified purchases from Avid.
Consideration given to these resellers is included in selling and marketing
expense in accordance with EITF 01-09, as the Company receives an identifiable
benefit that is sufficiently separable from the sale of the Company's products,
and can reasonably estimate the fair value of that benefit. The Company records
the cooperative marketing credit earned by the reseller at the date the related
revenue is recognized based on an estimate of claims to be made. To date, actual
claims have not differed materially from management's estimates.

Research and Development Costs

Research and development costs are expensed as incurred, except for costs of
internally developed or externally purchased software that qualify for
capitalization. Development costs for software to be sold that are incurred
subsequent to the establishment of technological feasibility, but prior to the
general release of the product, are capitalized. Upon general release, these
costs are amortized using the straight-line method over the expected life of the
related products, generally 12 to 36 months. The straight-line method generally
results in approximately the same amount of expense as that calculated using the
ratio that current period gross product revenues bear to total anticipated gross
product revenues. The Company evaluates the net realizable value of capitalized
software at each balance sheet date, considering a number of business and
economic factors. Unamortized capitalized software development costs were $0.8
million, $0.1 million and $0.1 million at December 31, 2004, 2003 and 2002,
respectively.

Income taxes

The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes." SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. The Company accounts for investment tax credits as a
reduction of income taxes of the year in which the credit arises.

Computation of Net Income (Loss) Per Common Share

Net income (loss) per common share is presented for both basic earnings per
share ("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic EPS is
based upon the weighted average number of common shares outstanding during the
period, excluding unvested restricted stock held by employees. Diluted EPS is
based upon the weighted average number of common and potential common shares
outstanding during the period. Potential common shares result from the assumed
exercise of outstanding stock options and warrants as well as unvested
restricted stock, the proceeds of which are then assumed to have been used to
repurchase outstanding common stock using the treasury stock method. For periods
that the Company reports a net loss, all potential common shares are considered
anti-dilutive and are excluded from calculations of diluted net loss per common
share. For periods when the Company reports net income, only potential common
shares with purchase prices in excess of the Company's average common stock fair
value for the related period are considered anti-dilutive and are excluded from
calculations of diluted net income per common share (see Note P).

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other
comprehensive income (loss), which includes foreign currency translation
adjustments and unrealized gains and losses on certain investments. For the
purposes of comprehensive income (loss) disclosures, the Company does not record
tax provisions or benefits for the net changes in the foreign currency
translation adjustment, as the Company intends to permanently reinvest
undistributed earnings in its foreign subsidiaries. Accumulated other
comprehensive income at December 31, 2004 and 2003 is comprised of cumulative
translation adjustments of $4.8 million and $1.3 million, respectively, and net
unrealized gains (losses) on debt securities of ($0.2) million and $13,000,
respectively.

Accounting for Stock-Based Compensation

The Company has several stock-based employee compensation plans, which are
described more fully in Note K. The Company accounts for stock-based awards to
employees using the intrinsic value method as prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, no compensation expense is
recorded for options issued to employees in fixed amounts and with fixed
exercise prices at least equal to the fair market value of the Company's common
stock at the date of grant. When the exercise price of stock options granted to 


                                       48

<PAGE>

employees is less than the fair market value of common stock at the date of 
grant, the Company records that difference multiplied by the number of shares 
under option as deferred compensation, which is then amortized over the vesting 
period of the options.  Additionally, deferred compensation is recorded for 
restricted stock granted to employees based on the fair market value of the 
Company's stock at date of grant and is amortized over the period in which the 
restrictions lapse. The Company reverses deferred compensation as associated 
with unvested options issued at below fair market value as well as unvested 
restricted stock upon the cancellation of such options or shares for terminated 
employees. The Company provides the disclosures required by Statement of 
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based 
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based 
Compensation-Transition and Disclosure". All stock-based awards to non-employees
are accounted for at their fair value in accordance with SFAS No. 123.

The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based employee awards. See Note K for additional disclosure.

<TABLE>
<CAPTION>

                                                          For the Year Ended December 31,
                                                      -----------------------------------------
                                                         2004            2003          2002
                                                      ------------    -----------    ----------

<S>                                                        <C>            <C>            <C>   
     Net income, as reported                              $71,701        $40,889        $2,999

     Add: Stock-based employee compensation expense
     included in reported net income, net of related
     tax effect                                             1,448            181         1,028

     Deduct: Total stock-based employee compensation
     expense determined under fair value-based
     method for all awards, net of related tax effect     (15,881)       (11,876)      (12,209)
                                                      ------------    -----------    ----------
     Pro forma net income (loss)                          $57,268        $29,194       ($8,182)
                                                      ============    ===========    ==========

     Income (loss) per common share:
       Basic-as reported                                    $2.21          $1.40         $0.11
                                                      ============    ===========    ==========

       Basic-pro forma                                      $1.76          $1.00        ($0.31)
                                                      ============    ===========    ==========

       Diluted-as reported                                  $2.05          $1.25         $0.11
                                                      ============    ===========    ==========

       Diluted-pro forma                                    $1.65          $0.89        ($0.31)
                                                      ============    ===========    ==========
</TABLE>


Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs", an amendment
of ARB No. 43, which is the result of its efforts to converge U.S. accounting
standards for inventories with International Accounting Standards. SFAS No. 151
requires idle facility expenses, freight, handling costs, and wasted material
(spoilage) costs to be recognized as current-period charges. It also requires
that the allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. SFAS No. 151 will be
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company is currently evaluating the impact of SFAS No. 151 on its
consolidated financial statements.

On December 16, 2004, the FASB released SFAS No. 123R. This new accounting
standard requires all forms of stock compensation, including stock options
issued to employees, to be reflected as an expense in the Company's financial
statements. Public companies must adopt the standard by their first fiscal
period beginning after June 15, 2005. SFAS No. 123R allows three alternative
methods of transitioning to the standard: modified prospective application
(MPA), without restatement of prior interim periods in the year of adoption; MPA
with restatement of prior interim periods in the year of adoption; or modified
retrospective application. The Company intends to use the MPA without 
restatement alternative and to apply the revised standard beginning in the 
quarter ending September 30, 2005. Although the Company has not finalized its 
analysis, it expects that the adoption of the revised standard will result in 
higher operating expenses and lower earnings per share. See the above paragraph,

                                       49

<PAGE>

Accounting for Stock-Based Compensation, for the pro forma impact on net income
(loss) and income (loss) per common share as if the Company had historically 
applied the fair value recognition provisions of SFAS No. 123 to stock based 
employee awards.

On October 22, 2004, the President signed the American Jobs Creation Act of 2004
("the Act"). The Act creates a temporary incentive for U.S. corporations to
repatriate accumulated income earned abroad by providing an 85 percent
dividends-received deduction for certain dividends from controlled foreign
corporations. Although the deduction is subject to a number of limitations and
significant uncertainty remains as to how to interpret numerous provisions in
the Act, as of December 31, 2004, the Company believes that it has the
information necessary to make an informed decision on the impact of the Act.
Based on the information available, the Company has determined that its cash
position in the U.S. is sufficient to fund anticipated needs. The Company also
believes that the repatriation of income earned abroad would result in
significant foreign withholding taxes that otherwise would not have been
incurred as well as additional U.S. tax liabilities that may not be sufficiently
offset by foreign tax credits. Therefore, the Company does not currently plan to
repatriate any income earned abroad. These initial findings could change based
on clarification of the rules and changes in facts and circumstances of the
Company's operations and/or cash requirements in the U.S.

C.      MARKETABLE SECURITIES

The cost (amortized cost of debt instruments) and fair value of marketable
securities as of December 31, 2004 and 2003 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                Gross
                                                              Unrealized        Fair
                                                 Cost       Gains (Losses)      Value
                                             ------------  ----------------   ----------
<S>                                             <C>                  <C>       <C>     
                   2004
                   ----
Government and government agency obligations     $22,964               ($2)     $22,962
Corporate obligations                             31,906              (146)      31,760
Municipal obligations                             16,403               (14)      16,389
Asset-backed Securities                            5,272               (22)       5,250
                                             ------------  ----------------   ----------
                                                 $76,545             ($184)     $76,361
                                             ============  ================   ==========

                   2003
                   ----
Government and government agency obligations     $25,999                $9      $26,008
Corporate obligations                             46,606               (30)      46,576
Municipal obligations                             28,500                 6       28,506
Asset-backed Securities                           18,067                28       18,095
                                             ------------  ----------------   ----------
                                                $119,172               $13     $119,185
                                             ============  ================   ==========
</TABLE>


With the exception of auction rate securities, all federal, state and municipal
obligations held at December 31, 2004 and 2003 mature within one year. As of
December 31, 2004 and 2003, municipal obligations include auction rate
securities of $12.0 million and $25.5 million, respectively. The Company's
investments in auction rate securities are recorded at cost, which approximates
fair value due to their variable interest rates. The interest rates generally
reset every 28 days. Despite the long-term nature of their stated contractual
maturities, the Company has the ability to quickly liquidate investments in
auction rate securities. All income generated from these investments has been
recorded as interest income. The Company calculates realized gains and losses on
a specific identification basis. Realized gains and losses from the sale of
marketable securities were immaterial for the years ended December 31, 2004,
2003 and 2002.

D.     INVENTORIES

Inventories consist of the following (in thousands):

                                            December 31,
                                   -------------------------------
                                      2004                2003
                                   -----------          ----------
           Raw materials              $14,925             $12,086
           Work in process              3,622               1,475
           Finished goods              35,399              24,731
                                   -----------          ----------
                                      $53,946             $38,292
                                   ===========          ==========

                                       50

<PAGE>

As of December 31, 2004 and 2003, the finished goods inventory included deferred
costs of $9.0 million and $14.0 million, respectively, associated with product
shipped to customers for which revenue had not yet been recognized.

E.     PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     December 31,
                                               Depreciable    -------------------------
                                                 Life           2004            2003
                                              ------------    ---------       ---------
   <S>                                        <C>              <C>             <C>    
   Computer and video equipment and software  2 to 5 years     $92,862         $82,813
   Office equipment                           3 years            6,872           7,004
   Furniture and fixtures                     3 years            7,101           6,458
   Leasehold improvements                     3 to 10 Years     20,865          19,470
                                                              ---------       ---------
                                                               127,700         115,745
   Less accumulated depreciation and amortization               98,608          92,522
                                                              ---------       ---------
                                                               $29,092         $23,223
                                                              =========       =========
</TABLE>


Depreciation and amortization expense related to property and equipment was
$12.0 million, $10.9 million and $11.6 million for the years ended December 31,
2004, 2003 and 2002, respectively. The Company wrote off fully depreciated
assets with gross values of $6.2 million, $2.1 million and $42.4 million in
2004, 2003 and 2002, respectively.

Included in Computer and video equipment and software is equipment purchased
under capital leases (see Note H) of approximately $1.9 million at December 31,
2004 and 2003, with accumulated amortization of $1.3 million and $0.7 million as
of December 31, 2004 and 2003, respectively.

F.     ACQUISITIONS

M-Audio

In August 2004, Avid completed the acquisition of M-Audio, a leading provider of
digital audio and MIDI (Music Industry Digital Interface) solutions for
electronic musicians and audio professionals. Avid paid cash of $79.6 million,
net of cash acquired, of which $0.5 million will be paid out over a two year
period, and issued stock and options with a fair value of $96.5 million. The
market price of $42.72 used to value the Avid shares was based on the five-day
average closing price of the stock during the period beginning two days before
and ending two days after the date that the terms of the acquisition were agreed
to and announced publicly. The weighted average fair value of $35.14 used to
value the options was calculated using the same five-day average, less the
weighted average exercise price of the options. Avid also incurred $3.3 million
of transaction costs. The Company has integrated M-Audio into its Audio segment
and will market its line of audio products alongside Digidesign's digital audio
workstations for the professional and home/hobbyist markets. The goodwill of
$122.0 million resulting from the purchase price allocation reflects the value
of the underlying enterprise as well as synergies that Avid expects to realize,
including incremental sales of Digidesign products. The following table
summarizes the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition (in thousands):

Accounts receivable                                        $7,288  
Inventories                                                13,420  
Other current assets                                          903  
Equipment and other long-term assets                        1,520  
Identifiable intangible assets:                                    
  Customer relationships                                   28,000  
  Trade name                                                4,700  
  Non-compete covenant                                      1,200  
  Completed technology                                      4,500  
Goodwill                                                  122,022  
                                                         --------- 
Total assets acquired                                     183,553  
                                                                   
Accounts payable                                           (4,626)
Other current liabilities                                  (5,066)
Deferred compensation related to stock options issued       5,500 
                                                         --------- 
Net assets acquired                                      $179,361  
                                                         ========= 

                                       51

<PAGE>

As part of the purchase agreement, Avid may be required to make additional
payments to the former shareholders and option holders of M-Audio of up to $45.0
million, contingent upon the operating results of M-Audio through December 31,
2005. These payments, if required, will be made through the issuance of
additional Avid shares or options based on the ten-day average closing price of
the stock ending two days prior to the date the earn-out shares are distributed.
Any additional Avid shares issued to the former shareholders of M-Audio will be
recorded as additional purchase price allocated to goodwill. Any additional Avid
options issued to former option holders of M-Audio will be recorded as
stock-based compensation expense because future service is required for it to be
earned.

The identifiable intangible assets are being amortized over their estimated
useful lives of twelve years for customer relationships, six years for the trade
name, four years for the developed technology and two years for the non-compete
covenant. Amortization expense totaled $1.8 million for the year ended December
31, 2004 and accumulated amortization of these intangible assets was $1.8
million at December 31, 2004. The $122.0 million of goodwill was assigned to the
Company's Audio segment and will not be amortized, in accordance with the
requirements of SFAS No. 142, "Goodwill and Other Intangible Assets". This
goodwill and the identifiable intangible assets are not deductible for tax
purposes.

Avid Nordic AB

In September 2004, the Company acquired Avid Nordic AB, a Sweden-based reseller
of Avid products operating in the Nordic and Benelux regions of Europe, for
cash, net of cash acquired, of Euro 6.1 million ($7.4 million) plus transaction
costs of $0.3 million. The Company previously had no ownership interest in Avid
Nordic AB. The acquisition allows Avid to directly serve customers in this
region. The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed in the transaction (in thousands):

 Accounts receivable                                    $3,702
 Inventories                                             2,516
 Other current assets                                      589
 Equipment and other long-term assets                      671
 Identifiable intangible assets                          4,700
 Goodwill                                                1,955
                                                      ---------
 Total assets acquired                                  14,133

 Accounts payable                                       (2,571)
 Note payable                                           (1,203)
 Other current liabilities                              (1,057)
 Long term deferred tax liability                       (1,645)
                                                      ---------
 Net assets acquired                                    $7,657
                                                      =========

As part of the purchase agreement, Avid may be required to make additional
payments to the former shareholders of Avid Nordic AB of up to Euro 1.3 million
($1.8 million) contingent upon the operating results of Avid Nordic AB through
August 31, 2005. Any such payments will be recorded as additional purchase
consideration, allocated to goodwill.

The identifiable intangible asset represents customer relationships developed in
the region by Avid Nordic AB. This asset will be amortized over its estimated
useful life of five years. Amortization expense totaled $0.3 million for the
year ended December 31, 2004 and accumulated amortization of this asset was
$0.3 million at December 31, 2004. The goodwill of $2.0 million resulting from
the purchase price allocation reflects the value of the assembled workforce and
existing infrastructure in the region. This goodwill was assigned to the Video
and Film Editing and Effects segment and will not be amortized in accordance
with the requirements of SFAS No. 142. This goodwill and the customer
relationships intangible asset are not deductible for tax purposes. During the
quarter ended December 31, 2004, the goodwill was increased by $0.4 million to
$2.4 million due to a reduction in the estimated fair value of inventory and
other current assets acquired from Avid Nordic AB. The note payable represented
an overdraft facility with a bank, which was paid in full in December 2004.

