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                        SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549
                                     FORM 10-K
(MARK ONE)
   [X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
             OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                                        OR
   [  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
             OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

            FOR THE TRANSITION PERIOD FROM             TO

                          Commission File Number 0-21174

                               AVID TECHNOLOGY, INC.

              (Exact name of registrant as specified in its charter)

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

METROPOLITAN TECHNOLOGY PARK, ONE PARK WEST, TEWKSBURY, MA        01876
(Address of principal executive offices)                     (Zip Code)
                                  (508) 640-6789
               (Registrant's telephone number, including area code)


            SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                       None
            SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                            Common Stock $.01 Par Value
                                 (Title of Class)

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

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  was  approximately  $138,598,416  based on the closing  price of the
Common Stock on the NASDAQ National Market on March 17, 1997.

The number of shares  outstanding of the  registrant's  Common Stock as of March
17, 1997, was 21,467,094.

                        DOCUMENTS INCORPORATED BY REFERENCE
                  DOCUMENT DESCRIPTION                        10-K PART
      Portions of the Registrant's Proxy Statement for the Annual
         Meeting of Stockholders to be held June 4, 1997...      III
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<PAGE>

                                      PART I


ITEM 1.     BUSINESS

Avid develops,  markets,  sells and supports a wide range of disk-based  systems
for creating and manipulating digital media content.  Avid's digital,  nonlinear
video and film editing systems are designed to improve the productivity of video
and film editors by enabling them to edit moving pictures and sound in a faster,
easier, more creative,  and more  cost-effective  manner than traditional analog
tape-based  systems.  Avid also develops and sells digital  editing  systems and
newsroom computer systems for creating content in the television  broadcast news
market and digital news gathering ("DNG") systems for delivering news content to
air.  Avid also develops and sells digital audio systems for the music and audio
production and  post-production  markets.  Avid's products are used worldwide in
production and post-production  facilities;  film studios;  network,  affiliate,
independent,  and cable  television  stations;  recording  studios;  advertising
agencies;   government  and  educational   institutions;   and  corporate  video
departments.

In January 1995, Avid effected a merger with  Digidesign,  Inc.  ("Digidesign").
Digidesign is a leading  provider of  computer-based,  digital audio  production
systems  for the  professional  music,  film,  broadcast,  multimedia,  and home
recording markets.  In March 1995, Avid acquired through merger Elastic Reality,
Inc.  ("Elastic  Reality"),  and Parallax  Software Limited and 3 Space Software
Limited (together  "Parallax  Software").  Elastic Reality and Parallax Software
now form Avid's graphics and effects group. This group develops a range of image
manipulation products that allow users in the video and film post-production and
broadcast  markets to create  graphics  and  special  effects for use in feature
films, television programs and advertising, and news programs.

The text of this document may include forward-looking statements. Actual results
may differ materially from those described herein,  depending on such factors as
are described  herein,  including under "Certain  Factors That May Affect Future
Results."


DIGITAL MEDIA CONTENT MARKETS

Digital media are media elements,  whether video or audio or graphics,  in which
the image, sound or picture is recorded and stored as digital values, as opposed
to analog  signals.  For  example,  a letter  prepared on a computer  using word
processing software is the digital media representation of a typewritten letter.
The word-processed  letter example also illustrates some of the  characteristics
of digital  media,  such as flexible  editing,  the ability to create  different
versions,  simple production of multiple  identical copies, and easy integration
with  other   digital  media  types,   such  as  charts  and   graphics.   These
characteristics  generally  provide  digital  formats with advantages over their
analog equivalents. However, creating and manipulating digital content typically
requires new digital  content  creation tools:  for example,  the typewriter has
given way to dedicated word processors and, more recently,  to desktop computers
running word processing software.

Digital  formats and tools have largely  displaced  analog  formats and tools in
many  markets,  such  as  word  processing,  electronic  spreadsheets,   desktop
publishing,  graphics,  and electronic and  mechanical  design.  Because of more
challenging  technical and cost hurdles in handling digital forms of film, video
and audio signals,  markets that rely on these media types have begun to migrate
to digital formats and tools only in recent years.

As technical  advances in digital  media content  creation  tools have made this
migration  possible,  users have become able to create more complex content that
may incorporate several elements of digital media. For example, many video games
now include live action video, detailed 3D graphics, and high quality audio, all
created,  manipulated,  and played back in digital form.  Feature films, such as
Forrest  Gump  or  Jurassic  Park,  integrate  sophisticated  computer-generated
special effects into traditional live action shots.

The Company participates  currently in  three end-user  markets in which  there
are well-established analog, or tape-based, content creation processes and which
are transitioning to digital, or disk-based, content creation tools. These three
markets are: (i) video and film editing and special effects; (ii) broadcast news
production; and (iii) music production and film and video audio post-production.
The Company  believes  that the  emergence  of the  Internet and of intranets is
creating  a  fourth  market  for  digital  media  content   creation   tools  in
corporations  and  institutions  that  can use the  Internet  and  intranets  to
distribute  information  enriched by the  addition of digital  media  content to
their employees and customers.

Avid's  video  and  film  editing  and  special   effects   markets  consist  of
professional  users who  produce  video and film  material,  such as  commercial
spots,  feature films,  entertainment  and documentary  programming,  industrial
videos,  and music  videos.  These users are typically  employed in  independent
production  or  post-production   companies,  which  are  firms  that  rent  out
production and  post-production  equipment and professionals on a project basis.
Professional users are also found in television  facilities,  film studios,  and
large  corporations  that perform  digital media  production and post production
in-house.  Avid's television  broadcast news market is comprised of over-the-air
and cable  broadcast  companies  that originate  news  programming.  This market
includes   national  and  international   broadcasters,   such  as  the  British
Broadcasting  Corporation  (BBC), the Cable News Network (CNN), and the National
Broadcasting  Company (NBC), as well as network  affiliates,  local  independent
television  stations,  and local and regional  cable  operators who produce news
programming.

Avid's music production and post-production  market is comprised of professional
music recording studios, project studios, radio broadcasters,  and home studios.
Music  recording  and  project  studios  operate  in  the  same  manner  as  the
independent  video and film production and post  production  firms, as described
above. This market also includes audio production and  post-production  in video
and film.


STRATEGY

Avid's objective is to be the leading provider of audio and video technology for
creating  digital  media  content used to entertain  and inform.  The  Company's
strategy is comprised of four key elements:

      Focus on Audio and Video Content Creation Tools:
      The Company  focuses its activities on markets where digital media content
      creation takes place. The Company has addressed its initial efforts to the
      professional video and film editing markets,  including primarily film and
      television studios and independent  production and post-production  firms.
      The  Company  has  extended  its  target  markets  to the  music and audio
      production  and  post-production   markets,  through  the  acquisition  of
      Digidesign in 1995, and the broadcast news production market,  through the
      introduction of  Avid-developed  digital news editing products and through
      the  acquisition in 1994 of SofTECH and the newsroom  systems  division of
      Basys Automation Systems, Inc. ("Basys"),  both of which offered broadcast
      newsroom  computer  systems.  In March 1995, Avid expanded its position in
      the feature  film and video  production  and  post-production  through the
      acquisitions  of Elastic  Reality and  Parallax  Software,  developers  of
      special effects software.