                                       52

<PAGE>

NXN Software GmbH

In January 2004, Avid acquired Munich, Germany-based NXN Software GmbH ("NXN"),
a leading provider of asset and production management systems specifically
targeted for the entertainment and computer graphics industries, for cash of
Euro 35 million ($43.7 million) net of cash acquired of $0.8 million. The
Company also incurred $1.3 million of transaction costs. The acquisition expands
Avid's offering in digital asset management by enabling the Company's film and
video post-production, broadcast, audio and 3D animation customers to leverage
the workflow capabilities of the NXN Alienbrain(R) product line. NXN is reported
within Avid's Video and Film Editing and Effects segment. The goodwill resulting
from the purchase price allocation reflects the synergies the Company expects to
realize by integrating the NXN technology with its other products. The following
table summarizes the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition (in thousands):

Current assets                          $2,049
Equipment and other long-term assets       584
Identifiable intangible assets           7,200
Deferred tax assets, net                 2,480
Goodwill                                38,813
                                      ---------
Total assets acquired                   51,126
Current liabilities assumed             (6,169)
                                      ---------
Net assets acquired                    $44,957
                                      =========

The identifiable intangible assets include completed technology valued at $4.3
million, customer relationships valued at $2.1 million, and a trade name valued
at $0.8 million, which are being amortized over their estimated useful lives of
four to six years, three to six years, and six years, respectively. The weighted
average amortization period is 5.6 years for both completed technology and
customer relationships. Amortization expense relating to these intangibles was
$1.2 million for the year ended December 31, 2004 and accumulated amortization
of these assets was $1.2 million at December 31, 2004. In December 2004, the
Company reviewed the identifiable intangible assets acquired in the NXN
transaction and found the customer relationships intangible assets and the trade
name to be impaired. The impairment of the customer relationships intangible
assets was the result of the need to renegotiate contracts with certain
customers, which also had an impact on the fair value of the Alienbrain trade
name asset. The Company recalculated the fair values of these intangible assets
based on revised expected future cash flows reflecting the contract
renegotiations and recorded a charge of $1.2 million in December 2004 to write
them down to their revised fair values. This charge is included in the statement
of operations caption "Impairment of intangible assets" and was charged to the
Video segment. During the year ended December 31, 2004, the $38.8 million of
goodwill was reduced by $0.7 million to $38.1 million due to finalizing the
estimated fair value of deferred revenue acquired from NXN. This goodwill was
assigned to the Video and Film Editing and Effects segment and, in accordance
with the requirements of SFAS No. 142, will not be amortized. This goodwill and
the identifiable intangible assets are not deductible for tax purposes.

Bomb Factory Digital, Inc.

In December 2003, the Company acquired Bomb Factory Digital, Inc., a
manufacturer of real-time audio effects for the Digidesign Pro Tools platform
for approximately $3.3 million in cash, of which $2.0 million was paid in 2003
and $1.3 million was accrued at December 31, 2003 as contingent consideration.
This amount was paid in 2004. The Company allocated $1.1 million of the purchase
price to completed technology and recorded goodwill of $2.2 million. The
goodwill has been allocated to the Company's Audio segment. The completed
technology is being amortized on a straight-line basis over a three-year period.
The Company recorded amortization expense of $0.3 million in 2004 and
accumulated amortization of this asset was $0.3 million at December 31, 2004.

Other Acquisitions

The Company also recorded intangible assets associated with acquiring the
following businesses: Rocket Network, Inc. in 2003; iKnowledge, Inc. in 2002;
iNews LLC in 2001; and The Motion Factory, Inc. ("TMF") in 2000. In connection
with these acquisitions, the Company allocated $4.8 million to identifiable
intangible assets, which have been or are being amortized over periods ranging
from 3 to 5 years. Included in the operating results for 2004, 2003 and 2002 is
amortization of these intangible assets of $0.4 million, $1.3 million and $1.2
million, respectively. In connection with the iNews acquisition, the Company
recorded $1.8 million for assembled workforce. As of January 1, 2002, the
remaining balance of workforce of $1.1 million was reclassified to goodwill in
connection with the Company's adoption of SFAS 142 and is not subject to further
periodic amortization.

                                       53

<PAGE>

As part of the TMF purchase agreement, the Company may have been required to
make certain contingent cash payments, limited in the aggregate up to an
additional $10.0 million, dependent upon future revenues and/or gross margin
levels through December 2004 of products including technologies acquired from
TMF. No such contingent payments were required. As part of the iKnowledge
purchase agreement, the Company was required to make certain contingent cash
payments, dependent upon the future revenues of the products acquired from
iKnowledge through December 2004. Contingent payments required to be made under
this agreement were immaterial.

Pro Forma Financial Information for Acquisitions (Unaudited)

The results of operations of M-Audio, Avid Nordic and NXN have been included in
the results of operations of the Company since the respective date of each
acquisition. The following unaudited pro forma financial information presents
the results of operations for the years ended December 31, 2004 and 2003 as if
the acquisitions of both M-Audio and NXN had occurred at the beginning of 2003.
The Company's pro forma results of operations giving effect to the Avid Nordic
AB, Bomb Factory Digital and Rocket Network acquisitions as if they had occurred
at the beginning of 2003 is not included as it would not differ materially from
the reported results. The pro forma financial information for the combined
entities has been prepared for comparative purposes only and is not indicative
of what actual results would have been if the acquisitions had taken place at
the beginning of fiscal 2003, or of future results.

                                                  Years Ended           
                                                  December 31,          
                                            ------------------------    
                                               2004         2003        
                                            ----------   -----------    
(In thousands, except per share data)                                   
Net revenues                                 $631,889      $528,963     
                                                                        
Net income                                    $70,285       $33,474     
                                                                        
Net income per share:                                                   
 Basic                                          $2.04         $1.07     
                                                                       
 Diluted                                        $1.90         $0.97     


Identifiable Intangible Assets                                          
                                                
As a result of all of the acquisitions described above, identifiable intangible
assets consisted of the following (in thousands) at December 31:

<TABLE>
<CAPTION>
                                            2004                              2003
                               --------------------------------   -----------------------------
                                         Accumulated                       Accumulated
                                Gross    Amortization    Net       Gross   Amortization   Net
                               --------- ------------- --------   ------- ------------- -------
<S>                             <C>          <C>       <C>        <C>         <C>       <C>   
Completed technologies          $12,113      ($3,405)   $8,708    $5,318      ($3,503)  $1,815
Customer relationships           33,800       (1,315)   32,485         -            -        -
Trade name                        5,046         (337)    4,709         -            -        -
Non-compete covenant              1,200         (218)      982         -            -        -
                               --------- ------------- --------   ------- ------------- -------
                                $52,159      ($5,275)  $46,884    $5,318      ($3,503)  $1,815
                               --------- ------------- --------   ------- ------------- -------
</TABLE>


The Company expects amortization of these intangible assets to be approximately
$7.5 million in 2005, $7.0 million in 2006, $6.2 million in 2007, $5.6 million
in 2008, $4.6 million in 2009, and $16.0 million thereafter through 2016 at
which point they will be fully amortized.

G.     INCOME TAXES

Income before income taxes and the components of the income tax provision
(benefit) for the years ended December 31, 2004, 2003 and 2002 are as follows
(in thousands):

                                       54

<PAGE>

<TABLE>
<CAPTION>

                                                          2004    2003      2002    
                                                       ---------------------------- 
<S>                                                     <C>       <C>       <C>     
   Income before income taxes:                                                        
     United States                                      $55,811   $27,105   $7,288  
     Foreign                                             14,278    14,334   (2,589)  
                                                       ---------------------------- 
     Total income before income taxes                   $70,089   $41,439   $4,699  
                                                       ============================ 
                                                                                    
   Provisions for (benefit from) income taxes:                                        
     Current tax expense (benefit):                                                 
     Federal                                               $630      $250    ($459)   
     State                                                  125       200      200   
     Foreign benefit of net operating losses             (1,541)        -        -   
     Other Foreign                                          488       381    1,927  
                                                       ---------------------------- 
     Total current tax expense (benefit)                   (298)      831    1,668  
                                                       ---------------------------- 
                                                                                    
     Deferred tax expense (benefit):                                                
     Federal                                                  -         -        -   
     State                                                    -         -        -   
     Foreign benefit of net operating losses             (2,269)        -        -
     Other Foreign                                          955      (281)      32      
                                                       ---------------------------- 
     Total deferred tax expense (benefit)                (1,314)     (281)      32  
                                                       ---------------------------- 
     Total provision for (benefit from)income taxes     ($1,612)     $550   $1,700  
                                                       ============================ 
</TABLE>

                                                                       
Net cash payments for (refunds of) income taxes in 2004, 2003 and 2002 were
approximately ($1.3 million), $0.2 million and $3.9 million respectively.

The cumulative amount of undistributed earnings of subsidiaries, which is
intended to be permanently reinvested and for which U.S. income taxes have not
been provided, totaled approximately $50.8 million at December 31, 2004.

Net deferred tax assets are comprised of the following (in thousands):

<TABLE>
<CAPTION>
                                                             December 31,            
                                                      ----------------------------   
                                                          2004            2003       
                                                      -------------   -------------  
 <S>                                                       <C>             <C>        
    Deferred tax assets:                                                             
    Tax credit and net operating loss carryforwards        $86,918         $78,138  
    Allowances for bad debts                                   614             752   
    Difference in accounting for:                                                    
      Revenue                                                6,186           4,651   
      Costs and expenses                                    17,793          17,352   
      Inventories                                            3,701           3,876   
      Acquired intangible assets                            49,355          55,099   
    Other                                                       74               -  
                                                      -------------   -------------  
    Gross deferred tax assets                              164,641         159,868   
    Valuation allowance                                   (140,785)       (153,220)  
                                                      -------------   -------------  
    Deferred tax assets after valuation allowance           23,856           6,648   
                                                      -------------   -------------  
                                                                                     
    Deferred tax liabilities:                                                        
    Difference in accounting for:                                                    
      Revenue                                                 (414)           (414)   
      Costs and expenses                                    (2,673)         (1,103)   
      Inventories                                             (340)           (465)   
      Acquired intangible assets                           (14,508)              -  
    Other                                                   (2,624)         (3,634)   
                                                      -------------   -------------  
    Gross deferred tax liabilities                         (20,559)         (5,616)   
                                                      -------------   -------------  
    Net deferred tax assets                                 $3,297          $1,032   
                                                      =============   =============  
</TABLE>


                                       55

<PAGE>

Deferred tax assets reflect the net tax effects of the tax credits, operating
loss carryforwards and temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. The ultimate realization of the net deferred tax assets is
dependent upon the generation of sufficient future taxable income in the
applicable tax jurisdictions.

For U.S. Federal income tax purposes at December 31, 2004, the Company has tax
credit carryforwards of approximately $28.1 million, which will expire between
2005 and 2024, and net operating loss carryforwards of approximately $143.7
million, which will expire between 2018 and 2024. Based on the level of the
deferred tax assets as of December 31, 2004, the level of historical U.S.
taxable losses after deductions for stock compensation, and the future tax
deductions anticipated related to outstanding stock options, management has
determined that the uncertainty regarding the realization of these assets
warrants a full valuation allowance at December 31, 2004.

The Company's assessment of the valuation allowance on the U.S. deferred tax
assets could change in the future based upon its levels of pre-tax income and
other tax related adjustments. Removal of the valuation allowance in whole or in
part would result in a non-cash reduction in income tax expense during the
period of removal. In addition, because a portion of the valuation allowance as
of December 31, 2004 was established to reserve against certain deferred tax
assets resulting from the exercise of employee stock options, in accordance with
SFAS No. 109, removal of the valuation allowance related to these assets would
result in a credit to additional paid-in capital within stockholders' equity
rather than the provision for income taxes. If the valuation allowance of $140.8
million as of December 31, 2004 were to be removed in its entirety, an $84.9
million non-cash reduction in income tax expense and a $55.9 million credit to
additional paid-in capital would be recorded in the period of removal.

For foreign income tax purposes at December 31, 2004, the Company has net
operating loss carryforwards relating to the Irish manufacturing branch of
approximately $18.9 million, which can be carried forward indefinitely. In the
past, due to the uncertainty regarding the realization of this asset, the
Company had established a valuation allowance related to the entire
carryforwards amount. Since the Irish operations have generated sufficient
profits in recent years and future profitability is anticipated, as of December
31, 2004, the Company believes it is more likely than not that it will realize
the benefit related to the $18.9 million net operating loss carryforward;
therefore, the Company has removed the $2.1 million valuation allowance against
this deferred tax asset. The net deferred tax assets of $3.3 million and $1.0
million at December 31, 2004 and 2003 are related to foreign deferred tax assets
deemed realizable in certain jurisdictions.

A reconciliation of the Company's income tax provision (benefit) to the
statutory federal tax rate follows:

                                                 2004       2003       2002     
                                               ---------  ---------  --------- 
Statutory rate                                    35%        35%         35%    
                                                                               
Tax credits                                       (3)        (3)        (69)   
Foreign operations                                (6)        (8)         65    
State taxes, net of federal benefit                2          2          12    
                                               ---------  ---------  --------- 
                                                                               
Effective tax rate before valuation allowance     28         26          43    
                                                                               
Tax provision increase (decrease) in                                           
valuation allowance                              (30)       (25)         (7)    
                                               ---------  ---------  --------- 
                                                                               
Effective tax rate                                (2)%        1%         36%    
                                               =========  =========  ========= 

H.     LONG-TERM DEBT AND OTHER LIABILITIES

Subordinated Note

In connection with the acquisition of Softimage from Microsoft Corporation
("Microsoft") in 1998, Avid issued a $5.0 million subordinated note (the "Note")
to Microsoft. The principal amount of the Note, including any adjustments


                                       56

<PAGE>

relative to Avid stock options forfeited by Softimage employees plus all unpaid 
accrued interest, was due on June 15, 2003. The Note bore interest at 9.5% per 
year, payable quarterly. Through December 31, 2001, the Note had been increased 
by approximately $16.0 million for forfeited Avid stock options. During 1999, 
Avid made a principal payment of $8.0 million. In February 2002, Avid made a 
payment of approximately $13.0 million in full satisfaction of the outstanding 
Note to Microsoft.

Capital Leases

During 2002 and 2001, the Company entered into vendor-financed equipment leases
at various interest rates (ranging from 5.3% to 8.7%) for certain information
system purchases, which were assessed as operating leases for accounting
purposes. In 2002, due to changes in certain of the agreements' terms, including
consolidation of various lease schedules and an extension of the term, certain
of these arrangements were determined to be capital leases for accounting
purposes. As of December 31, 2004, future minimum lease payments under capital
leases are due as follows (in thousands):

                                           Year
                                         --------
                                             2005           $502
                                             2006            112
                                             2007             53
                                                        ---------
    Total minimum lease payments                             667
    Less amount representing interest                         29
                                                        ---------
    Present value of minimum lease payments                  638
    Less current portion                                     489
                                                        ---------
    Long-term portion of capital lease obligations          $149
                                                        =========

The current portion of these capital lease obligations is recorded in accrued
expenses and other current liabilities at December 31, 2004.

I.     COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company leases its office space and certain equipment under non-cancelable
operating leases. The future minimum lease commitments under these
non-cancelable leases at December 31, 2004 are as follows (in thousands):

                                       Year
                                     ---------
                                         2005       $20,582
                                         2006        19,429
                                         2007        16,421
                                         2008        15,348
                                         2009        12,550
                                     Thereafter      10,714
                                                   ---------
                                     Total          $95,044
                                                   =========

The total of future minimum rentals to be received by the Company under
non-cancelable subleases related to the above leases is $10.2 million as of
December 31, 2004. Such sublease income amounts are not reflected in the
schedule of minimum lease payments above. Included in our operating lease
commitments above are obligations under leases for which we have vacated the
underlying facilities as part of various restructuring plans. These leases
expire at various dates through 2010, and represent an aggregate obligation of
$18.6 million through 2010. The Company has a restructuring accrual of $3.5
million at December 31, 2004 which represents the difference between this
aggregate future obligation and expected future sublease income under actual or
estimated potential sublease agreements, on a net present value basis. See Note
M.

The Company's two leases for corporate office space in Tewksbury, Massachusetts,
expiring in June 2010, contain renewal options to extend the respective terms of
each lease for an additional 60 months. The Company has other leases for office
space that have termination options, which if exercised by the Company, would
result in a penalty of approximately $0.5 million in the aggregate. The future
minimum lease commitments above include the Company's obligations through the
original lease terms and do not include these penalties.

The Company has a standby letter of credit at a bank that is used as a security
deposit in connection with the Company's Daly City, California office space
lease. In the event of default on this lease, the landlord would, as of December
31, 2004, be eligible to draw against this letter of credit to a maximum of $4.3
million, subject to an annual reduction of approximately $0.8 million but not
below $2.0 million. The letter of credit will remain in effect at $2.0 million
throughout the remaining lease period, which extends to September 2009. As of
December 31, 2004, the Company was not in default of this lease.

                                       57

<PAGE>

The accompanying consolidated results of operations reflect rent expense on a
straight-line basis over the term of the leases. Total rent expense under
operating leases, net of operating subleases, was approximately $16.7 million,
$14.2 million and $14.3 million for the years ended December 31, 2004, 2003 and
2002, respectively. Total rent received from our operating subleases was
approximately $3.6 million, $3.2 million and $3.3 million for the years ended
December 31, 2004, 2003 and 2002, respectively.

Purchase Commitments

As of December 31, 2004, the Company has entered into non-cancelable purchase
commitments for certain inventory components used in its normal operations. The
purchase commitments covered by these agreements are generally less than one
year and aggregate approximately $25.0 million.

Transactions with Recourse

The Company, through a third party, provides lease financing options to its
customers, including primarily end-users, and occasionally distributors. During
the terms of these leases, which are generally three years, the Company remains
liable for any unpaid principal balance upon default by the end-user, but such
liability is limited in the aggregate based on a percentage of initial amounts
funded or, in certain cases, amounts of unpaid balances. At December 31, 2004
and 2003, Avid's maximum recourse exposure totaled approximately $17.2 million
and $14.8 million, respectively. The Company records revenue from these
transactions upon the shipment of products, provided that all other revenue
recognition criteria are met. Because the Company has been providing these
financing options to its customers for many years, the Company has a substantial
history of collecting under these arrangements without providing refunds or
concessions to the end user or financing party. To date, the payment default
rate has consistently been between 2% and 4% per year of the original funded
amount. The Company maintains a reserve for estimated losses under this recourse
lease program based on these historical default rates. At December 31, 2004, the
Company's accrual for estimated losses was $2.2 million.

Contingencies

On March 11, 1996, Avid was named as a 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, upon Avid's motion, the suit was transferred to the
United States District Court for the Southern District of New York. The
complaint alleged infringement by Avid of U.S. patent number 4,258,385, and
sought injunctive relief, treble damages, costs, and attorneys' fees. In its
answer to the complaint, Avid asserted that it did not infringe the patent and
that the patent was invalid. In August 2004, Avid filed a Motion To Dismiss
based on Combined Logic's failure to prosecute. An oral hearing on Avid's Motion
was held on November 5, 2004 and the District Court granted the Motion on
November 22, 2004. The District Court entered Judgment in favor of Avid on
December 10, 2004, dismissing the suit with prejudice. Combined Logic Company
filed a Notice Of Appeal to the Court of Appeals for the Second Circuit on
January 6, 2005. On February 14, 2005, Avid filed a Motion To Dismiss For Lack
of Jurisdiction. On February 15, 2005, Combined Logic, by letter to the Second
Circuit, indicated that it did not object to the dismissal of its appeal and did
not object to the relief sought in Avid's Motion. Because of the foregoing
facts, Avid considers this matter terminated.

Avid receives inquiries from time to time with regard to possible patent
infringement claims. If any infringement is determined to exist, the Company may
seek licenses or settlements. In addition, as a normal incidence of the nature
of the Company's business, various claims, charges, and litigation have been
asserted or commenced against the Company arising from or related to contractual
or employee relations, intellectual property rights or product performance.
Management does not believe these claims will have a material adverse effect on
the financial position or results of operations of the Company.

From time to time, the Company provides indemnification provisions in agreements
with customers covering potential claims by third parties that Avid products
infringe their intellectual property rights. Pursuant to these indemnification
provisions, the Company agrees to indemnify customers for losses that they
suffer or incur in connection with any valid U.S. patent or copyright
infringement claim brought by a third party with respect to Avid products. These
indemnification provisions generally offer perpetual coverage for infringement
claims based upon the products covered by the agreement. The maximum potential
amount of future payments the Company could be required to make under these
indemnification provisions is theoretically unlimited; however, to date, the
Company has not received any claims under these indemnification provisions. As a
result, the Company believes the estimated fair value of these indemnification
provisions is minimal.

                                       58

<PAGE>

As permitted under Delaware law, Avid has agreements whereby the Company
indemnifies its officers and directors for certain events or occurrences while
the officer or director is or was serving at Avid's request in such capacity.
The term of the indemnification period is for the officer's or director's
lifetime. The maximum potential amount of future payments the Company could be
required to make under these indemnification agreements is unlimited; however,
Avid has mitigated the exposure through the purchase of directors and officers
insurance, which is intended to limit the risk and, in most cases, enable the
Company to recover all or a portion of any future amounts paid. As a result of
this insurance policy coverage and Avid's related payment experience to date,
the Company believes the estimated fair value of these indemnification
agreements is minimal.

Avid provides warranty on hardware sold through its Video and Film Editing and
Effects segment which generally mirrors the manufacturers' warranties. The
Company charges the related material, labor and freight expense to cost of
revenues in the period incurred. With respect to the Audio business, Avid
provides warranty on externally sourced and internally developed hardware and
records an accrual for the related liability based on historical trends and
actual material and labor costs. The warranty period for all of the Company's
products is generally 90 days to one year but can extend up to five years
depending on the manufacturer's warranty.

The following table sets forth the activity in the product warranty accrual
account for the year ended December 31, 2004 (in thousands):

        Accrual balance at December 31, 2002             $925

        Accruals for product warranties                 2,332
        Cost of warranty claims                        (1,902)
                                                     ---------
        Accrual balance at December 31, 2003            1,355

        Accruals for product warranties                 3,605
        Cost of warranty claims                        (2,699)
                                                     ---------
        Accrual balance at December 31, 2004           $2,261
                                                     =========

J.     CAPITAL STOCK

Preferred Stock

The Company has authorized up to one million shares of preferred stock, $0.01
par value per share for issuance. Each series of preferred stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges, and liquidation
preferences, as shall be determined by the Board of Directors.

Shareholder Rights Plan

In February 1996, the Board of Directors approved a Shareholder Rights Plan. The
rights were distributed in March 1996 as a dividend at the rate of one right for
each share of common stock outstanding. No value was assigned to these rights.
The rights may be exercised to purchase shares of a new series of $0.01 par
value, junior participating preferred stock or to purchase a number of shares of
the Company's common stock which equals the exercise price of the right, $115,
divided by one-half of the then-current market price, upon occurrence of certain
events, including the purchase of 20% or more of the Company's common stock by a
person or group of affiliated or associated persons. The rights expire on
February 28, 2006 and may be redeemed by the Company for $0.01 each at any time
prior to the tenth day following a change in control and in certain other
circumstances.

Common Stock

In 2004 and 2000, the Company granted 20,000 and 260,000 shares, respectively,
of restricted common stock to certain employees under Company stock option and
award plans. During 2000, the Company also completed a Stock Option Exchange
Program whereby employees could request that certain outstanding stock options
be exchanged for shares of restricted common stock according to specified
exchange ratios. The Company granted 118,115 shares of restricted common stock
in exchange for stock options to purchase 431,836 shares of common stock with
exercise prices ranging from $9.44 to $45.25 per share under this program.

                                       59

<PAGE>
The shares under the 2004 awards vest annually in 25% increments over the next
four years. The shares under the 2000 awards vested 40% on the first anniversary
and 60% on the second anniversary of the awards. The awards under the Stock
Option Exchange program vested annually over three years from the date of grant.
Unvested restricted shares may not be sold, transferred or assigned and 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 $1.1 million and $4.6 million in 2004 and
2000, respectively, with respect to the restricted stock under these programs.
The deferred compensation amounts for all restricted stock awards represent the
fair value of the Company's common stock at the date of the award less par
value, which represents the purchase price paid by the holders, and are recorded
as compensation expense ratably as the shares vest. For the years ended December
31, 2004, 2003 and 2002, $0.1 million, $0.2 million and $1.0 million,
respectively, was recorded as compensation expense related to these restricted
stock arrangements.

The Company generally allows employees to satisfy any withholding tax obligation
under certain award plans by tendering to the Company a portion of the common
stock received under the award. During the year ended December 31, 2004, the
Company did not receive any shares to satisfy tax withholding obligations.
During the years ended December 31, 2003 and 2002, the Company received
approximately 6,332 shares and 53,000 shares, respectively, of its common stock
for $0.2 million and $0.5 million, respectively, in connection with these
non-cash transactions.

Warrant

In connection with the acquisition of Softimage Inc., the Company issued to
Microsoft a ten-year warrant to purchase 1,155,235 shares of the Company's
common stock, valued at $26.2 million. The warrant became exercisable on August
3, 2000, at a price of $47.65 per share, and expires on August 3, 2008.

K.     STOCK PLANS

Employee Stock Purchase Plan

The Company's 1996 Employee Stock Purchase Plan, as amended through May 25,
2003, authorizes the issuance of a maximum of 1,700,000 shares of common stock
in quarterly offerings to employees at a price equal to 95% of the closing price
on the applicable offering termination date. As of December 31, 2004, 353,432
shares remain available for issuance under this plan.

Stock Option and Award Plans

The Company has several stock-based compensation plans under which employees,
officers, directors and consultants may be granted stock awards or options to
purchase the Company's common stock generally at the fair market value on the
date of grant. Certain plans allow for options to be granted at below fair
market value under certain circumstances. Options become exercisable over
various periods, typically two to four years for employees and immediately to
four years for officers and directors. The options have a maximum term of ten
years. As of December 31, 2004, a maximum of 15,219,606 shares of common stock
have been authorized for issuance under the Company's stock-based compensation
plans, of which 1,474,151 shares remain available for future grants. Shares
available for future grants at December 31, 2004 include 597,741 shares that can
be issued as grants of restricted stock.

Information with respect to options granted under all stock option plans is as
follows:

<TABLE>
<CAPTION>
                                             2004                   2003                   2002                  
                                     ----------------------  ----------------------  ----------------------      
                                                  Weighted               Weighted                 Weighted       
                                                  Average                Average                   Average       
                                       Shares       Price      Shares      Price       Shares       Price        
                                                  Per Share              Per Share                Per Share      
                                     -----------  ---------  -----------  ---------  -----------  ---------      
<S>                                  <C>           <C>       <C>          <C>        <C>           <C>           
Options outstanding at January 1,     4,233,477    $17.58     6,842,557   $14.46      7,093,183    $14.34        
                                                                                                                 
Granted, at fair value                  869,786    $45.31     1,263,413   $25.43      1,289,187    $13.31        
Granted, below fair value               345,202     $9.21             -        -              -         -        
Exercised                            (1,749,768)   $16.04    (3,614,122)  $14.41     (1,008,860)   $11.19        
Canceled                               (114,508)   $19.55      (258,371)  $16.27       (530,953)   $16.47        
                                     -----------             -----------             -----------                 
                                                                                                                 
Options outstanding at December 31,   3,584,189    $24.19     4,233,477   $17.58      6,842,557    $14.46        
                                     ===========             ===========             ===========                 
                                                                                                                 
Options exercisable at December 31,   1,592,944    $18.74     1,943,057   $16.27      4,308,706    $15.18        
                                                                                                                 
Options available for future                                                                                     
grant at December 31,                 1,474,151               2,188,769               3,213,214                  
</TABLE>


                                       60

<PAGE>

The below-fair-value options were granted in connection with the purchase of
M-Audio (see Note F).

The following table summarizes information about stock options outstanding at
December 31, 2004:

<TABLE>
<CAPTION>

                             Options Outstanding                              Options Exercisable
------------------------------------------------------------------------   --------------------------
                                        Weighted
                                         Average           Weighted                       Weighted
      Range of           Number         Remaining          Average           Number       Average
  Exercise Prices      Outstanding   Contractual Life   Exercise Price    Exercisable  Exercise Price
---------------------- ------------  ----------------  ----------------   ------------ --------------
<S>                     <C>                    <C>             <C>         <C>               <C>   
      $0.01 to $9.96      290,600              6.86             $6.65        106,298          $5.35
     $9.98 to $12.80      663,742              6.37            $12.01        459,707         $12.13
    $12.81 to $14.12       75,735              5.24            $13.46         64,489         $13.45
    $14.13 to $20.25      630,240              5.93            $15.11        384,447         $15.65
    $20.50 to $22.01      804,978              7.38            $21.89        310,076         $21.74
    $23.01 to $62.03    1,118,894              8.35            $43.47        267,927         $37.60
                       ------------                                       ------------

     $0.01 to $62.03    3,584,189              7.15            $24.19      1,592,944         $18.74
                       ============                                       ============
</TABLE>


Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for the awards under these
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's net income (loss) and earnings (loss) per share would have been
adjusted to the pro forma amounts shown in Note B - "Summary of Significant
Accounting Policies," as required under SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure."

Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions and results:

<TABLE>
<CAPTION>

                                           Stock Options              Stock Purchase Plan
                                ------------------------------    ----------------------------
                                  2004      2003      2002          2004     2003      2002
                                ------------------------------    ----------------------------
<S>                                <C>       <C>        <C>          <C>       <C>      <C>  
Expected dividend yield              0.0%      0.0%      0.0%         0.0%      0.0%     0.0%
Risk-free interest rate              2.2%      2.0%      3.8%         1.9%      1.1%     3.8%
Expected volatility                   61%       69%       73%          38%       71%      73%
Expected life (in years)             3.40      3.51      3.44         0.25      0.43      0.5
Fair value of options
  granted at fair value            $19.66    $12.30     $6.94        $5.89     $7.97    $3.79
Fair value of options
  granted below fair value         $35.14         -         -            -         -        -
</TABLE>


L.     EMPLOYEE BENEFIT PLANS

Employee Benefit Plans

The Company has a defined contribution employee benefit plan under section
401(k) of the Internal Revenue Code covering substantially all U.S. employees.
The 401(k) plan allows employees to make contributions up to a specified
percentage of their compensation. The Company may, upon resolution by the Board
of Directors, make discretionary contributions to the plan. The Company's
contribution to the plan is 50% of up to the first 6% of an employee's salary
contributed to the plan by the employee. The Company's contributions to this
plan totaled $2.4 million, $2.1 million, and $1.5 million in 2004, 2003 and
2002, respectively.