      Expand Presence in Existing Markets:
      The Company believes that it has established unit and revenue market share
      leadership  positions in the  professional  video and film digital editing
      system markets,  the digital audio workstation market, and the markets for
      digital news editing and broadcast newsroom computer systems.  The Company
      plans to strengthen these positions by enhancing its existing products, by
      developing  and  introducing  new products that satisfy a broader range of
      customer  needs in these  markets,  through  internal  development,  joint
      development with third parties or acquisition,  and by providing  reliable
      customer services and support.

      Target New Content Creation Markets:
      A growing number of corporations  and  institutions are using the Internet
      and intranets as additions to their means of everyday  communications with
      employees  and  customers.   The  Company   believes  that  many  business
      communications  needs,  including  employee  and  customer  training,  new
      product  introduction,  and  employee  communications,  can be enriched by
      integrating  digital  media  elements,  including  video and  audio.  As a
      result,  the Company intends to target users in  corporations,  government
      institutions,  and small  businesses who, if offered digital media content
      creation tools appropriate to their skill levels,  price constraints,  and
      other  business  requirements,  may use digital media  presentations  more
      widely in their daily operations.

      Drive and Support Open Industry Standards:
      The  Company  designs  its  products  so that  they  are  based on and can
      co-exist with major industry-wide standards, including computer platforms,
      operating systems,  networking  protocols,  data compression,  and digital
      media  handling  formats.  In  addition,  in response to growing  customer
      demand for open standards  that enable the seamless  integration of analog
      and digital media tools from different vendors, the Company has undertaken
      an initiative to establish the Open Media Framework  Interchange ("OMFI")
      as an industry  standard media file  interchange  format to facilitate the
      transfer of various media types, such as video,  audio,  animation,  film,
      and graphics,  among various  systems and  applications  used in the media
      production  processes.  The Company has published the OMFI file format and
      is seeking to promulgate it as an industry  standard.  Hundreds of vendors
      and end users  endorse  the OMFI  standard  and more than 35  vendors  are
      supporting the OMFI standard in their products.


PRODUCTS

The  Company's  products  may be  divided  into six  categories:  video and film
editing products, audio products, digital news gathering (DNG) systems, newsroom
computer systems,  graphics and special effects products, and storage systems. A
description  follows of the major products and product families in each of these
categories.


Video and Film Editing

Media Composer:
The Media Composer system is Avid's original product offering and still accounts
for a  substantial  majority  of its  revenues.  Since its  initial  shipment in
December  1989,  more than 12,000 Media  Composer  systems  have been sold.  The
Company  believes  that the Media  Composer  product  line holds a greater  unit
market share than any other digital  non-linear  editing system in  professional
video editing markets.  The Media Composer product line now includes four models
(the Media  Composer  Off-line,  1000,  4000, and 8000),  which provide  various
levels of  capability  and  functionality.  The Media  Composer is a  disk-based
digital,  nonlinear  editing system  designed  primarily for use by professional
film and video editors.  The Media  Composer  system  converts  visual and audio
source material on tape to a digital format and stores the converted material on
a range of hard disk storage  devices.  Once digitized,  the stored media can be
previewed,  edited,  and played back. The Media  Composer  family of products is
used  to  create   high-quality   productions   such  as  television  shows  and
commercials,   feature  films,   music  videos,   corporate  videos,  and  other
non-broadcast finished videos.

Film Composer:
The Film Composer  system is a 24 frames per second  ("fps")  editing system for
projects  that  originate  and finish on film.  Film footage can be converted to
video signals for editing,  but because video runs at 30 fps and film at 24 fps,
a standard  30 fps video  editing  system will not yield an accurate 24 fps film
cut list from which to cut a master.  The Film Composer  includes  software that
determines  which frames on the videotape are actual frames from the film source
material and allows the creation of a frame accurate cut list. The Film Composer
software  also  includes  special  features to meet the  specific  needs of film
editors.  The Company  believes that Film  Composer  holds a greater unit market
share than any other digital  non-linear  editing  system in  professional  film
editing markets.

MCXpress for Macintosh:
MCXpress for Macintosh is a digital,  nonlinear video editing system designed to
meet the needs of  professional  media  entrepreneurs  involved  with  video and
multimedia  production  for  CD-ROM  and  Internet  distribution.  MCXpress  for
Macintosh is based on Avid's Media Composer software,  providing a familiar user
interface and editing  feature set  appropriate  for this category of user. This
attribute  also allows  digital  media files to be shared  between  MCXpress for
Macintosh  and  Media  Composer  and  for  the  MCXpress  for  Macintosh  to  be
upgradeable to the Media Composer family of systems.

MCXpress for Windows NT:
MCXpress for Windows NT is a digital,  nonlinear  video editing system  designed
for the same  market as  MCXpress  for  Macintosh,  but is targeted to users who
prefer Windows NT-based  computers.  MCXpress for Windows NT offers professional
picture  quality  and editing  features,  support for  multiple  media  delivery
options,  including MPEG-1 and AVI output,  integration with third-party Windows
applications, a built-in titling tool, and a plug-in effects architecture.

Avid Cinema:
Avid  Cinema  is a desktop  editing  product  designed  for  people  who have no
previous video editing experience. Avid Cinema, which consists of a PC board and
nonlinear  video editing  software,  is targeted at users in home,  school,  and
corporate  environments.  A simple interface guides users through the process of
making their own,  near-VHS-quality movies to save to videotape,  put in a slide
presentation,  or post on a web page. These movies can include video, transition
effects,  narration,  titles,  and music.  Avid Cinema employs Apple's QuickTime
technology  and allows users to save  QuickTime  files for various  distribution
formats.


Audio

Pro Tools:
Pro Tools is a multi-track random access digital audio workstation  developed by
Digidesign  for  the  professional  music,  audio  post-production,   and  radio
production  markets.  Pro  Tools  features  include  audio  recording,  advanced
waveform editing,  mixing,  signal processing,  and automation.  Pro Tools is an
open architecture in which more than 100 Digidesign Development Partners provide
additional  solutions that expand the  functionality  of  Digidesign's  systems,
enhancing their appeal to customers.  Pro Tools software is compatible  across a
range of Digidesign hardware platforms, from high-end Pro Tools III down through
PT  Project  and  Audiomedia  III.  Pro Tools  PowerMix  software  runs  without
Digidesign   hardware  on  Power-PC   Macintosh   computers   using  host  audio
capabilities.  More than  12,000  Pro  Tools  systems  have been sold  since the
product's  introduction  in 1991.  The Company  believes  that Pro Tools holds a
greater unit market share than any other  digital audio  workstation  product in
professional audio markets.