                                       61

<PAGE>

In addition, the Company has various retirement and post-employment plans
covering certain international employees. Certain of the plans require the
Company to match employee contributions up to a specified percentage as defined
by the plans. The Company made related contributions of $1.9 million, $1.4
million, and $1.1 million in 2004, 2003 and 2002, respectively.

Nonqualified Deferred Compensation Plan

The Board of Directors has approved a nonqualified deferred compensation plan
(the "Deferred Plan"). The Deferred Plan covers senior management and members of
the Board of Directors as approved by the Company's Compensation Committee. The
plan provides for a trust to which participants can contribute varying
percentages or amounts of eligible compensation for deferred payment. Payouts
are generally made upon termination of employment with the Company. The benefit
payable under the Deferred Plan represents an unfunded and unsecured contractual
obligation of the Company to pay the value of the deferred compensation in the
future, adjusted to reflect the trust's investment performance. The assets of
the trust, as well as the corresponding obligations, were approximately $1.0
million and $0.8 million as of December 31, 2004 and 2003, respectively, and
were recorded in other current assets and accrued compensation and benefits at
those dates.

M.     RESTRUCTURING AND OTHER COSTS, NET

The Company's restructuring charges during 2004 consisted of $0.2 million to
reflect the decrease in rent to be received from one of the Company's
subtenants, offset by a reversal of $0.2 million associated with unutilized
space in Tewksbury, Massachusetts.

In December 2002, the Company recorded a charge of $3.3 million in connection
with vacating excess space in its Tewksbury, Massachusetts; Daly City,
California; and Montreal, Canada facilities. The portion of the charge related
to Tewksbury ($0.5 million) resulted from a revision of the Company's estimate
of the timing and amount of future sublease income associated with that facility
for which a charge had previously been included in the 2001 restructuring. The
remaining portion of the charge for Daly City and Montreal was a result of the
Company's ceasing to use a portion of each facility in December 2002 and hiring
real estate brokers to assist in finding subtenants.

In March 2003, the Company implemented a restructuring program under which 48
employees worldwide were terminated, and a leased facility in California was
vacated. In connection with these actions, the Company recorded a charge of $1.2
million for employee terminations and $0.6 million for unutilized space in Santa
Monica that included a write-off of leasehold improvements of $0.4 million. Also
during 2003, the Company recorded charges of $1.5 million related to a revision
of the company's estimate of the timing and amount of future sublease income
associated with the Daly City facility discussed above.

The Company recorded the 2003 and 2002 charges in accordance with the guidance
of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". SFAS 146 requires that a liability be recognized for an operating
lease that is not terminated based on the remaining lease rental costs, measured
at its fair value on a discounted cash flow basis, when the entity ceases using
the rights conveyed by the operating lease. That amount is reduced by any
estimated sublease rentals, regardless of whether the entity intends to enter
into a sublease. Future changes in the fair value of the Company's obligations
are recorded through operating expenses.

The following table sets forth the activity in the restructuring and other costs
accrual, which is included in accrued expenses and other current liabilities, in
2002, 2003 and 2004 (in thousands):

                                        Employee    Facilities
                                        Related       Related       Total
                                      --------------------------------------
Accrual balance at December 31, 2001       $1,471       $3,619       $5,090

Charge for vacated facilities                   -        2,812        2,812
Cash payments made                         (1,201)        (743)      (1,944)
Non-cash disposals                              -       (1,030)      (1,030)
Revisions of estimated liabilities            163          276          439
                                      --------------------------------------
Accrual balance at December 31, 2002          433        4,934        5,367

Restructuring charge                        1,177          641        1,818
Cash payments made                         (1,483)      (1,773)      (3,256)
Non-cash disposals                              -         (412)        (412)
Revisions of estimated liabilities            (77)       1,453        1,376
                                      --------------------------------------
Accrual balance at December 31, 2003           50        4,843        4,893

Restructuring charge                            -          241          241
Cash payments made                              -       (1,359)      (1,359)
Revisions of estimated liabilities            (50)        (191)        (241)
                                      --------------------------------------
Accrual balance at December 31, 2004            -       $3,534       $3,534
                                      ======================================

                                       62

<PAGE>

The majority of the facilities-related accrual at December 31, 2004 represents
estimated losses on subleases of space vacated as part of the Company's
restructuring actions. The leases, and payment on the amount accrued, extend
through 2010 unless the Company is able to negotiate an earlier termination. The
2003 non-cash disposal of $0.4 million related to the write-off of certain
leasehold improvements on property included in the 2003 restructuring and
abandoned in the first quarter of 2003. The 2002 non-cash disposal of $1.0
million related to the write-off of certain leasehold improvements on property
included in the 2001 restructuring and abandoned in the first quarter of 2002.

N.     SEGMENT INFORMATION

The Company's organizational structure is based on strategic business units that
offer various products to the principal markets in which the Company's products
are sold. In SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources and in assessing performance. The
Company evaluated the discrete financial information that is regularly reviewed
by the chief operating decision-makers and determined that these business units
equate to two reportable segments: Video and Film Editing and Effects, and
Audio.

The Video and Film Editing and Effects segment produces non-linear video and
film editing systems to improve the productivity of video and film editors and
broadcasters by enabling them to edit moving pictures and sound in a faster,
easier, more creative, and more cost-effective manner than by use of traditional
analog tape-based systems. The products in this operating segment are designed
to provide capabilities for editing and finishing feature films, television
shows, broadcast news programs, commercials, music videos, and corporate and
home videos. This segment includes the Media Composer family of products, which
accounted for approximately 17%, 16% and 19% of our consolidated net revenues in
2004, 2003 and 2002, respectively. Also within this segment are Storage and
Workgroup products that provide complete network, storage, and database
solutions based on our Avid Unity MediaNetwork technology, and enable users to
simultaneously share and manage media assets throughout a project or
organization. This product family accounted for 18%, 19% and 15% of our
consolidated net revenues in 2004, 2003 and 2002, respectively. The Audio
segment produces digital audio systems for the audio market. This operating
segment includes products developed to provide audio recording, editing, signal
processing, and automated mixing. This segment includes the Pro Tools product
family, which accounted for approximately 24%, 25% and 27% of our consolidated
net revenues in 2004, 2003 and 2002, respectively.

The accounting policies of each of the segments are the same as those described
in the summary of significant accounting policies (see Note B). The Company
evaluates performance based on profit and loss from operations before income
taxes, interest income, interest expenses and other income, excluding the
effects of restructuring and other costs, amortization or impairment of
intangible assets associated with acquisitions, and stock-based compensation.
Common costs not directly attributable to a particular segment are allocated
between segments based on management's best estimates.

The following is a summary of the Company's operations by reportable segment 
(in thousands):

                                         For the Year Ended December 31,
                                     -----------------------------------------
                                        2004           2003           2002
                                     -----------    -----------    -----------
  Video and Film Editing and
  Effects:
            Net revenues               $391,143       $330,859       $282,864
            Depreciation                  9,529          8,419          9,006
            Operating income (loss)      46,153         28,357         (6,804)
            Assets at December 31,      142,105        111,682        107,221
            Capital expenditures         12,477          7,195          6,563
  Audio:
            Net revenues               $198,462       $141,053       $135,855
            Depreciation                  2,502          2,484          2,610
            Operating income             29,251         15,718         15,361
            Assets at December 31,       66,023         34,978         36,948
            Capital expenditures          2,700            756          2,793
  Combined Segments:
            Net revenues               $589,605       $471,912       $418,719
            Depreciation                 12,031         10,903         11,616
            Operating income             75,404         44,075          8,557
            Assets at December 31,      208,128        146,660        144,169
            Capital expenditures         15,177          7,951          9,356

                                       63

<PAGE>

The following table reconciles operating income for reportable segments to total
consolidated amounts for the years ended December 31, 2004, 2003 and 2002 (in
thousands):

<TABLE>
<CAPTION>
                                                                   2004          2003         2002    
                                                                -----------   ----------   ---------- 
<S>                                                                <C>          <C>           <C>     
 Total operating income for reportable segments                    $75,404      $44,075       $8,557  
 Unallocated amounts:                                                                                 
      Restructuring and other costs, net                                 -       (3,194)      (2,923) 
      Amortization of acquisition-related intangible assets         (4,049)      (1,316)      (1,153) 
      Stock-based compensation                                      (1,418)           -            -  
      Impairment of intangible assets                               (1,187)           -            -  
                                                                -----------   ----------   ---------- 
 Consolidated operating income                                     $68,750      $39,565       $4,481  
                                                                ===========   ==========   ========== 
</TABLE>
    
                                                                
Certain assets are not included in the assets of the reportable segment because
management does not consider them in evaluating operating results of the
segments. The following table reconciles assets for reportable segments to total
consolidated amounts as of December 31, 2004, 2003 and 2002 (in thousands):

<TABLE>
<CAPTION>

                                                           2004        2003       2002     
                                                        ----------- ---------- ----------  
 <S>                                                       <C>        <C>        <C>       
 Total assets for reportable segments                     $208,128   $146,660   $144,169   
 Unallocated amounts:                                                                      
      Cash, cash equivalents and marketable securities     155,419    196,309     89,034   
      Acquisition-related intangible assets                212,687      5,150      2,600   
                                                        ----------- ---------- ----------  
 Total assets                                             $576,234   $348,119   $235,803   
                                                        =========== ========== ==========  
</TABLE>


The following table summarizes the Company's revenues by country (in thousands).
The categorization of revenue is based on the country in which the sales
originate:

                            For the Year Ended December 31,
                          -------------------------------------
                             2004         2003         2002
                          -----------   ----------   ----------
   Revenues:
     United States          $287,182     $238,340     $210,599
     Other countries         302,423      233,572      208,120
                          -----------   ----------   ----------
   Total revenues           $589,605     $471,912     $418,719
                          ===========   ==========   ==========

                                       64

<PAGE>

The following table summarizes the Company's long-lived assets, by country (in
thousands):

                                            December 31,
                                     ---------------------------
                                        2004            2003
                                     ------------    -----------
       Long-lived assets:
        United States                    $25,025        $20,722
        Other countries                    8,030          5,235
                                     ------------    -----------
      Total long-lived assets            $33,055        $25,957
                                     ============    ===========

O.     FINANCIAL INSTRUMENTS

Forward-Exchange Contracts

As of December 31, 2004, there were no forward-exchange contracts outstanding.
At December 31, 2003, the Company had approximately $25.3 million of foreign
currency forward-exchange contracts outstanding, denominated in euros, Japanese
yen, British pounds, Singapore dollars, Canadian dollars and Australian dollars,
as a hedge against the foreign exchange exposure of certain forecasted
third-party and intercompany receivables, payables and cash balances.

There are two objectives of the Company's foreign currency forward-exchange
contract program: (1) to offset any foreign exchange currency risk associated
with cash receipts expected to be received from our customers over the next 30
day period and (2) to offset the impact of foreign currency exchange on the
Company's net monetary assets denominated in currencies other than the U.S.
dollar. These forward-exchange contracts typically mature within 30 days of
purchase.

The changes in fair value of the forward-exchange contracts intended to offset
foreign currency exchange risk on forecasted cash flows are recorded as gains or
losses in the Company's statement of operations in the period of change, because
they do not meet the criterion of SFAS No.133, Accounting for Derivative
Instruments and Hedging Activities, to be treated as hedges for accounting
purposes.

The forward-exchange contracts associated with offsetting the impact of foreign
currency exchange risk on the Company's net monetary assets are accounted for as
fair value hedges under SFAS No. 133. Specifically, the forward-exchange
contracts are recorded at fair value at the origination date, and gains or
losses on the contracts are recognized in earnings; the changes in fair value of
the net monetary assets attributable to changes in foreign currency are an
adjustment to the carrying amount and are recognized in earnings in the period
of change.

Net realized and unrealized gains (losses) of ($1.7) million, ($0.6) million and
$0.5 million resulting from foreign currency transactions, remeasurement, and
forward-exchange contracts were included in results of operations for the years
ended December 31, 2004, 2003 and 2002, respectively.

P.     NET INCOME PER COMMON SHARE

Basic and diluted net income per share were as follows (in thousands, except per
share data):

<TABLE>
<CAPTION>

                                                          For the Year Ended December 31,  
                                                        ---------------------------------- 
                                                           2004       2003        2002     
                                                        ----------- ---------- ----------- 
<S>                                                        <C>        <C>          <C>     
Net income                                                 $71,701    $40,889      $2,999  
                                                        =========== ========== =========== 
                                                                                           
Weighted average common shares outstanding - basic          32,485     29,192      26,306  
Weighted average potential common stock:                                                   
  Options                                                    2,483      3,461         554  
  Warrant                                                       35          -           -  
                                                        ----------- ---------- ----------- 
Weighted average common shares outstanding - diluted        35,003     32,653      26,860  
                                                        =========== ========== =========== 
                                                                                           
Net income per common share - basic                          $2.21      $1.40       $0.11  
Net income per common share - diluted                        $2.05      $1.25       $0.11  
</TABLE>


                                       65

<PAGE>
Common stock options, restricted shares and a warrant that were considered
anti-dilutive securities and excluded from the diluted net income per share
calculations were as follows, on a weighted-average basis:

                                       For the Year Ended December 31,
                                     -----------------------------------
                                        2004        2003        2002
                                     ----------- ----------- -----------

   Options                                  137          32       5,170
   Warrant                                    -       1,155       1,155
   Restricted shares                         20           -           -
                                     ----------- ----------- -----------
   Total anti-dilutive securities           157       1,187       6,325
                                     =========== =========== ===========

Q.     SUPPLEMENTAL CASH FLOW INFORMATION

The following table reflects supplemental cash flow investing activities related
to the acquisitions of NXN Software GmbH, M-Audio, and Avid Nordic AB in 2004, 
Rocket Network, Inc. and Bomb Factory Digital, Inc. in 2003, and iKnowledge in 
2002 (in thousands):

<TABLE>
<CAPTION>

                                                                   Year Ended December 31,           
                                                          ------------------------------------------ 
                                                              2004          2003           2002      
                                                          ------------   ------------   ------------ 
<S>                                                          <C>              <C>              <C>  
  Fair value of:                                                                                     
    Assets acquired and goodwill                             $249,924         $3,866           $425  
    Accrual for contingent payments made in 2004                    -         (1,369)             -  
    Payment for contingency                                     1,310              -              -  
    Liabilities assumed                                       (22,337)          (215)             -  
    Deferred compensation for stock options issued              5,500              -              -  
                                                          ------------   ------------   ------------ 
  Total consideration                                         234,397          2,282            425 
                                                                                                    
    Less: cash acquired                                        (1,875)             -              -  
    Less: equity consideration and accrued payments           (97,007)             -              -  
                                                          ------------   ------------   ------------ 
  Net cash paid for acquisitions                             $135,515         $2,282           $425 
                                                          ============   ============   ============ 
</TABLE>

 
During 2004, the Company paid $1.3 million of the contingent payments related to
Bomb Factory, after resolution of the contingencies as specified in the purchase
agreement.

R.     QUARTERLY RESULTS (UNAUDITED)

The following information has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all normal recurring
adjustments necessary for a fair presentation of such information.

In thousands, except per share data:

<TABLE>
<CAPTION>
                                                                     Quarters Ended                               
                                      -------------------------------------------------------------------------   
                                                     2004                                 2003                    
                                       ------------------------------------ ------------------------------------  
                                        Dec. 31 Sept. 30  June 30  Mar. 31   Dec. 31  Sept. 30 June 30  Mar. 31   
                                       ------------------------------------ ------------------------------------  
<S>                                    <C>      <C>      <C>      <C>       <C>      <C>      <C>      <C>        
Net revenues                           $174,971 $147,374 $139,886 $127,374  $127,328 $119,090 $113,317 $112,177   
Cost of revenues                         77,145   62,845   60,995   54,103    53,754   52,784   50,608   52,227   
Amortization of intangible assets           281      127        -        -         -        -        -        -   
                                       ------------------------------------ ------------------------------------  
  Gross profit                           97,545   84,402   78,891   73,271    73,574   66,306   62,709   59,950   
                                       ------------------------------------ ------------------------------------  
Operating expenses:                                                                                               
Research & development                   25,845   23,879   22,924   22,292    21,719   20,706   21,428   21,699   
Marketing & selling                      38,712   33,589   33,656   29,854    28,733   27,959   27,748   25,264   
General & administrative                 10,024    7,686    6,184    5,886     6,576    5,670    5,617    5,345   
Restructuring and other costs, net            -        -        -        -     1,335       76        -    1,783   
Amortization of intangible assets         1,665      988      549      439       341      341      341      293   
Impairment of intangible assets           1,187        -        -        -         -        -        -        -   
                                       ------------------------------------ ------------------------------------  
  Total operating expenses               77,433   66,142   63,313   58,471    58,704   54,752   55,134   54,384   
                                       ------------------------------------ ------------------------------------  
Operating income                         20,112   18,260   15,578   14,800    14,870   11,554    7,575    5,566   
Other income (expense), net                 653      651      595     (560)      544      592      507      231   
                                       ------------------------------------ ------------------------------------  
Income before income taxes               20,765   18,911   16,173   14,240    15,414   12,146    8,082    5,797  
Provision (benefit) for income taxes     (1,749)     (63)     700     (500)     (350)     300      300      300   
                                       ------------------------------------ ------------------------------------  

                                       66

<PAGE>
Net income                              $22,514  $18,974  $15,473  $14,740   $15,764  $11,846   $7,782   $5,497   
                                       ==================================== ====================================  
                                                                                                                  
Net income per share - basic              $0.66    $0.58    $0.49    $0.47     $0.51    $0.40    $0.27    $0.20   
Net income per share - diluted            $0.61    $0.54    $0.45    $0.44     $0.47    $0.35    $0.25    $0.18   
Weighted average common                                                                                           
  shares outstanding - basic             34,355   32,737   31,623   31,202    30,764   29,865   28,494   27,604   
Weighted average common
  shares outstanding - diluted           36,751   35,033   34,134   33,740    33,864   33,380   31,673   29,860   

High common stock price                  $62.57   $54.66   $61.68   $55.42    $59.77   $57.95   $38.15   $24.15
Low common stock price                   $46.48   $40.90   $44.11   $38.43    $44.65   $33.96   $21.86   $16.76
</TABLE>



The Company's quarterly operating results fluctuate as a result of a number of
factors including, without limitation, the timing of new product introductions,
the timing of, and costs incurred in association with, the recognition of
"solutions" sales to customers, marketing expenditures, promotional programs,
and periodic discounting due to competitive factors. The Company's operating
results may fluctuate in the future as a result of these and other factors,
including the Company's success in developing and introducing new products, its
products and customer mix and the level of competition which it experiences.
Quarterly sales and operating results generally depend on the volume and timing
of orders received and recognized as revenue during the quarter. The Company's
expense levels are based in part on its forecasts of future revenues. If
revenues are below expectations, the Company's operating results may be
adversely affected. Accordingly, there can be no assurance that the Company will
be profitable in any particular quarter.

                                       67

<PAGE>


I
TEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
            FINANCIAL DISCLOSURE

None.



ITEM 9A.    CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2004. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company's management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2004, our chief executive officer and
chief financial officer concluded that, as of such date, the Company's
disclosure controls and procedures were effective at the reasonable assurance
level.

Management's report on our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and the independent
registered public accounting firm's related audit report are included in Item 8
of this Form 10-K and are incorporated herein by reference.

No change in our internal control over financial reporting occurred during the
fiscal quarter ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.



ITEM 9B.    OTHER INFORMATION

                                       68

<PAGE>


PART III


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

We have adopted a Code of Business Conduct and Ethics applicable to all our
employees, including our principal executive officer, principal financial
officer and principal accounting officer. We will provide any person, without
charge, with a copy of our Code of Business Conduct and Ethics upon written
request to Avid Technology, Inc., Avid Technology Park, One Park West,
Tewksbury, MA 01876, Attention: Corporate Secretary.

The remainder of the response to this item is contained under the caption
"EXECUTIVE OFFICERS OF THE COMPANY" in Part I hereof, and in our Proxy Statement
for our 2005 Annual Meeting of Stockholders (the "2005 Proxy Statement") under
the captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" all of which is incorporated herein by reference.


ITEM 11.    EXECUTIVE COMPENSATION

The response to this item is contained in the 2005 Proxy Statement under the
captions "Election of Directors - Directors' Compensation" and "Executive
Compensation" and is incorporated herein by reference.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND 
            RELATED STOCKHOLDER MATTERS

The response to this item is contained in the 2005 Proxy Statement under the
caption "Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.

The disclosures required for securities authorized for issuance under equity
compensation plans are contained in the 2005 Proxy Statement under the caption
"Equity Compensation Plan Information" and are incorporated herein by reference.


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The response to this item is contained in the Company's 2005 Proxy Statement
under the caption "Independent Registered Public Accounting Firm Fees and Other
Matters" and is incorporated herein by reference.


PART IV


ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. FINANCIAL STATEMENTS

The following consolidated financial statements are included in Item 8: 
     -  Management's Report on Internal Control Over Financial Reporting 
     -  Report of Independent Registered Public Accounting Firm 
     -  Consolidated Statements of Operations for the years ended 
        December 31, 2004, 2003 and 2002
     -  Consolidated Balance Sheets as of December 31, 2004 and 2003 
     -  Consolidated Statements of Stockholders' Equity for the years ended
        December 31, 2004, 2003 and 2002
     -  Consolidated Statements of Cash Flows for the years ended 
        December 31, 2004, 2003 and 2002
     -  Notes to Consolidated Financial Statements

(a) 2. FINANCIAL STATEMENT SCHEDULE

The following consolidated financial statement schedule is included in Item
15(d):

           Schedule II  -  Valuation and Qualifying Accounts

                                       69

<PAGE>

Schedules other than that listed above have been omitted since the required
information is not present, or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.

                                       70

<PAGE>

(a) 3. LISTING OF EXHIBITS

EXHIBIT NO.                         DESCRIPTION
-----------                         -----------

2.1     Stock and Asset Purchase Agreement among Microsoft  Corporation,  
        Softimage Inc. and Avid Technology, Inc. dated as of June 15, 1998 
        together with all material exhibits thereto (incorporated by reference 
        to our Quarterly Report on Form 10-Q as filed with the Commission on 
        August 12, 1998).

2.2     Agreement and Plan of Merger By and Among Avid Technology, Inc., Maui 
        Paradise Corporation, Maui LLC and Midiman, Inc. dated August 12, 2004, 
        together with all material exhibits thereto (incorporated by reference 
        to our Quarterly Report on Form 10-Q as filed with the Commission on 
        November 9, 2004).

3.1     Certificate of Amendment of the Third Amended and Restated Certificate
        of Incorporation of the Registrant (incorporated by reference to our
        Quarterly Report on Form 10-Q as filed with the Commission on May 15,
        1995).

3.2     Third Amended and Restated Certificate of Incorporation of the
        Registrant (incorporated by reference to our Registration Statement on
        Form S-8 as filed with the Commission on June 9, 1993).

3.3     Amended and Restated By-Laws of the Registrant (incorporated by
        reference to our Registration Statement on Form S-1 as declared
        effective by the Commission on March 11, 1993).

3.4     Certificate of Designations establishing Series A Junior Participating
        Preferred Stock (the "Certificate of Designations") (incorporated by
        reference to our Current Report on Form 8-K as filed with the Commission
        on March 8, 1996).

3.5     Certificate of Correction to the Certificate of Designations
        (incorporated by reference to our Current Report on Form 8-K as filed
        with the Commission on March 8, 1996).

4.1     Specimen Certificate representing our Common Stock (incorporated by
        reference to our Registration Statement on Form S-1 as declared
        effective by the Commission on March 11, 1993).

4.2     Rights Agreement, dated as of February 29, 1996, between Avid
        Technology, Inc. and The First National Bank of Boston, as Rights Agent
        (incorporated by reference to our Current Report on Form 8-K as filed
        with the Commission on March 8, 1996).

4.3     Common Stock Purchase Warrant dated August 3, 1998 by and between Avid
        Technology, Inc. and Microsoft Corporation (incorporated by reference to
        our Quarterly Report on Form 10-Q as filed with the Commission on
        November 13, 1998).

10.1    Lease dated September 29, 1995 between Allied Dunbar Insurance PLC and
        Avid Technology Limited (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 14, 1995).

10.2    Lease between MGI Andover Street, Inc. and Avid Technology, Inc. dated 
        March 21, 1995 (incorporated by reference to our Quarterly Report on 
        Form 10-Q as filed with the Commission on May 15, 1995).

10.3    Amended and Restated lease dated as of June 7, 1996 between MGI One Park
        West, Inc. and Avid Technology, Inc. (incorporated by reference to our 
        Quarterly Report on Form 10-Q as filed with the Commission on 
        August 14, 1996).

#10.4   1991 Digidesign Stock Option Plan (incorporated by reference to our
        Quarterly Report on Form 10-Q as filed with the Commission on May 15,
        1995).

#10.5   1993 Stock Incentive Plan (incorporated by reference to our Registration
        Statement on Form S-1 as declared effective by the Commission on March
        11, 1993).

#10.6   1993 Director Stock Option Plan, as amended (incorporated by reference
        to our Proxy Statement as filed with the Commission on April 27, 1995).

                                       71

<PAGE>

#10.7   1994 Stock Option Plan, as amended (incorporated by reference to our
        Registration Statement on Form S-8 as filed with the Commission on
        October 27, 1995).

#10.8   Amended and Restated 1996 Employee Stock Purchase Plan (incorporated by
        reference to our Quarterly Report on Form 10-Q as filed with the
        Commission on November 13, 2003).

#10.9   1997 Stock Option Plan (incorporated by reference to our Annual Report
        on Form 10-K as filed with the Commission on March 27, 1998).

#10.10  1997 Stock Incentive Plan, as amended (incorporated by reference to our 
        Quarterly Report on Form 10-Q as filed with the Commission on 
        May 14, 1997).

#10.11  Amended and Restated Avid Technology, Inc. Non-Qualified Deferred
        Compensation Plan, as amended (incorporated by reference to our Annual
        Report on Form 10-K as filed with the Commission on March 11, 2004).

*#10.12 1998 Stock Option Plan.

*#10.13 1998 Avid-Softimage Stock Option Plan.

*#10.14 Amended and Restated 1999 Stock Option Plan.

#10.15  Midiman, Inc. Stock Option/Stock Issuance Plan (incorporated by 
        reference to our Quarterly Report on Form 10-Q as filed with the 
        Commission on November 9, 2004).

*#10.16 Avid Technology, Inc. 2005 Bonus Plan.

#10.17  Executive Employment Agreement between the Company and David A. Krall,
        dated as of July 24, 2002. (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.18  Executive Employment Agreement between the Company and Joseph
        Bentivegna, dated as of July 24, 2002 (incorporated by reference to our
        Quarterly Report on Form 10-Q as filed with the Commission on November
        13, 2002).

#10.19  Executive Employment Agreement between the Company and Ethan E. Jacks,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.20  Executive Employment Agreement between the Company and David Lebolt,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.21  Executive Employment Agreement between the Company and Paul Milbury,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.22  Executive Employment Agreement between the Company and Michael Rockwell,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.23  Executive Employment Agreement between the Company and Charles L. Smith,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.24  Change-in-Control Agreement between the Company and David A. Krall,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.25  Change-in-Control Agreement between the Company and Joseph Bentivegna,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

                                       72

<PAGE>

#10.26  Change-in-Control Agreement between the Company and Ethan E. Jacks,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.27  Change-in-Control Agreement between the Company and David Lebolt, dated
        as of July 24, 2002 (incorporated by reference to our Quarterly Report
        on Form 10-Q as filed with the Commission on November 13, 2002).

#10.28  Change-in-Control Agreement between the Company and Paul Milbury, dated
        as of July 24, 2002 (incorporated by reference to our Quarterly Report
        on Form 10-Q as filed with the Commission on November 13, 2002).

#10.29  Change-in-Control Agreement between the Company and Michael Rockwell,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.30  Change-in-Control Agreement between the Company and Charles L. Smith,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.31  Executive Employment Agreement between the Company and Trish Baker,
        dated as of May 21, 2003 (incorporated by reference to our Annual Report
        on Form 10-K as filed with the Commission on March 11, 2004).

#10.32  Change-in-Control Agreement between the Company and Trish Baker, dated
        as of May 21, 2003 (incorporated by reference to our Annual Report on
        Form 10-K as filed with the Commission on March 11, 2004).

*21     Subsidiaries of the Registrant.

*23.1   Consent of PricewaterhouseCoopers LLP.

*31.1   Certification of Principal Executive Officer pursuant to Rules 13a-14
        and 15d-14 under the Securities Exchange Act of 1934, as adopted
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2   Certification of Principal Financial Officer pursuant to Rules 13a-14
        and 15d-14 under the Securities Exchange Act of 1934, as adopted
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1   Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant
        to Section 906 of the Sarbanes-Oxley Act of 2002.

--------------------
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 15(a)3.

                                       73

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

AVID TECHNOLOGY, INC.
(Registrant)

By:    /s/ David A. Krall            
      -------------------------------
      David A. Krall
      President and Chief Executive Officer
      (Principal Executive Officer)

Date: March 15, 2005


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

By: /s/ David A. Krall      By: /s/ Paul J. Milbury     By: /s/ Carol L. Reid
    --------------------    ------------------------    ------------------------
    David A. Krall          Paul J. Milbury             Carol L. Reid
    President and Chief     Chief Financial Officer     Vice President and 
    Executive Officer       (Principal Financial        Corporate Controller    
    (Principal Executive    Officer)                    (Principal Accounting
    Officer)                                            Officer)

Date:  March 15, 2005       Date:  March 15, 2005       Date:  March 15, 2005


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

        NAME                           TITLE                    DATE
        ----                           -----                    ----

/s/ David A. Krall                    Director             March 15, 2005
--------------------------
David A. Krall

/s/ George Billings                   Director             March 15, 2005 
--------------------------
George Billings

/s/ Elizabeth M. Daley                Director             March 15, 2005 
--------------------------
Elizabeth M. Daley

/s/ John Guttag                       Director             March 15, 2005 
--------------------------
John Guttag

/s/ Nancy Hawthorne                   Director             March 15, 2005 
--------------------------
Nancy Hawthorne

/s/ Pamela F. Lenehan                 Director             March 15, 2005 
--------------------------
Pamela F. Lenehan

/s/ William J. Warner                 Director             March 15, 2005 
--------------------------
William J. Warner


                                       74

<PAGE>

                              AVID TECHNOLOGY, INC.