AudioVision:
AudioVision  is  a  high   performance   digital  audio   workstation   designed
specifically to meet the needs of the audio post-production professional working
with  film  and  video.   AudioVision  is  directly   compatible  with  projects
originating  on  Avid's  Media  Composer  and  Film  Composer  systems.  Typical
applications include sound editing for feature film and television  programming,
ADR  (automatic   dialogue   replacement),   and  commercial  spot   production.
AudioVision  allows the user to  record,  edit,  or  process  sound in sync with
Avid-format digital video.  AudioVision includes project management and database
tools,  integrated  DSP and the  ability to edit audio and video  together.  The
system offers a high level of interchange with other Avid systems, including Pro
Tools.


Digital News Gathering

NewsCutter:
NewsCutter is a disk-based  digital,  nonlinear video editing system designed to
meet the demands of television news  production.  NewsCutter  enables  broadcast
news  editors to quickly  edit hard news,  features, and news  series.  The user
interface for  NewsCutter  has been designed for fast,  easy editing to meet the
time-critical demands of daily news deadlines. Based on the same core technology
as the Media Composer  system,  the NewsCutter  system offers a range of editing
and effects features,  including  dissolves,  wipes and graphics,  and character
generation. NewsCutter can operate as a standalone editing system or as a client
sharing a central library of audio and video media on a server.

AirPlay MP:
AirPlay MP is a disk-based  random  access  insertion  and playback  system that
provides  television  broadcasters  and  cable  operators  with the  ability  to
transmit  high-quality  short form video to air  directly  from disk,  including
short form news, promos, station IDs, and commercials.  Television news programs
typically  have  numerous   short  form  segments,   many  of  which  have  been
pre-recorded  and edited.  Operators  traditionally  have had to manage multiple
tape  decks to play  back such  segments  in the  desired  sequence  during  the
program.  For news applications,  AirPlay MP is designed to reduce on-air errors
by  simplifying  the process of inserting the correct story at the correct time.
For commercial  playback,  AirPlay MP is used to air spots  automatically in the
slots sold to  advertisers.  Because of the random access  capability of AirPlay
MP, spot placements can be changed  quickly and easily.  AirPlay MP shares media
compatibility  with both  NewsCutter  and Media  Composer  so that news  stories
prepared on NewsCutter and commercial  and  promotional  spots prepared on Media
Composer can be played back on AirPlay without resorting to tape.

Avid MediaServer:
The Avid  MediaServer  is a workgroup  video  production  server  that  provides
simultaneous access to a central computer-based library of video and audio media
files.  Based on the  Silicon  Graphics  family  of  servers,  Avid  MediaServer
supports  multiple  editing and/or playback  workstations.  The Avid MediaServer
system is designed to allow television  broadcasters to capture  electronic news
feeds, edit stories, and play them to air all in a computer-based environment.

AvidNet:
AvidNet is a local area network ("LAN")  configuration  that provides high speed
communications  interconnection  between  Avid's news  production  and  playback
systems.  The Company  believes  that the industry  standard  ATM  (Asynchronous
Transfer  Mode)  networking  technology,  upon which AvidNet is based,  supports
uninterrupted  video  playback with high image  quality.  AvidNet is designed to
connect Avid's editing and playback  products either to the Avid  MediaServer or
directly to one another. AvidNet can be used as part of Avid's DNG system, where
it  links  the  news  editing,  playback  and  recording  systems  to  the  Avid
MediaServer,  or as part of a production solution,  linking AirPlay MP and Media
Composer.

CamCutter:
The  CamCutter  system   generally  refers  to  a  field-based,   cuts-only
non-linear editing system, which enables users to capture, edit and play digital
media.  Through an OEM arrangement  Avid provides  CamCutter  systems to Ikegami
Tsushinki Co., Ltd., a developer of professional video cameras for the broadcast
industry,  for  incorporation  into  its  "Editcam"  cameras.   Integrating  the
CamCutter  system  with  Ikegami's  camera  design  produces a  hand-held  field
production  system that allows  video and four  channels of audio to be captured
directly to a ruggedized,  removable disk drive, known as FieldPak,  rather than
conventional  video tape,  and its media is  compatible  with versions of Avid's
NewsCutter, MediaServer and AirPlay products.


Newsroom Computer Systems

Avid  entered  the  newsroom   computer  systems  ("NRCS")  market  through  the
acquisition  in 1994 of the newsroom  division of Basys and of SofTECH  Systems,
both of which developed and sold NRCS products.  Newsroom  computer  systems are
the  management   information   systems  of  television   newsrooms.   The  NRCS
computerizes the process of getting news programming on the air. However, unlike
traditional corporate management information systems ("MIS"), the application of
computing  technology  in an NRCS  is  customized  around  the  process  of news
production and  transmission:  story assignment and resource  scheduling,  story
research,  story  creation  and  collaboration,  and the  automation  of  on-air
operations.  Journalists use the NRCS to access wire stories,  schedule,  script
and  edit the text  portions  of news  stories,  and send and  receive  mail and
messages.  Producers use the NRCS to assign journalists and crews to stories, to
review journalistic work-in-progress, to manage and drive on-air devices such as
character generators, still image systems, and videotape machines, and to manage
the creation, flow, and timing of the newscast.

Avid NewsView:
Avid NewsView is a Novell-based  solution  targeted at small to mid-market  news
stations.  The client  workstations run on DOS or Windows-based  PCs. It is sold
primarily in North America.

Avid NetStation:
Avid  NetStation  is a  UNIX-based  system  designed  for  larger  stations  and
network-level  facilities.  The  clients  are  either  VT  interfaces,  DOS,  or
Windows-based  PCs connected via local- and wide-area  networks.  NetStation has
extensive  non-English  language  support  and is  well  suited  for  wide  area
networks. It is sold worldwide.  The Company believes that Avid NetStation holds
a  greater  unit  market  share  than any other  NRCS in the  large  broadcaster
markets.


Graphics and Special Effects

Media Illusion:
Media  Illusion is Avid's  digital  compositing,  layering  and special  effects
software   solution   running  on  Silicon  Graphics   computers.   It  provides
comprehensive nonlinear editing, fast interactive processing, and numerous tools
for complex multi-stage compositing and image treatment.  Media Illusion is used
by professionals in both video and film post-production.

Matador:
Matador is a two-dimensional  ("2D")  post-production  paint software  solution.
Matador provides the user with painting, image treatment, rotoscoping, tracking,
and multi-layered 2D animation in a single,  resolution  independent system. The
Company  believes  that Matador holds a greater unit market share than any other
paint software in professional film and video special effects markets.

Elastic Reality:
Elastic Reality is a software solution that provides tools for performing 2D and
3D hierarchical animation,  character animation,  warping and morphing of shapes
and images, color correction and matte making, and compositing.  Elastic Reality
is based on Avid's proprietary  "shape-to-shape" morphing interface. The Company
believes  that Elastic  Reality holds a greater unit market share than any other
morphing and warping  software in  professional  film and video special  effects
markets.

Jester:
Jester is Avid's  cartoon ink and paint package  designed to accelerate  cartoon
production  by  painting  the  cartoon   frame  by  frame  and  coloring   areas
automatically.


Storage Systems

Avid offers a family of media  storage  solutions  for use with Avid's  systems.
Storage  systems  are used to add media  editing or playback  capacity,  improve
image quality,  support workgroup media sharing, and protect media from loss due
to hardware failure.  Avid purchases disk, tape and optical drives,  and storage
enclosure sub-systems from third-party manufacturers,  integrates them, enhances
their  performance,  tests and  certifies  them for use with Avid  systems,  and
packages them in various configurations. These storage systems range in capacity
from four gigabytes to one terabyte (1,000 gigabytes).


SALES AND SERVICE

Avid sells its  products  through a  combination  of direct and  indirect  sales
channels. In the past, the Company has emphasized its direct channel, relying on
indirect channels,  including independent  distributors,  value-added re-sellers
("VARs") and dealers,  to  supplement  its direct sales  activities  or to serve
geographic  markets  in which  the  Company  had no  direct  sales  and  service
presence.  In late 1996, the Company altered its distribution  strategy to place
increasing  emphasis on its indirect  sales channels to become the primary means
of  distribution,  emphasizing  broader market coverage and clearer  delineation
from Avid's  direct sales  channel and direct sales  management.  Avid's  direct
field sales and telesales organizations now focus on approximately 250 strategic
accounts which are large volume purchasers,  which require significant pre-sales
and post-sales  customer services and which have the potential to work with Avid
in developing new product or market opportunities.

As a result of these changes, the Company expects to increase its support of top
customers while also increasing the proportion of revenues generated through its
indirect channels.

The  Company  maintains  sales  offices  in 32  cities in 17  countries  and has
relationships  with more than 500 distributors,  VARs and dealers throughout the
world.

Pro Tools III and other Digidesign-developed products are sold generally through
dealers and  distributors.  Because this channel tends to focus on music-related
products,  there is,  currently,  little overlap between this channel and Avid's
video, film and broadcast market sales channels.

Avid  restructured  its customer  service  function in 1996 to provide  improved
service and a broader  array of service  offerings  to its customer  base.  Avid
currently  provides direct customer support through regional  telephone  support
centers and field service  representatives  in major markets.  Support offerings
include up to 24-hour, seven day per week options for both telephone support and
on site representation, hardware replacement and software upgrades.

Customer  training  is  provided  directly  by Avid and  through a network of 37
authorized third-party Avid training centers in 10 countries.


MANUFACTURING AND SUPPLIERS

Avid's   manufacturing   operations   consist   primarily   of  the  testing  of
subassemblies  and components  purchased from third parties,  the duplication of
software and the  configuration,  assembly and testing of board sets,  software,
related hardware  components,  and complete systems.  Avid relies on independent
contractors   to   manufacture    components   and   subassemblies   to   Avid's
specifications.  Avid's  systems  undergo  testing and quality  assurance at the
final assembly stage.

The Company is dependent  upon sole source  suppliers for certain key components
used in its products. Products purchased by the Company from sole source vendors
include computers from Apple and SGI; video  compression  chips  manufactured by
C-Cube  Microsystems;  a small computer systems interface  ("SCSI")  accelerator
board from ATTO  Technology;  a 3D digital  video  effects  board from  Pinnacle
Systems;  and application specific integrated circuits ("ASIC") from AMI and LSI
Logic. The Company purchases these sole source  components  pursuant to purchase
orders placed from time to time. The Company also  manufactures  certain circuit
boards under licenses from Truevision, Inc. The Company generally does not carry
significant  inventories of sole source  components and has no guaranteed supply
arrangements.  These  purchasing  arrangements can result in delays in obtaining
products from time to time. No assurance can be given that sole source suppliers
will devote the  resources  necessary  to support the  enhancement  or continued
availability  of such  components  or that any such  supplier will not encounter
financial  difficulties.  While the Company believes that alternative sources of
supply for its sole source  components  could be  developed,  its  business  and
results of  operations  could be  materially  adversely  affected  if it were to
encounter an interruption in its sources of supply.

Avid has manufacturing facilities in Tewksbury,  Massachusetts,  Dublin, Ireland
and Palo Alto and Menlo Park, California.


RESEARCH AND DEVELOPMENT

Avid's  research  and  development  efforts  currently  are  focused  on 1)  the
development or enhancement of digital media content  creation tools that operate
on Apple computers on which the Company has traditionally  relied, as well as on
Unix-based  and  Windows-based  computers;  2) the  development  of hardware and
software  enhancements  and  additions  to its  existing  video,  film and audio
editing systems,  and digital news gathering and newsroom  computer systems that
lower Avid's costs; 3) the development of hardware and software enhancements and
additions to its existing  video,  film and audio editing  systems,  and digital
news gathering and newsroom  computer  systems to meet  additional  needs of the
professional  production,   post-production,  and  broadcast  news  markets;  4)
AvidNews,  a next  generation  newsroom  computer  system  intended to integrate
standard text-based newsroom computer system  functionality with nonlinear video
and audio functionality;  and 5) the development of new media storage solutions.
The Company undertakes  research and development  activities in Tewksbury,  Palo
Alto, Madison, Wisconsin, and London, England.


COMPETITION

The  markets for Avid's  products  are highly  competitive  and subject to rapid
change.  Competition  is fragmented  with a large number of suppliers  providing
different types of products to different markets.

In the video and film production and  post-production  markets,  Avid encounters
competition  primarily from vendors that offer similar digital editing  products
based on standard computer platforms, including Amtel, Discreet Logic, D/VISION,
Fast  America,  ImMix  (a  subsidiary  of  Scitex  America),  Lightworks  USA (a
subsidiary of Tektronix), Media 100 (formerly known as Data Translation,  Inc.),
Quantel  (a  subsidiary  of  Carlton   Communications  PLC),  and  Softimage  (a
subsidiary  of  Microsoft).  Avid  also  competes  with  vendors,  such as Sony,
Matsushita,  and Tektronix,  that generally have offered analog-based  products.
Avid expects that  competition  from these  vendors will  increase to the extent
that such vendors develop and introduce  digital media products,  as well as new
versions of their analog  products.  Panasonic (a subsidiary of Matsushita)  has
recently introduced a digital nonlinear editing system.

In the broadcast news market, Avid competes primarily with vendors such as Sony,
Matsushita,  Tektronix (including primarily its subsidiaries Lightworks USA, The
Grass  Valley  Group  and  NewStar),  Quantel,  Associated  Press,  and  BTS  (a
subsidiary of Philips).  Avid expects that  competition  from these vendors will
increase  to the  extent  such  vendors  develop  and  introduce  digital or new
analog-based  products.  Sony has  recently  announced a new digital tape format
that Avid believes may provide  continuing  competition  in the  broadcast  news
market.  Panasonic  has also recently  announced a new digital tape format.  The
Company also competes in certain segments of this market with other providers of
digital media products, including Media 100 and ImMix.