                           ANNUAL REPORT ON FORM 10-K

                          YEAR ENDED DECEMBER 31, 2004


                                   ITEM 15(d)

                          FINANCIAL STATEMENT SCHEDULE

                                       75

<PAGE>

                              AVID TECHNOLOGY, INC.
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  Years ended December 31, 2004, 2003 and 2002
                                 (in thousands)

<TABLE>
<CAPTION>                                                                                    
                                                        Additions   
                                                 -----------------------                                 
                                   Balance at    Charged to   Charged to                Balance at                 
                                  beginning of   costs and      other                     end of      
         Description                period        expenses     accounts    Deductions     period   
--------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>        <C>          <C>           <C>     
Allowance for doubtful accounts
          December 31, 2004           $4,713         $436       $451(g)    ($1,468)(a)     $4,132

          December 31, 2003            6,237           10                   (1,534)(a)      4,713

          December 31, 2002            8,566          534                   (2,863)(a)      6,237

Sales returns and allowances
          December 31, 2004           $4,448                  $7,630(b)    ($6,876)(c)     $5,202

          December 31, 2003            4,377                   6,669(b)     (6,598)(c)      4,448

          December 31, 2002            2,931                   9,481(b)     (8,035)(c)      4,377

Allowance for transactions with recourse
          December 31, 2004           $3,270        ($291)     ($166)(b)     ($614)(d)     $2,199

          December 31, 2003            3,304          614        810 (b)    (1,458)(d)      3,270

          December 31, 2002            3,862          539        471 (b)    (1,568)(d)      3,304

Deferred tax asset valuation allowance
          December 31, 2004         $153,220       $1,005                 ($13,440)(f)   $140,785

          December 31, 2003          126,490       26,730                                 153,220

          December 31, 2002          131,428       (4,738)       (200)(e)                 126,490

<FN>
(a) Amount represents write-offs, net of recoveries.
(b) Provisions for sales returns, volume rebates and a portion of the provision
    for transactions with recourse are charged directly against revenue.
(c) Amount represents credits for returns, volume rebates and promotions. 
(d) Amount represents defaults, net of recoveries. 
(e) Amount represents tax return to accrual adjustments. 
(f) Amount represents valuation allowance recorded in purchase accounting 
    related to acquired deferred tax assets.
(g) Amount represents allowance recorded in purchase accounting for accounts
    receivable acquired in business combinations and foreign exchange gains
    (losses).
</FN>
</TABLE>

                                       F-1

<PAGE>


                                Index to Exhibits

Exhibit No.                        Description          
--------------------------------------------------------------------------------

2.1     Stock and Asset Purchase Agreement among Microsoft  Corporation,  
        Softimage Inc. and Avid Technology, Inc. dated as of June 15, 1998 
        together with all material exhibits thereto (incorporated by reference 
        to our Quarterly Report on Form 10-Q as filed with the Commission on 
        August 12, 1998).

2.2     Agreement and Plan of Merger By and Among Avid Technology, Inc., Maui 
        Paradise Corporation, Maui LLC and Midiman, Inc. dated August 12, 2004, 
        together with all material exhibits thereto (incorporated by reference 
        to our Quarterly Report on Form 10-Q as filed with the Commission on 
        November 9, 2004).

3.1     Certificate of Amendment of the Third Amended and Restated Certificate
        of Incorporation of the Registrant (incorporated by reference to our
        Quarterly Report on Form 10-Q as filed with the Commission on May 15,
        1995).

3.2     Third Amended and Restated Certificate of Incorporation of the
        Registrant (incorporated by reference to our Registration Statement on
        Form S-8 as filed with the Commission on June 9, 1993).

3.3     Amended and Restated By-Laws of the Registrant (incorporated by
        reference to our Registration Statement on Form S-1 as declared
        effective by the Commission on March 11, 1993).

3.4     Certificate of Designations establishing Series A Junior Participating
        Preferred Stock (the "Certificate of Designations") (incorporated by
        reference to our Current Report on Form 8-K as filed with the Commission
        on March 8, 1996).

3.5     Certificate of Correction to the Certificate of Designations
        (incorporated by reference to our Current Report on Form 8-K as filed
        with the Commission on March 8, 1996).

4.1     Specimen Certificate representing our Common Stock (incorporated by
        reference to our Registration Statement on Form S-1 as declared
        effective by the Commission on March 11, 1993).

4.2     Rights Agreement, dated as of February 29, 1996, between Avid
        Technology, Inc. and The First National Bank of Boston, as Rights Agent
        (incorporated by reference to our Current Report on Form 8-K as filed
        with the Commission on March 8, 1996).

4.3     Common Stock Purchase Warrant dated August 3, 1998 by and between Avid
        Technology, Inc. and Microsoft Corporation (incorporated by reference to
        our Quarterly Report on Form 10-Q as filed with the Commission on
        November 13, 1998).

10.1    Lease dated September 29, 1995 between Allied Dunbar Insurance PLC and
        Avid Technology Limited (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 14, 1995).

10.2    Lease between MGI Andover Street, Inc. and Avid Technology, Inc. dated 
        March 21, 1995 (incorporated by reference to our Quarterly Report on 
        Form 10-Q as filed with the Commission on May 15, 1995).

10.3    Amended and Restated lease dated as of June 7, 1996 between MGI One Park
        West, Inc. and Avid Technology, Inc. (incorporated by reference to our 
        Quarterly Report on Form 10-Q as filed with the Commission on 
        August 14, 1996).

#10.4   1991 Digidesign Stock Option Plan (incorporated by reference to our
        Quarterly Report on Form 10-Q as filed with the Commission on May 15,
        1995).

#10.5   1993 Stock Incentive Plan (incorporated by reference to our Registration
        Statement on Form S-1 as declared effective by the Commission on March
        11, 1993).

#10.6   1993 Director Stock Option Plan, as amended (incorporated by reference
        to our Proxy Statement as filed with the Commission on April 27, 1995).

<PAGE>

#10.7   1994 Stock Option Plan, as amended (incorporated by reference to our
        Registration Statement on Form S-8 as filed with the Commission on
        October 27, 1995).

#10.8   Amended and Restated 1996 Employee Stock Purchase Plan (incorporated by
        reference to our Quarterly Report on Form 10-Q as filed with the
        Commission on November 13, 2003).

#10.9   1997 Stock Option Plan (incorporated by reference to our Annual Report
        on Form 10-K as filed with the Commission on March 27, 1998).

#10.10  1997 Stock Incentive Plan, as amended (incorporated by reference to our 
        Quarterly Report on Form 10-Q as filed with the Commission on 
        May 14, 1997).

#10.11  Amended and Restated Avid Technology, Inc. Non-Qualified Deferred
        Compensation Plan, as amended (incorporated by reference to our Annual
        Report on Form 10-K as filed with the Commission on March 11, 2004).

*#10.12 1998 Stock Option Plan.

*#10.13 1998 Avid-Softimage Stock Option Plan.

*#10.14 Amended and Restated 1999 Stock Option Plan.

#10.15  Midiman, Inc. Stock Option/Stock Issuance Plan (incorporated by 
        reference to our Quarterly Report on Form 10-Q as filed with the 
        Commission on November 9, 2004).

*#10.16 Avid Technology, Inc. 2005 Bonus Plan.

#10.17  Executive Employment Agreement between the Company and David A. Krall,
        dated as of July 24, 2002. (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.18  Executive Employment Agreement between the Company and Joseph
        Bentivegna, dated as of July 24, 2002 (incorporated by reference to our
        Quarterly Report on Form 10-Q as filed with the Commission on November
        13, 2002).

#10.19  Executive Employment Agreement between the Company and Ethan E. Jacks,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.20  Executive Employment Agreement between the Company and David Lebolt,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.21  Executive Employment Agreement between the Company and Paul Milbury,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.22  Executive Employment Agreement between the Company and Michael Rockwell,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).


#10.23  Executive Employment Agreement between the Company and Charles L. Smith,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.24  Change-in-Control Agreement between the Company and David A. Krall,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

<PAGE>

#10.25  Change-in-Control Agreement between the Company and Joseph Bentivegna,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.26  Change-in-Control Agreement between the Company and Ethan E. Jacks,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.27  Change-in-Control Agreement between the Company and David Lebolt, dated
        as of July 24, 2002 (incorporated by reference to our Quarterly Report
        on Form 10-Q as filed with the Commission on November 13, 2002).

#10.28  Change-in-Control Agreement between the Company and Paul Milbury, dated
        as of July 24, 2002 (incorporated by reference to our Quarterly Report
        on Form 10-Q as filed with the Commission on November 13, 2002).

#10.29  Change-in-Control Agreement between the Company and Michael Rockwell,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.30  Change-in-Control Agreement between the Company and Charles L. Smith,
        dated as of July 24, 2002 (incorporated by reference to our Quarterly
        Report on Form 10-Q as filed with the Commission on November 13, 2002).

#10.31  Executive Employment Agreement between the Company and Trish Baker,
        dated as of May 21, 2003 (incorporated by reference to our Annual Report
        on Form 10-K as filed with the Commission on March 11, 2004).

#10.32  Change-in-Control Agreement between the Company and Trish Baker, dated
        as of May 21, 2003 (incorporated by reference to our Annual Report on
        Form 10-K as filed with the Commission on March 11, 2004).

*21     Subsidiaries of the Registrant.

*23.1   Consent of PricewaterhouseCoopers LLP.

*31.1   Certification of Principal Executive Officer pursuant to Rules 13a-14
        and 15d-14 under the Securities Exchange Act of 1934, as adopted
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2   Certification of Principal Financial Officer pursuant to Rules 13a-14
        and 15d-14 under the Securities Exchange Act of 1934, as adopted
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1   Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant
        to Section 906 of the Sarbanes-Oxley Act of 2002.

--------------------
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 15(a)3.



                              AVID TECHNOLOGY, INC.

                             1998 STOCK OPTION PLAN
                             ----------------------


1.      Purpose

        The purpose of this 1998 Stock Option Plan (the "Plan") of Avid
Technology, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of Avid Technology, Inc. as defined in Section 424(f) of
the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder.

2.      Eligibility

        All of the Company's employees, other than those who are also executive
officers or directors, and the Company's consultants and advisors are eligible
to be granted options (each, an "Option") under the Plan. Any person who has
been granted an Option under the Plan shall be deemed a "Participant".

3.      Administration, Delegation

        (a) Administration by Board of Directors. The Plan will be administered
by the
 Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Options and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Option. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.

        (b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Options and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Options and the maximum number of shares for any one
Participant to be made by such executive officers.

<PAGE>

        (c) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.

4.      Stock Available for Options

        (a) Number of Shares. Subject to adjustment under Section 4(c), Options
may be made under the Plan for up to 1,500,000 shares of Common Stock, $.01 par
value per share, of the Company (the "Common Stock"). If any Option expires or
is terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Option shall again be available for the
grant of Options under the Plan, subject, however, in the case of Incentive
Stock Options (as hereinafter defined), to any limitation required under the
Code. Shares issued under the Plan may consist in whole or in part of authorized
but unissued shares or treasury shares.

        (b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
Options granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares with
respect to which an Option may be granted to any Participant under the Plan
shall be 300,000 per calendar year. The Per-Participant limit described in this
Section 4(b) shall be construed and applied consistently with Section 162(m) of
the Code.

        (c) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, and (ii) the number and class of security and exercise price
per share subject to each outstanding Option, shall be appropriately adjusted by
the Company (or substituted Options may be granted, if applicable) to the extent
the Board shall determine, in good faith, that such an adjustment (or
substitution) is necessary and appropriate. If this Section 4(c) applies and
Section 6(e)(1) also applies to any event, Section 6(e)(1) shall be applicable
to such event, and this Section 4(c) shall not be applicable.

<PAGE>

5.      Stock Options

        (a) General. The Board may grant Options to purchase Common Stock and
determine the number of shares of Common Stock to be covered by each Option, the
exercise price of each Option and the conditions and limitations applicable to
the exercise of each Option, including conditions relating to applicable federal
or state securities laws, as it considers necessary or advisable. An Option
which is not intended to be an Incentive Stock Option (as hereinafter defined)
shall be designated a "Nonstatutory Stock Option".

        (b) Incentive Stock Options; Stockholder Approval Required. An Option
that the Board intends to be an "incentive stock option" as defined in Section
422 of the Code (an "Incentive Stock Option") shall be subject to and shall be
construed consistently with the requirements of Section 422 of the Code.
Notwithstanding that an Option may be designated by the Board as an Incentive
Stock Option, no Option granted under the Plan shall be an Incentive Stock
Option unless the Plan is approved by the Company's stockholders within 12
months of the date upon which the Board adopts the Plan. The Company shall have
no liability to a Participant, or any other party, if an Option (or any part
thereof) which is intended to be an Incentive Stock Option is not an Incentive
Stock Option.

        (c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.

        (d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.

        (e) Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.

        (f) Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:

               (1) in cash or by check, payable to the order of the Company;

               (2) except as the Board may otherwise provide in an Option,
delivery of an irrevocable and unconditional undertaking by a credit worthy
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or delivery by the Participant to the Company of a copy of irrevocable
and unconditional instructions to a credit worthy broker to deliver promptly to
the Company cash or a check sufficient to pay the exercise price;

<PAGE>

               (3) to the extent permitted by the Board and explicitly provided
in the Option (i) by delivery of shares of Common Stock owned by the Participant
valued at their fair market value as determined by the Board in good faith
("Fair Market Value"), which Common Stock was owned by the Participant at least
six months prior to such delivery, (ii) by delivery of a promissory note of the
Participant to the Company on terms determined by the Board, or (iii) by payment
of such other lawful consideration as the Board may determine; or

               (4) any combination of the above permitted forms of payment.

6.      General Provisions Applicable to Options

        (a) Transferability of Options. Except as the Board may otherwise
determine or provide in an Option, Options shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.

        (b) Documentation. Each Option under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Option may
contain terms and conditions in addition to those set forth in the Plan.

        (c) Board Discretion. Except as otherwise provided by the Plan, each
type of Option may be made alone in addition or in relation to any other type of
Option. The terms of each type of Option need not be identical, and the Board
need not treat Participants uniformly.

        (d) Termination of Status. The Board shall determine the effect on an
Option of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Option.

<PAGE>

        (e) Acquisition Events

               (1) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Options: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such Options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code; (ii) upon written notice to the Participants, provide that
all then unexercised Options will become exercisable in full as of a specified
date (the "Acceleration Date") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants between the Acceleration Date and the
consummation of such Acquisition Event; and (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and each Participant shall receive, in exchange therefor, a cash payment equal
to the amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such outstanding Options (whether or
not then exercisable), exceeds (B) the aggregate exercise price of such Options.

        An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
50% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of the
Company; (c) the complete liquidation of the Company; or (d) the acquisition of
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities (other than through a merger or
consolidation or an acquisition of securities directly from the Company) by any
"person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act
other than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company.

<PAGE>

               (2) Assumption of Options Upon Certain Events. The Board may
grant Options under the Plan in substitution for options held by employees of
another corporation who become employees of the Company as a result of a merger
or consolidation of the employing corporation with the Company or the
acquisition by the Company of property or stock of the employing corporation.
The substitute Options shall be granted on such terms and conditions as the
Board considers appropriate in the circumstances.

        (f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Options to such Participant no later than the
date of the event creating the tax liability. The Board may allow Participants
to satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Option creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.

        (g) Amendment of Option. The Board may amend, modify or terminate any
outstanding Option, including but not limited to, substituting therefor another
Option of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.

        (h) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan until (i) all
conditions of the Option have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.

        (i) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part.

7.      Miscellaneous

        (a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Option, and the grant of an Option shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Option.

<PAGE>

        (b) No Rights As Stockholder. Subject to the provisions of the
applicable Option, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed with respect to an Option until becoming the record holder of such
shares.