In the music  production  and  post-production  markets,  the  Company  competes
primarily with traditional  analog tape-based  system suppliers,  including AMS,
Fritz  Studer,  Otari,  Sony,  Tascam,  and Yamaha;  digital  tape-based  system
suppliers,   including  Alesis,  Tascam,  and  other  disk-based  digital  audio
production system suppliers,  including Sonic Solutions. In addition,  companies
such as Creative  Technology  currently  provide low cost (under  $500)  digital
audio playback cards  targeted  primarily at the personal  computer game market.
There can be no assurance that these companies will not introduce  products that
are more directly competitive with the Company's products.

In the market for graphics and special effects products, Avid competes primarily
with Adobe, Alias Research (a subsidiary of Silicon Graphics),  Chyron, Discreet
Logic, Quantel, and Softimage.

The Company may face  competition  in any or all of these  markets in the future
from computer manufacturers,  such as Digital Equipment,  Hewlett-Packard,  IBM,
and Silicon  Graphics,  as well as from  software  vendors,  such as  Microsoft,
Oracle, and Sybase.  All of these companies have announced  their  intentions to
enter some or all of the Company's  target markets,  including  specifically the
broadcast news and special effects market.  In addition,  certain  developers of
shrink-wrapped  digital media software  products,  such as Adobe and Macromedia,
either  offer or have  announced  video and  audio  editing  products  which may
compete with certain of the Company's products.

The  primary   competitive   factors  in  all  of  the  Company's   markets  are
price/performance,  functionality,  product  quality,  reputation,  product line
breadth,  access to distribution  channels,  customer service and support, brand
name awareness, and ease of use.


EMPLOYEES

The Company employed 1,663 people as of December 31, 1996.




I
TEM 2.   PROPERTIES

The  Company's  principal  administrative,  sales and  marketing,  research  and
development,   support,  and  manufacturing  facilities  are  located  in  three
buildings  adjacent  to one  another in an office  park  located  in  Tewksbury,
Massachusetts. The Company's leases on such buildings expire in February 2010.

The Company also leases a facility in Dublin,  Ireland for the  manufacture  and
distribution  of its  products  and  in  Palo  Alto,  California,  which  houses
Digidesign headquarters and certain other research and development operations.

In September  1995,  the  Company's  United  Kingdom  subsidiary  entered into a
15-year lease in London,  England,  and  consolidated  the offices of the former
Parallax Software with the Company's London sales staff.

The  Company  also  maintains  sales and  marketing  support  offices  in leased
facilities in various other locations throughout the world.

See  Note K -  "Commitment  and  Contingencies"  in the  Notes  to  Consolidated
Financial Statements for information  concerning the Company's obligations under
all operating leases as of December 31, 1996.

In addition, the Company anticipates no difficulty in retaining occupancy of any
of its  manufacturing,  office or sales and marketing support facilities through
lease renewals prior to expiration or through  month-to-month  occupancy,  or in
replacing them with equivalent facilities.




ITEM 3.   LEGAL PROCEEDINGS


DATA TRANSLATION, INC.

On June 7, 1995, the Company filed a patent infringement complaint in the United
States   District  Court  for  the  District  of   Massachusetts   against  Data
Translation,  Inc.,  a Marlboro,  Massachusetts-based  company.  Avid is seeking
judgment against Data Translation that, among other things, Data Translation has
willfully  infringed  Avid's  patent  number  5,045,940,  entitled  "Video/Audio
Transmission System and Method." Avid is also seeking an award of treble damages
together  with  prejudgment  interest  and costs,  Avid's  costs and  reasonable
attorneys'  fees,  and an injunction to prohibit  further  infringement  by Data
Translation.  The litigation has been  temporarily  stayed pending a decision by
the U.S. Patent and Trademark  Office on a reissue patent  application  based on
the issued patent.


CLASS ACTION SHAREHOLDER LITIGATION

In December 1995, six purported  shareholder  class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company  and  certain  of  its   underwriters  and  officers  and  directors  as
defendants.  On July  31,  1996,  the six  actions  were  consolidated  into two
lawsuits:  one  brought  under the 1934  Securities  Exchange  Act (the "`34 Act
suit") and one under the 1933  Securities  Act (the "`33 Act  suit").  Principal
allegations  contained in the two complaints  include claims that the defendants
violated federal  securities laws and state common law by allegedly making false
and  misleading  statements  and  by  allegedly  failing  to  disclose  material
information that was required to be disclosed,  purportedly causing the value of
the Company's stock to be artificially inflated. The `34 Act suit was brought on
behalf of all persons who bought the  Company's  stock between July 26, 1995 and
December 20, 1995.  The `33 Act suit was brought on behalf of persons who bought
the Company's  stock  pursuant to its September 21, 1995 public  offering.  Both
complaints  seek  unspecified  damages  for  the  decline  of the  value  of the
Company's stock during the applicable  period.  A motion to dismiss both the `34
Act and the `33 Act suit  was  filed  on  October  18,  1996.  Plaintiffs  filed
oppositions to both motions on December 13, 1996. The  defendants'  Reply Briefs
were filed and the Court heard oral  argument on all pending  motions on January
28 and 29, 1997.  Both motions  have been taken under  advisement  by the court.
Although the Company  believes that it and the other defendants have meritorious
defenses to the allegations  made by the plaintiffs and intends to contest these
lawsuits  vigorously,  an adverse  resolution  of this  litigation  could have a
material  adverse  effect on the Company's  consolidated  financial  position or
results of  operations  in the period in which the  litigation  is  resolved.  A
reasonable  estimate of the Company's  potential loss for damages cannot be made
at this time.  No costs have been accrued for this possible loss contingency.

COMBINED LOGIC COMPANY

On March 11, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company,  a California  partnership  located in Beverly Hills,
California.  On May 16,  1996,  the suit was  transferred  to the United  States
District  Court for the Southern  District of New York on motion by the Company.
The complaint  alleges  infringement  by Avid of U.S.  patent number  4,258,385,
issued in 1981,  and seeks  injunctive  relief,  treble  damages and costs,  and
attorneys'  fees. The Company  believes that it has meritorious  defenses to the
complaint and intends to contest it vigorously.  However,  an adverse resolution
of this  litigation  could have an adverse effect on the Company's  consolidated
financial  position  or  results  of  operations  in the  period  in  which  the
litigation is resolved.


DATA TRANSLATION, INC.

On April 23, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the District of Massachusetts
by Data  Translation,  Inc., of Marlboro,  Massachusetts.  The complaint alleges
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief, treble damages and costs, and attorneys' fees. The Company believes that
it  has  meritorious  defenses  to  the  complaint  and  intends  to  defend  it
vigorously.  However,  an adverse  resolution of this  litigation  could have an
adverse effect on the Company's  consolidated  financial  position or results of
operations in the period in which the litigation is resolved.


OTHER

The Company also receives  inquiries from time to time with regard to additional
possible patent infringement  claims.  These inquiries are generally referred to
counsel  and  are in  various  stages  of  discussion.  If any  infringement  is
determined to exist, the Company may seek licenses or settlements.  In addition,
from time to time as a normal incidence of the nature of the Company's business,
various claims,  charges,  and litigation are asserted or commenced  against the
Company arising from or related to contractual or employee  relations or product
performance.  Management  does not believe  these  claims  would have a material
adverse  effect on the  financial  position  or  results  of  operations  of the
Company.



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

No matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended December 31, 1996.

                         EXECUTIVE OFFICERS OF THE COMPANY

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


EXECUTIVE OFFICER             AGE                 POSITION(S)

William J. Miller              51           Chairman of the Board, President
                                            and Chief Executive Officer


William L. Flaherty            49           Senior Vice President of Finance
                                            and Chief Financial Officer


David R. Froker                41           Senior Vice President and 
                                            General Manager of Digidesign


C. Edward Hazen                45           Senior Vice President of Business
                                            Development and Corporate Treasurer

Clifford A. Jenks              45           Senior Vice President of
                                            Worldwide Sales and Marketing


Rose G. O'Donnell              53           Senior Vice President of
                                            Engineering


David E. Olson                 47           Senior Vice President of Worldwide
                                            Operations; Chief Operating Officer
                                            of Digidesign Division


Judith M. Oppenheim            55           Senior Vice President of Human
                                            Resources and Corporate Services


Eric C. Peters                 45           Senior Vice President and Chief
                                            Technology Officer

__________________

WILLIAM J.  MILLER.  Mr.  Miller  joined the  Company in April 1996 and has been
Chairman, Chief Executive Officer and President since September 1996. From April
1996 to September  1996,  Mr. Miller was Chairman and Chief  Executive  Officer.
Prior  to  that  time,  Mr.  Miller  was  Chief  Executive  Officer  of  Quantum
Corporation (1992-1995).

WILLIAM L. FLAHERTY.  Mr.  Flaherty joined the Company in September 1996 and has
been Senior Vice President of Finance and Chief Financial  Officer since January
1997.  He was Vice  President  of  Finance  and  Chief  Financial  Officer  from
September 1996 to January 1997.  Prior to joining Avid, Mr.  Flaherty was Senior
Vice President, Finance and Chief Financial Officer (February - September 1996),
and Vice President,  Finance and Chief Financial Officer (1993 - February 1996),
of Gibson  Greetings  Corp.,  and was Vice President and Treasurer of FMR Corp.,
the parent company of Fidelity Investments Group (1989-1992).

DAVID R. FROKER.  Mr. Froker has been Senior Vice President and General  Manager
of Digidesign  since January 1997. Mr. Froker was General  Manager of Digidesign
from March  1996 to January  1997.  Prior to that time,  he was Vice  President,
Business  Development  of  Digidesign,  Inc.  (1994-1995).  He was Product Group
Manager at Amdahl (1988-1993).

C.  EDWARD  HAZEN.  Mr.  Hazen  has  been  Senior  Vice  President  of  Business
Development  and Corporate  Treasurer since January 1997. He was Vice President,
Finance and Treasurer from January 1996 to January 1997, Vice  President,  Chief
Financial  Officer and Treasurer  From  November 1995 to January 1996,  and Vice
President and Treasurer from 1993 to 1996. Mr. Hazen was a Managing  Director of
Robertson, Stephens & Company (1987-1993).

CLIFFORD A. JENKS.  Mr.  Jenks  joined the Company in October  1996 and has been
Senior Vice  President of Worldwide  Sales and Marketing  since January 1997. He
was Vice  President  Worldwide  Sales and Marketing from October 1996 to January
1997. Mr. Jenks was Chief Operating Officer of Zenith Data Systems  (1992-1996),
and Vice  President  Sales and  Marketing  Operations  of Apple  Computer,  Inc.
(1989-1992).

ROSE G. O'DONNELL.  Ms.  O'Donnell has been Senior Vice President of Engineering
since January 1997. She was Vice  President,  Engineering  from November 1994 to
January 1997. Ms.  O'Donnell was General  Manager of the Technology  Division of
Hewlett-Packard (1989-1994).

DAVID E. OLSON. Mr. Olson has been Senior Vice President of Worldwide Operations
of the Company and Chief Operating  Officer of Digidesign since January 1997. He
was Vice  President of Worldwide  Operations  for Avid from June 1996 to January
1997. Mr. Olson was Vice President of Operations at Digidesign, Inc. from August
1991 to June 1996.

JUDITH M.  OPPENHEIM.  Ms.  Oppenheim  has been Senior Vice  President  of Human
Resources and Corporate  Services  since January 1997. She was Vice President of
Human  Resources  from  November 1992 to January  1997.  Ms.  Oppenheim was Vice
President, Human Resources at The Forum Corporation (1989-1992).

ERIC C. PETERS.  Mr. Peters has been Senior Vice President and Chief  Technology
Officer  since  January  1997.  He was  Vice  President,  Technology  and  Chief
Technology Officer from August 1988 to January 1997.

There is no family relationship among the named officers.






<PAGE>



                                      PART II


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

The  Company's  Common Stock is listed on the NASDAQ  National  Market under the
symbol  AVID.  The table  below  shows the high and low bid prices of the Common
Stock during the fiscal years ended December 31, 1996 and 1995.

        1996                       HIGH            LOW
        ----                    -------         ------
      First Quarter             $22.750        $16.375
      Second Quarter             25.875         17.875
      Third Quarter              20.500         12.375
      Fourth Quarter             16.250         10.125


        1995                       HIGH            LOW
        ----                    -------         ------
      First Quarter             $34.000        $23.000
      Second Quarter             40.500         28.250
      Third Quarter              47.750         37.250
      Fourth Quarter             48.750         16.750


The  approximate  number of holders of record of the  Company's  Common Stock at
March 17,  1997,  was 640.  This number does not include  shareholders  for whom
shares were held in a "nominee" or "street" name.

The Company has never  declared or paid cash  dividends on its capital stock and
currently  intends to retain all available funds for use in the operation of its
business. The Company therefore does not anticipate paying any cash dividends in
the foreseeable future.