        (c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Option designated as an
Incentive Stock Option shall be an Incentive stock Option unless and until the
Plan has been approved by the Company's stockholders within 12 months of the
date upon which the Board adopts the Plan. No Options shall be granted under the
Plan after the completion of ten years from the date on which the Plan was
adopted by the Board but Options previously granted may remain exercisable
beyond that date.

        (d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.

        (e) Governing Law. The provisions of the Plan and all Options made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.

                              AVID TECHNOLOGY, INC.

                      1998 AVID-SOFTIMAGE STOCK OPTION PLAN
                      -------------------------------------

1.      Purpose

        The purpose of this 1998 Avid-Softimage Stock Option Plan (the "Plan")
of Avid Technology, Inc., a Delaware corporation (the "Company"), is to advance
the interests of the Company's stockholders by enhancing the Company's ability
to attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of Avid Technology, Inc. as defined in Section 424(f) of
the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder.

2.      Eligibility

        All of the Company's employees, executive officers and directors, other
than executive officers or directors the participation of which would require
stockholder approval of this Plan under the rules of any exchange or
over-the-counter market on which the Company's common stock is then traded, are
eligible to be granted options (each, an "Option") under the Plan. Any
 person
who has been granted an Option under the Plan shall be deemed a "Participant."

3.      Administration, Delegation

        (a) Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Options and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Option. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.


<PAGE>

        (b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Options and exercise such other powers under the Plan
as the Board may determine.

        (c) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.

4.      Stock Available for Options

        (a) Number of Shares. Subject to adjustment under Section 4(c), Options
may be made under the Plan for up to 2,000,000 shares of Common Stock, $.01 par
value per share, of the Company (the "Common Stock"). If any Option expires or
is terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Option shall again be available for the
grant of Options under the Plan.

        (b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
Options granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares with
respect to which an Option may be granted to any one Participant under the Plan
shall not exceed five percent (5%) of the total of the issued and outstanding
Common Stock, less the total of all shares reserved for issuance to such
Participant under any other employee share option plan, option for services
and/or employee share purchase plan of the Company. The Per-Participant limit
described in this Section 4(b) shall be construed and applied consistently with
Section 162(m) of the Code.

        (c) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, and (ii) the number and class of security and exercise price
per share subject to each outstanding Option, shall be appropriately adjusted by
the Company (or substituted Options may be granted, if applicable) to the extent
the Board shall determine, in good faith, that such an adjustment (or
substitution) is necessary and appropriate. If this Section 4(c) applies and
Section 6(f)(1) also applies to any event, Section 6(f)(1) shall be applicable
to such event, and this Section 4(c) shall not be applicable.


<PAGE>

5.      Stock Options

        (a) General. The Board may grant Options to purchase Common Stock and
determine the number of shares of Common Stock to be covered by each Option, the
exercise price of each Option and the conditions and limitations applicable to
the exercise of each Option, including conditions relating to applicable
federal, provincial or state securities laws, as it considers necessary or
advisable.

        (b) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement,
provided however, that the exercise price per share shall not involve a discount
from the fair market value of the common stock greater than that permitted by
law and the regulations, rules and policies of the several securities
authorities and stock exchanges or markets to which the Company is subject.

        (c) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement, provided, however, that in no event shall an Option
be exercisable more than ten years after the date on which it was first granted.

        (d) Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(e) for the number of shares for
which the Option is exercised.

        (e) Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:

               (1) in cash or by check, payable to the order of the Company;

               (2) except as the Board may otherwise provide in an Option,
delivery of an irrevocable and unconditional undertaking by a credit worthy
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or delivery by the Participant to the Company of a copy of irrevocable
and unconditional instructions to a credit worthy broker to deliver promptly to
the Company cash or a check sufficient to pay the exercise price;

               (3) to the extent permitted by the Board and explicitly provided
in the Option (i) by delivery of shares of Common Stock owned by the Participant
valued at their fair market value as determined by the Board in good faith
("Fair Market Value"), which Common Stock was owned by the Participant at least
six months prior to such delivery, (ii) by delivery of a promissory note of the
Participant to the Company on terms determined by the Board, or (iii) by payment
of such other lawful consideration as the Board may determine; or

<PAGE>

               (4) any combination of the above permitted forms of payment.

6.      General Provisions Applicable to Options

        (a) Transferability of Options. Options may not be sold, assigned,
transferred, pledged or otherwise encumbered by the Participant, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the lifetime of the Participant, Options shall be
exercisable only by the Participant. Reference to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.

        (b) Documentation. Each Option under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Option may
contain terms and conditions in addition to those set forth in the Plan.

        (c) Board Discretion. Except as otherwise provided in the Plan, the
terms of each type of Option need not be identical, and the Board need not treat
Participants uniformly.

        (d) Termination of Relationship with the Company. The right to exercise
an Option shall terminate three months after the retirement or other termination
in the employment of a Participant.

        (e) Exercise Period Upon Death or Disability. If the Participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the expiration of an Option, the Option shall be exercisable, within the period
of one year following the date of death or disability of the Participant.

        (f) Acquisition Events

               (1) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Options: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to the Participants, provide that all then
unexercised Options will become exercisable in full as of a specified date (the
"Acceleration Date") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants between the Acceleration Date and the
consummation of such Acquisition Event; and (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and each Participant shall receive, in exchange therefor, a cash payment equal
to the amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such outstanding Options (whether or
not then exercisable), exceeds (B) the aggregate exercise price of such Options.

<PAGE>

        An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
50% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of the
Company; (c) the complete liquidation of the Company; or (d) the acquisition of
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities (other than through a merger or
consolidation or an acquisition of securities directly from the Company) by any
"person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act
other than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company.

               (2) Assumption of Options Upon Certain Events. The Board may
grant Options under the Plan in substitution for options held by employees of
another corporation who become employees of the Company as a result of a merger
or consolidation of the employing corporation with the Company or the
acquisition by the Company of property or stock of the employing corporation.
The substitute Options shall be granted on such terms and conditions as the
Board considers appropriate in the circumstances.

        (g) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Options to such Participant no later than the
date of the event creating the tax liability. The Board may allow Participants
to satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Option creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.

        (h) Amendment of Option. The Board may amend, modify or terminate any
outstanding Option, including but not limited to, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.

<PAGE>

        (i) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan until (i) all
conditions of the Option have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.

        (j) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part.

7.      Miscellaneous

        (a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Option, and the grant of an Option shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Option.

        (b) No Rights As Stockholder. Subject to the provisions of the
applicable Option, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed with respect to an Option until becoming the record holder of such
shares.

        (c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Options shall be granted under
the Plan after the completion of ten years from the date on which the Plan was
adopted by the Board but Options previously granted may remain exercisable
beyond that date.

        (d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.

        (e) Governing Law. The provisions of the Plan and all Options made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.

                              AVID TECHNOLOGY, INC.

                              AMENDED AND RESTATED
                             1999 STOCK OPTION PLAN
                             ----------------------

1.      Purpose.

        The purpose of this 1999 Stock Option Plan (the "Plan") of Avid
Technology, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of Avid Technology, Inc. as defined in Section 424(f) of
the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder.

2.      Eligibility.

        All of the Company's employees, other than those who are also executive
officers or directors, and the Company's consultants and advisors are eligible
to be granted options, restricted stock, or other stock-based awards (each, an
"Award") under the Plan. Any person who has been granted an Award under the Plan
shall be deemed a "Participant".

3.      Administration, Delegation.

        (a) Administration
 by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.

<PAGE>

        (b) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board or a Committee of the Board to the
extent that the Board's powers or authority under the Plan have been delegated
to such Committee.

4.      Stock Available for Awards.

        (a) Number of Shares. Subject to adjustment under Section 4(c), Awards
may be granted under the Plan for up to 4,750,000 shares of Common Stock, $.01
par value per share, of the Company (the "Common Stock"). If any Award expires
or is terminated, surrendered or canceled without having been fully exercised or
is forfeited in whole or in part or results in any Common Stock not being
issued, the unused Common Stock covered by such Award shall again be available
for the grant of Awards under the Plan, subject, however, in the case of
Incentive Stock Awards (as hereinafter defined), to any limitation required
under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.

        (b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares with
respect to which an Award may be granted to any Participant under the Plan shall
be 300,000 per calendar year.

        (c) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Award, (iii) the repurchase price per security
subject to each outstanding Restricted Stock Award, and (iv) the terms of each
other outstanding stock-based Award shall be appropriately adjusted by the
Company (or substituted Awards may be granted, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate. If this Section 4(c) applies and Section 8(e)(1)
also applies to any event, Section 8(e)(1) shall be applicable to such event,
and this Section 4(c) shall not be applicable.

5.      Stock Options.

        (a) General. The Board may grant options to purchase Common Stock and
determine the number of shares of Common Stock to be covered by each option, the
exercise price of each option and the conditions and limitations applicable to


<PAGE>

the exercise of each option, including conditions relating to applicable federal
or state securities laws, as it considers necessary or advisable. An option
which is not intended to be an Incentive Stock Option (as hereinafter defined)
shall be designated a "Nonstatutory Stock Option".

        (b) Incentive Stock Options; Stockholder Approval Required. An option
that the Board intends to be an "incentive stock option" as defined in Section
422 of the Code (an "Incentive Stock Option") shall only be granted to employees
of the Company and shall be subject to and shall be construed consistently with
the requirements of Section 422 of the Code. Notwithstanding that an option may
be designated by the Board as an Incentive Stock Option, no option granted under
the Plan shall be an Incentive Stock Option unless the Plan is approved by the
Company's stockholders within 12 months of the date upon which the Board adopts
the Plan. The Company shall have no liability to a Participant, or any other
party, if an option (or any part thereof) which is intended to be an Incentive
Stock Option is not an Incentive Stock Option.

        (c) Exercise Price. The Board shall establish the exercise price at the
time each option is granted and specify it in the applicable option agreement.

        (d) Duration of Options. Each option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.

        (e) Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the option is exercised.

        (f) Payment Upon Exercise. Common Stock purchased upon the exercise of
an option granted under the Plan shall be paid for as follows:

               (1) in cash or by check, payable to the order of the Company;

               (2) except as the Board may otherwise provide in an option,
delivery of an irrevocable and unconditional undertaking by a credit worthy
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or delivery by the Participant to the Company of a copy of irrevocable
and unconditional instructions to a credit worthy broker to deliver promptly to
the Company cash or a check sufficient to pay the exercise price;

<PAGE>

               (3) to the extent permitted by the Board and explicitly provided
in the option (i) by delivery of shares of Common Stock owned by the Participant
valued at their fair market value as determined by the Board in good faith
("Fair Market Value"), which Common Stock was owned by the Participant at least
six months prior to such delivery, (ii) by delivery of a promissory note of the
Participant to the Company on terms determined by the Board, or (iii) by payment
of such other lawful consideration as the Board may determine; or

               (4) any combination of the above permitted forms of payment.

6.      Restricted Stock.

        (a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award"). The
Company may issue Restricted Stock Awards for up to a maximum of 500,000 shares
of Common Stock under this Plan (as adjusted pursuant to Section 4(c) and
Section 7, and net of any Restricted Stock Awards forfeited under this Plan.)

        (b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.

7.      Other Stock-Based Awards.

        The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of


<PAGE>

securities convertible into Common Stock and the grant of stock appreciation
rights. Any grant of other Awards pursuant to this Section 7 shall be credited
against the aggregate number of Restricted Stock Awards authorized under Section
6(a).

8.      General Provisions Applicable to Awards.

        (a) Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.

        (b) Documentation. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.

        (c) Board Discretion. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.

        (d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.

(e)     Acquisition Events.

               (1) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Awards: (i)
provide that outstanding Awards shall be assumed, or equivalent Awards shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such Awards substituted for Incentive Stock Awards
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code; (ii) upon written notice to the Participants, provide that
all then unexercised Awards will become exercisable in full as of a specified
date (the "Acceleration Date") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the


<PAGE>

extent exercised by the Participants between the Acceleration Date and the
consummation of such Acquisition Event; (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding Awards shall terminate upon consummation of such Acquisition Event
and each Participant shall receive, in exchange therefor, a cash payment equal
to the amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such outstanding Awards (whether or
not then exercisable), exceeds (B) the aggregate exercise price of such Awards;
(iv) provide that all Restricted Stock Awards then outstanding shall become free
of all restrictions prior to the consummation of the Acquisition Event; and (v)
provide that any other stock-based Awards outstanding (X) shall become
exercisable, realizable or vested in full, or shall be free of all conditions or
restrictions, as applicable to each such Award, prior to the consummation of the
Acquisition Event, or (Y), if applicable, shall be assumed, or equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof).

        An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
50% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of the
Company; (c) the complete liquidation of the Company; or (d) the acquisition of
"beneficial ownership" (as defined in Rule 13d-3 under the Securities and
Exchange Act of 1934 (the "Exchange Act")) of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities (other than through a merger or consolidation or an
acquisition of securities directly from the Company) by any "person", as such
term is used in Sections 13(d) and 14(d) of the Exchange Act other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company.

               (2) Assumption of Awards Upon Certain Events. The Board may grant
Awards under the Plan in substitution for options held by employees of another
corporation who become employees of the Company as a result of a merger or
consolidation of the employing corporation with the Company or the acquisition
by the Company of property or stock of the employing corporation. The substitute
Awards shall be granted on such terms and conditions as the Board considers
appropriate in the circumstances.

<PAGE>

        (f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.

        (g) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Award to a Nonstatutory Stock
Award, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.

        (h) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.

        (i) Acceleration. The Board may at any time provide that any Awards
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of some or all restrictions or that any other
stock-based Awards may become exercisable in full or in part or free of some or
all restrictions or conditions, or otherwise realizable in full or in part, as
the case may be.

9.      Provision for Foreign Participants

        The Board may, without amending the Plan, modify awards or options
granted to participants who are foreign nationals or employed outside the United


<PAGE>

States to recognize differences in laws, rules, regulations or customs of such
foreign jurisdictions with respect to tax, securities, currency, employee
benefit or other matters.


10.     Miscellaneous

        (a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.

        (b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.

        (c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award designated as an
Incentive Stock Award shall be an Incentive stock Award unless and until the
Plan has been approved by the Company's stockholders within 12 months of the
date upon which the Board adopts the Plan. No Awards shall be granted under the
Plan after the completion of ten years from the date on which the Plan was
adopted by the Board but Awards previously granted may remain exercisable beyond
that date.

        (d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.

        (e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.

        (f) Board Approval. This Amended and Restated 1999 Stock Option Plan was
approved by the Board on December 5, 2001.



                              AVID TECHNOLOGY, INC.
                              Avid Technology Park
                                  One Park West
                               Tewksbury, MA 01876


                            2005 EMPLOYEE BONUS PLAN

        On December 8, 2004, based upon a recommendation from the Compensation
Committee of the Board of Directors (the "Board") of Avid Technology, Inc. (the
"Company"), the Board adopted this 2005 Employee Bonus Plan (the "Plan").

        PURPOSE OF THE PLAN

        The purpose of this Plan is: (1) to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate talented employees and (2) to reward employees for helping the Company
to achieve certain financial goals for 2005, as well as for individual
performance and contributions. Except where the context otherwise requires, the
term "Company" includes any of the Company's present or future parent or
subsidiary corporations as defined in Sections 424(e) or (f) of the Internal
Revenue Code of 1986, as amended, and any regulations promulgated thereunder and
any other business venture (including, without limitation, joint venture or
limited liability company) in which the Company has a controlling interest, as
determined by the Board.