ITEM 6.   SELECTED FINANCIAL DATA

The following table sets forth selected  condensed  consolidated  financial data
for Avid  Technology,  Inc.  In  January  1995,  Avid  Technology,  Inc.  (Avid)
completed a merger with Digidesign,  Inc. (Digidesign) that was accounted for as
a pooling of interests.  All financial data presented  herein have been restated
to include the combined  financial  results of Avid and Digidesign as though the
merger had occurred retroactively.  Prior to the merger,  Digidesign had a March
31 fiscal year end. Effective with the merger,  Digidesign's fiscal year end was
changed  from March 31 to  December  31 to conform  with  Avid's  year end.  The
results of Digidesign's  operations for the twelve-month  periods ended December
31, 1994,  March 31, 1994,  1993 and 1992 are  included in the  Company's  1994,
1993, 1992 and 1991 results, respectively.  Accordingly, Digidesign's operations
for the three months  January  through  March 1994 are included in the Company's
results for both of the years ended  December  31, 1993 and  December  31, 1994.
Revenues,  net income and earnings per share for Digidesign for the three months
ended March 31, 1994 were  $8,510,000,  $1,078,000 and $0.14  respectively.  Net
income for this period has been reported as an adjustment to  consolidated  1994
retained earnings. In March 1995, the Company acquired Elastic Reality,  Inc., a
developer of digital image manipulation software,  Parallax Software Limited and
3 Space Software Limited, together developers of paint and compositing software.
The Company's  previous  years'  financial  statements have not been restated to
include  operations of Parallax Software  Limited,  3 Space Software Limited and
Elastic  Reality,  Inc. as they were not material to the Company's  consolidated
operations  and  financial  condition.  Costs  associated  with  these  mergers,
approximately  $5,456,000,  were charged to operations in 1995. In addition, the
Company acquired certain other businesses which were accounted for as purchases;
the results of such acquisitions  have been included in the Company's  financial
statements since the respective dates of acquisition.  The selected consolidated
financial  data  below  should  be read in  conjunction  with the  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
the consolidated  financial  statements and notes thereto included  elsewhere in
this filing.

CONSOLIDATED STATEMENTS OF INCOME DATA:
In thousands (except per share data)               For the year ended
                                                       December 31,
                                   ---------------------------------------------
                                      1996     1995     1994      1993     1992
                                   ---------------------------------------------
Net revenues...................... $429,009  $406,650  $233,633 $134,366 $69,020
Cost of revenues..................  238,808   198,841   108,057   60,939  29,333
                                   ---------------------------------------------
  Gross profit....................  190,201   207,809   125,576   73,427  39,687
                                   ---------------------------------------------
Operating expenses:
  Research and development........   69,405    53,841    28,223   16,396   8,276
  Marketing and selling...........  127,006   107,780    61,366   38,960  21,279
  General and administrative......   24,203    18,085    12,575    7,801   3,335
  Nonrecurring costs..............   28,950     5,456              3,750
                                   ---------------------------------------------
    Total operating expenses......  249,564   185,162   102,164   66,907  32,890
                                   ---------------------------------------------
Operating income (loss)...........  (59,363)   22,647    23,412    6,520   6,797
Other income and expense, net.....    3,416     1,380     1,675    1,791     152
                                   ---------------------------------------------
Income (loss) before income taxes.  (55,947)   24,027    25,087    8,311   6,949
Provision for (benefit from)  
  income taxes....................  (17,903)    8,588     7,294    2,209   2,504
                                   ---------------------------------------------
Net income (loss)................. $(38,044)  $15,439   $17,793   $6,102  $4,445
                                   =============================================
Net income (loss) per 
  common share....................   $(1.80)    $0.77     $0.99    $0.40   $0.38
                                   =============================================
Weighted average common and common
  equivalent shares outstanding....  21,163    20,165    17,921   15,216  11,805
                                   =============================================


CONSOLIDATED BALANCE SHEET DATA:
In thousands (except per share data)            As of December 31,
                                  ---------------------------------------------
                                    1996      1995     1994     1993     1992
                                  ---------------------------------------------
Working capital.................. $145,320  $162,260  $86,513  $91,473  $21,780
Total assets.....................  300,979   331,604  182,174  132,355   43,104
Long-term debt, less current
  portion........................    1,186     2,945    2,369      545         
Redeemable convertible 
preferred stock..................                                        30,897
Total stockholders'
  equity (deficit)...............  213,415   247,966  127,887  106,732     (901)






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


OVERVIEW

The text of this document may include forward-looking statements. Actual results
may differ materially from those described herein,  depending on such factors as
are described  herein,  including under "Certain  Factors That May Affect Future
Results."

The  Company was founded in 1987 to develop  and market  digital  video  editing
systems for the production and post production markets.  The Company shipped its
first product,  the Avid/1 Media Composer system, in the fourth quarter of 1989.
The Company is currently selling Media Composer system version 6.5. In 1992, the
Company  began  shipping its  AudioVision  product to the digital  audio editing
segment of the post production  market, and in 1993 introduced Film Composer for
the film editing market and a line of disk-based capture,  editing, and playback
products for the broadcast  news  industry.  In 1994,  the Company  acquired two
businesses,  SofTECH  Systems,  Inc. and the newsroom  systems division of Basys
Automation  Systems,  Inc.,  to expand its  presence  in the  newsroom  computer
systems  market.  In  January  1995,  the  Company  completed  its  merger  with
Digidesign,  Inc.  ("Digidesign").  The  Digidesign  merger added  digital audio
production   software  and  related  application  lines.  Pro  Tools,  the  most
significant   product  line  acquired  in  the  merger,  is  marketed  to  audio
professionals.  The Media  Composer and Pro Tools product  lines,  together with
add-on  software,   storage  devices,  and  associated  maintenance  fees,  have
accounted for a substantial majority of the Company's revenues to date. In March
1995, the Company acquired  Elastic Reality,  Inc., a developer of digital image
manipulation  software,  and  Parallax  Software  Limited  and 3 Space  Software
Limited,  together  developers of paint and compositing  software,  all of whose
products are sold primarily to the film and video production and post-production
markets. In March 1996 and in May 1996, the Company began shipments of the Media
Composer  and Pro  Tools  product  lines,  respectively,  for  use on  PCI-based
computers.  In June 1996,  the Company began selling  MCXpress for Macintosh and
for Windows NT. The Company began  shipping  Version 6.5 for its Media  Composer
family of systems in December 1996.