        ADMINISTRATION

        The Plan is administered by the Board. The Board has the exclusive right
to administer, interpret
 and decide any and all matters arising under or in
connection with the Plan including, without limitation, the right to modify,
amend, revoke or suspend the Plan at any time in its sole discretion. All
decisions by the Board are made in the Board's sole discretion and shall be
final and binding on all persons having or claiming any interest in the Plan. No
director or person acting pursuant to the authority delegated by the Board will
be liable for any action or determination relating to or under the Plan made in
good faith.

        To the extent permitted by applicable law, the Board may delegate to one
or more executive officers of the Company such powers under the Plan as the
Board may determine in its discretion, provided that the Board shall determine
the Bonus Payout (as defined below) for each executive officer of the Company.

        To the extent permitted by applicable law, the Board may delegate any or
all of its powers under the Plan to one or more committees or subcommittees of
the Board (each, a "Committee"). All references in the Plan to the "Board" means
the Board or a Committee of the Board or the executive officer referred to in
the immediately preceding paragraph to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officer.

<PAGE>

        ELIGIBILITY

        All Company employees (other than temporary employees, employees hired
after September 30, 2005 and employees who are covered by a sales compensation
or commission-based plan) are eligible to participate in the Plan, including all
of the Company's executive officers. Eligible employees must be employed by the
Company at the time awards are paid out under the Plan in order to receive their
award, if any. Each such eligible employee is deemed a "Participant" in the
Plan.

        BONUS PAYOUTS

        A Participant's bonus payout under the 2005 Bonus Plan ("Bonus Payout")
is based on three factors: (1) the Participant's Target Award (as defined
below); (2) the financial performance of the Participant's Business Unit
("Business Unit Performance"); and (3) the Participant's individual performance
("Individual Performance").

        Target Award. A "Participant's Target Award" is an amount between 5% and
140% of a Participant's base salary, based on various factors (as determined by
the Board for all executive officers, and by management for all other
Participants), including the Participant's role and position within the
organizational structure of the Company. The "Company Target Award" or a
"Business Unit Target Award" is the sum of the Target Awards for all
Participants in the Company or such business unit, as the case may be.

        Business Unit Performance. The Business Unit Performance component of a
Participant's Bonus Payout is an objective measurement of a business unit's
financial results based on both revenue and operating profit, as further
discussed below.

        Individual Performance. Based on the subjective evaluation (by the Board
for all executive officers, and by management for all other Participants) of the
Participant's overall performance and contributions to the Company, a multiplier
ranging from 0 to 1.2 is applied to the Participant's Target Award in order to
determine the Participant's Bonus Payout. Accordingly, this Individual
Performance component may increase a Participant's Bonus Payout by as much as
20% of such Participant's Target Award or, in other circumstances, reduce the
award to zero.

        PLAN GOALS AND MEASUREMENT

        For purposes of the Plan, all Participants are grouped into one of three
business units: Corporate, Audio or Video. For each of the business units,
Business Unit Performance is measured by both revenue and operating profit. In
order for a Participant to receive a bonus, revenue and operating profit for the
Company and the Participant's business unit must exceed minimum amounts
established by the Board, as further described below.

<PAGE>

        As a threshold matter, for all business units, the Company's (1) 2005
revenues must exceed the Company's 2004 revenues (as may be adjusted by the
Board for any acquisitions made by the Company) and (2) 2005 operating profit
must exceed a minimum amount established by the Board for any Bonus Payout to be
made to any Participant.

        Business Unit Performance is measured by revenue and operating profit.
Once a business unit meets a minimum revenue threshold and a minimum operating
profit threshold ("Threshold Operating Profit"), each as established by the
Board, Participants in that business unit become eligible to receive a
percentage of their Target Awards (up to 100%) if the target operating profit
("Target Operating Profit") is achieved, subject to their Individual
Performance. The Target Operating Profit is an amount set by the Board which
exceeds the Threshold Operating Profit and is based on the Company's operating
plan for 2005.

        The Threshold Operating Profit and Target Operating Profit levels are
set by the Board for the Video and Audio business units. The Threshold Operating
Profit for the Corporate business unit is the sum of the Threshold Operating
Profit for the Audio and Video business units. Similarly, the Target Operating
Profit for the Corporate business unit is the sum of the Target Operating
Profits for the Audio and Video business units.

        If the Corporate business unit exceeds its Target Operating Profit, 15%
of such excess amount (the "Over-Achievement Pool") will be added to the total
bonus pool available for all Participants whose business unit exceeds its Target
Operating Profit (each, a "Qualifying Business Unit"). The Over-Achievement Pool
will first be divided between the Corporate business unit and the other
Qualifying Business Unit(s) in proportion to each unit's Target Award. The
portion of the Over-Achievement Pool that is allocated to the non-Corporate
Qualifying Business Unit(s) will then be divided proportionally based on each
non-Corporate Qualifying Business Unit's contribution to operating profit in
excess of the Target Operating Profit.

        The Business Unit Performance component of a Participant's Bonus Payout
is determined as follows: (1) for executive officers of the Company and vice
presidents in the Corporate business unit, 100% of the Business Unit Performance
component is based on the results of the Corporate business unit; (2) for vice
presidents in the Audio and Video business units, 75% of the Business Unit
Performance component is based on the results of their respective business unit
and the remaining 25% is based on the Corporate business unit results; and (3)
for all Participants below the vice president level, 100% of the Business Unit
Performance component is based on the results of their respective business unit.

        PRO-RATED BONUS PAYOUTS

        Bonus Payouts may be pro-rated under the following circumstances:

        1. Any salary change occurring in the year will be automatically
           pro-rated, as Bonus Payouts are calculated on the actual base salary
           paid during 2005. For purposes of the Plan, actual base salary
           includes regular wages, vacation, sick time and holiday time, but not
           leave of absence pay, overtime, shift differential or other premium
           pay.

<PAGE>

        2. If a Participant is hired after January 1, 2005, the Participant's
           Bonus Payout will be pro-rated to include only that portion of the
           year for which the Participant was employed by the Company. For
           example, if the Participant is hired on July 1, 2005, the
           Participant's Bonus Payout will be based on a half year's base
           salary.

        3. If a Participant transfers between business units during the year,
           the Participant's Bonus Payout will be pro-rated for the time spent
           in each business unit.

        4. If an individual in a temporary position becomes an employee, the
           Participant's Bonus Payout will be calculated on the actual base
           salary paid after becoming an employee.

        5. If a Participant is promoted after January 1, 2005 to a position with
           a higher Target Award, the Bonus Payout will be adjusted to account
           for the portion of the year spent at each position.

        6. If a Participant is on an approved leave of absence for part of the
           year, the Participant's Bonus Payout will be calculated based on the
           actual base salary paid during the year. Employees who are on an
           approved leave of absence on the Bonus Payout date will be considered
           to be employed for purposes of this Plan.

        7. If a Participant becomes disabled and qualifies for benefits under
           the Company's long-term disability plan, the Participant's Bonus
           Payout will be calculated on the actual base salary paid while on the
           Company payroll as an employee.

        TIMING OF PLAN PAYOUT

        Bonus Payouts under the Plan will be determined after the Company's
financial results for 2005 are publicly released, which is currently anticipated
to be in February 2006. Bonus Payouts, if any, are expected to be paid in
February 2006.

        MISCELLANEOUS

        Nothing in this Plan will be construed as creating an employment
relationship between a Participant and the Company, nor is the Plan intended to
be a guarantee of any kind of compensation or any other binding commitment of
the Company. The Company may modify Bonus Payouts or establish separate
procedures for Participants who are foreign nationals or who are employed
outside the United States in order to comply with laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, currency, employee
benefits or other matters. The provisions of this Plan and all awards made
hereunder shall be governed by, and interpreted in accordance with, the laws of
The Commonwealth of Massachusetts, without regard to the rules governing
conflicts of law.

             SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 2004
             ------------------------------------------------------


                            AVID C.V. LLC (Delaware)

                   AVID INTERNET MEDIA GROUP, INC. (Delaware)

                   AVID TECHNOLOGY WORLDWIDE, INC. (Delaware)

                              INEWS, LLC (Delaware)

                             M-AUDIO LLC (Delaware)

             AVID TECHNOLOGY SECURITIES CORPORATION (Massachusetts)

                 AVID TECHNOLOGY (AUSTRALIA) PTY LTD (Australia)

                             SOFTIMAGE CO. (Canada)

                    AVID TECHNOLOGY EUROPE LIMITED (England)

                      AVID TECHNOLOGY IBERIA LTD (England)

                       EVOLUTION ELECTRONICS LTD (England)

                              INEWS LTD. (England)

                              MIDIMAN LTD (England)

                           NXN SOFTWARE LTD (England)

                        AVID TECHNOLOGY S.A.R.L. (France)

                         NXN SOFTWARE S.A.R.L. (France)

                         AVID TECHNOLOGY GmbH (Germany)

                     AVID TECHNOLOGY HOLDINGS GmbH (Germany)

                              INEWS GmbH (Germany)

                           NXN SOFTWARE A.G. (Germany)

                       AVID NORTH ASIA LIMITED (Hong Kong)

                     AVID TECHNOLOGY SALES LIMITED (Ireland)

                         DIGIDESIGN ITALY S.R.L. (Italy)

                          AVID TECHNOLOGY K.K. (Japan)

                           M-AUDIO JAPAN K.K. (Japan)

                            NXN SOFTWARE K.K. (Japan)

                         AVID BENELUX B.V. (Netherlands)

                     AVID GENERAL PARTNER B.V. (Netherlands)

                       AVID TECHNOLOGY C.V. (Netherlands)

                   AVID TECHNOLOGY HOLDING B.V. (Netherlands)

                AVID TECHNOLOGY INTERNATIONAL B.V. (Netherlands)

                 AVID TECHNOLOGY (S.E. ASIA) PTE LTD (Singapore)

                          AVID TECHNOLOGY S.L. (Spain)

                             AVID NORDIC AB (Sweden)

                           D-DESIGN NORDIC AB (Sweden)



            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            --------------------------------------------------------    

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File No. 333-118734) and Form S-8 (File Nos. 33-88318,
33-64126, 33-64128, 33-82478, 33-98692, 333-08821, 333-08823, 333-08825, 
333-30367, 333-42569, 333-56631, 333-60181, 333-60183, 333-60191, 333-73321, 
333-87539, 333-94167, 333-33674, 333-37952, 333-41750, 333-48338, 333-48340, 
333-64016, 333-75470, 333-102772, 333-118704) of Avid Technology Inc. of our 
report dated March 15, 2005 relating to the financial statements, financial 
statement schedule, management's assessment of the effectiveness of internal 
control over financial reporting and the effectiveness of internal control over
financial reporting, which appears in this Annual Report on Form 10-K.




PricewaterhouseCoopers LLP
Boston, Massachusetts
March 15, 2005





                                 CERTIFICATION
                                 -------------

         I, David A. Krall, certify that:

1.       I have reviewed this Annual Report on Form 10-K of Avid
         Technology, Inc.;

2.       Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the
         circumstances under which such statements were made, not
         misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other
         financial information included in this report, fairly present in
         all material respects the financial condition, results of
         operations and cash flows of the registrant as of, and for, the
         periods presented in this report;

4.       The registrant's other certifying officer and I are responsible
         for establishing and maintaining disclosure controls and
         procedures (as defined in Exchange Act Rules 13a-15(e) and
         15d-15(e)) and internal control over financial reporting (as
         defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
         registrant and have:

         a)   Designed such disclosure controls and procedures, or caused such
              disclosure controls and procedures to be designed under our
              supervision, to ensure that material information relating to the
              registrant,
 including its consolidated subsidiaries, is made known
              to us by others within those entities, particularly during the
              period in which this report is being prepared;

         b)   Designed such internal control over financial reporting, or caused
              such internal control over financial reporting to be designed
              under our supervision, to provide reasonable assurance regarding
              the reliability of financial reporting and the preparation of
              financial statements for external purposes in accordance with
              generally accepted accounting principles;

         c)   Evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

         d)   Disclosed in this report any change in the registrant's internal
              control over financial reporting that occurred during the
              registrant's most recent fiscal quarter (the registrant's fourth
              fiscal quarter in the case of an annual report) that has
              materially affected, or is reasonably likely to materially affect,
              the registrant's internal control over financial reporting; and

5.       The registrant's other certifying officer and I have disclosed,
         based on our most recent evaluation of internal control over
         financial reporting, to the registrant's auditors and the audit
         committee of the registrant's board of directors (or persons
         performing the equivalent functions):

         a)   All significant deficiencies and material weaknesses in the design
              or operation of internal control over financial reporting which
              are reasonably likely to adversely affect the registrant's ability
              to record, process, summarize and report financial information;
              and

         b)   Any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal control over financial reporting.


Date:  March 15, 2005                 /s/ David A. Krall
                                      -------------------------------------
                                      David A. Krall
                                      President and Chief Executive Officer
                                      (principal executive officer)

                                 CERTIFICATION
                                 -------------

         I, Paul J. Milbury, certify that:

1.       I have reviewed this Annual Report on Form 10-K of Avid
         Technology, Inc.;

2.       Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the
         circumstances under which such statements were made, not
         misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other
         financial information included in this report, fairly present in
         all material respects the financial condition, results of
         operations and cash flows of the registrant as of, and for, the
         periods presented in this report;

4.       The registrant's other certifying officer and I are responsible
         for establishing and maintaining disclosure controls and
         procedures (as defined in Exchange Act Rules 13a-15(e) and
         15d-15(e)) and internal control over financial reporting (as
         defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
         registrant and have:

         a)   Designed such disclosure controls and procedures, or caused such
              disclosure controls and procedures to be designed under our
              supervision, to ensure that material information relating to the
              registrant,
 including its consolidated subsidiaries, is made known
              to us by others within those entities, particularly during the
              period in which this report is being prepared;

         b)   Designed such internal control over financial reporting, or caused
              such internal control over financial reporting to be designed 
              under our supervision, to provide reasonable assurance regarding 
              the reliability of financial reporting and the preparation of 
              financial statements for external purposes in accordance with 
              generally accepted accounting principles;

         c)   Evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

         d)   Disclosed in this report any change in the registrant's internal
              control over financial reporting that occurred during the
              registrant's most recent fiscal quarter (the registrant's fourth
              fiscal quarter in the case of an annual report) that has
              materially affected, or is reasonably likely to materially affect,
              the registrant's internal control over financial reporting; and

5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of the
         registrant's board of directors (or persons performing the equivalent
         functions):

         a)   All significant deficiencies and material weaknesses in the design
              or operation of internal control over financial reporting which
              are reasonably likely to adversely affect the registrant's ability
              to record, process, summarize and report financial information;
              and

         b)   Any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal control over financial reporting.


Date:  March 15, 2005                      /s/ Paul J. Milbury
                                           --------------------------- -
                                           Paul J. Milbury
                                           Chief Financial Officer
                                           (principal financial officer)

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Avid Technologies, Inc.
(the "Company") for the period ended December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned, David A. Krall, President and Chief Executive Officer of the
Company, and Paul J. Milbury, Chief Financial Officer of the Company, each
hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

      (1) The Report fully complies with the requirements of Section 13(a) or
      15(d) of the Securities Exchange Act of 1934; and 

      (2) The information contained in the Report fairly presents, in all 
      material respects, the financial condition and results of operations of 
      the Company.


Dated:   March 15, 2005             /s/ David A. Krall
                                    -------------------------------------
                                    David A. Krall
                                    President and Chief Executive Officer


Dated:   March 15, 2005             /s/ Paul J. Milbury
                                    -------------------------------------
                                    Paul J. Milbury
                                    Chief Financial Officer