RESULTS OF OPERATIONS

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

                                              For the year ended December 31,
                                             --------------------------------
                                                1996       1995       1994
                                             --------------------------------
      Net revenues.........................    100.0%     100.0%     100.0%
      Cost of revenues.....................     55.7%      48.9%      46.3%
                                             --------------------------------
        Gross profit.......................     44.3%      51.1%      53.7%
                                             --------------------------------
      Operating Expenses:
        Research and development...........     16.2%      13.2%      12.1%
        Marketing and selling..............     29.6%      26.5%      26.2%
        General and administrative.........      5.6%       4.4%       5.4%
        Nonrecurring costs.................      6.7%       1.4%
                                             --------------------------------
          Total operating expenses.........     58.1%      45.5%      43.7%
                                             --------------------------------
      Operating income (loss)..............    (13.8)%      5.6%      10.0%
      Other income and expense, net........      0.8%       0.3%       0.7%
                                             --------------------------------
      Income (loss) before income taxes....    (13.0)%      5.9%      10.7%
      Provision  for  (benefit  from)
        income taxes.......................     (4.1)%      2.1%       3.1%
                                             ================================
      Net income (loss)....................     (8.9)%      3.8%       7.6%
                                             ================================




Net Revenues

The Company's net revenues have been derived mainly from the sales of disk-based
digital,  nonlinear media editing systems and related peripherals,  licensing of
related  software,  and sales of software  maintenance  contracts.  Net revenues
increased by $22.3 million  (5.5%) to $429.0  million in the year ended December
31, 1996 from $406.7  million in 1995.  Net revenues for the year ended December
31, 1995 of $406.7  million  increased  by $173.0  million  (74.1%)  from $233.6
million in 1994. The increase in net revenues during 1996 and 1995 was primarily
the result of worldwide  growth in unit sales of the Media Composer product line
and of digital audio products and to a lesser  extent,  to the increase in sales
of other products. In March 1996 and in May 1996, the Company began shipments of
the  Media  Composer  and Pro  Tools  product  lines,  respectively,  for use on
PCI-based  computers.  In June 1996,  the Company  began  selling  MCXpress  for
Macintosh  and for Windows NT. The Company  began  shipping  Version 6.5 for its
Media Composer  family of systems in December 1996. To date,  product returns of
all products have been immaterial.

International  sales (sales to customers  outside North  America)  accounted for
approximately 49.5% of the Company's 1996 net revenues compared to approximately
46.7% for 1995 and 43.3% for 1994.  International  sales  increased  by 11.7% in
1996  compared  to 1995 and 87.9% in 1995  compared  to 1994.  The  increase  in
international  sales in 1996 was attributable  primarily to higher unit sales of
Media  Composer  and  Pro  Tools  product  lines  in  Europe.  The  increase  in
international  sales in 1995  compared to 1994 was  primarily  due to  continued
sales  growth in Europe and Japan,  in addition to the sales growth in locations
where the Company  established new sales  subsidiaries  in 1995,  which included
Singapore and Australia,  and the March 1995  acquisition  of Parallax  Software
Limited.


Gross Profit

Cost of revenues consists  primarily of costs associated with the acquisition of
components;   the  assembly,   test,  and  distribution  of  finished  products;
provisions for inventory  obsolescence;  warehousing;  shipping;  and post-sales
customer support costs.  The resulting gross profit  fluctuates based on factors
such as the mix of  products  sold,  the  cost  and  proportion  of  third-party
hardware included in the systems sold by the Company, the distribution  channels
through which  products are sold, the timing of new product  introductions,  the
offering of product upgrades, price discounts and other sales promotion programs
and sales of aftermarket  hardware products.  Gross margin decreased to 44.3% in
1996  compared  to 51.1% in 1995 and from 53.7% in 1994.  The  decrease  in 1996
largely  reflects the effects of  upgrading  Media  Composer  systems for use on
PCI-based  computers,  an increase in  manufacturing  overhead  associated  with
higher  facility,  information  system and customer  support costs  allocated to
costs of revenues.  In addition,  the Company's decrease in gross margin in 1996
resulted  from  increased  provisions  for  inventory  obsolescence,  the fourth
quarter non-cash charge of $5.6 million related principally to spare parts which
are no longer required to support the Company's business, and the recognition of
approximately  $6.2  million  of revenue  from the sale of certain  server-based
broadcast  products at a  relatively  low gross  margin.  The  decrease in gross
margin  in 1995  compared  to 1994  was  primarily  due to a  further  increased
proportion  of  sales  of  lower  margin  systems  in the  second  half of 1995,
increased sales of third party hardware to the Company's distributors, expansion
of  the  Company's  manufacturing   infrastructure,   growth  in  the  company's
post-sales  support   organizations,   and  increased   proportion  of  hardware
associated with additional  functionality  in certain of the Company's  systems.
The Company  expects that gross  margins  during 1997 to be slightly  above 1996
levels, but will continue to be lower than 1995 and 1994 gross margins.


Research and Development

Research and development  expenses  increased $15.6 million (28.9%) from 1995 to
1996 and  increased  $25.6  million  from  1994 to 1995.  These  increases  were
primarily due to the continued  development  of new and existing  products.  The
1995  expenses  are net of $2.9 million of payments  received  during 1995 under
certain  development  agreements  with third parties.  Research and  development
expenses  increased as a percentage  of net revenues to 16.2% in 1996 from 13.2%
in 1995 and 12.1% in 1994 due to significant  resources  required to develop and
maintain  various  existing  products,  including  the PCI versions of the Media
Composer and Pro Tools  products,  MCXpress  product  lines,  newsroom  computer
systems,  video  processing  hardware,  and the CamCutter  product.  The Company
capitalized software development costs of approximately, net of write-offs, $1.5
million,  $3.6 million and $1.1 million in 1996,  1995, and 1994,  respectively.
This  represents  2.1%,  6.2% and 3.8% of total research and  development  costs
during 1996,  1995, and 1994,  respectively.  These costs will be amortized into
cost of revenues over the estimated life of the related  products,  generally 12
to 24  months.  Amortization,  net  of  write-offs  totaled  approximately  $2.9
million, $1.2 million, and $466,000 in 1996, 1995, and 1994,  respectively.  The
capitalized   software   development   costs  are   associated   primarily  with
enhancements to Media Composer  software and also  development of software to be
used in other products.

Marketing and Selling

Marketing and selling  expenses  increased by $19.2 million (17.8%) from 1995 to
1996 and increased by $46.4 million  (75.6%) from 1994 to 1995.  The increase in
sales and  marketing  in 1996 and 1995 was  primarily  due to  expansion  of the
Company's  field  sales  operations  and the  opening  of  field  sales  offices
domestically and  internationally  during the later part of 1995.  Marketing and
selling expenses  increased as a percentage of net revenues to 29.6% in 1996 and
26.5% in 1995 compared to 26.2% in 1994.


General and Administrative

General and administrative expenses increased $6.1 million from 1995 to 1996 and
$5.5 million from 1994 to 1995. General and administrative expenses increased as
a percentage  of net revenues to 5.6% in 1996  compared to 4.4% in 1995 and 5.4%
in 1994. These increased  expenses were primarily due to increased  staffing and
associated costs necessary to support the Company's  growth.  In addition,  1996
general and  administrative  expenses  increased due to increased legal expenses
associated with various  litigation  matters to which the Company is a party and
certain severance and recruiting costs.


Nonrecurring Costs

During the first quarter of 1996, the Company  recorded charges for nonrecurring
costs consisting of $7.0 million for  restructuring  charges related to February
1996 staffing  reductions of approximately  70 employees  primarily in the U.S.,
the  Company's   concurrent   decision  to  discontinue   certain  products  and
development  projects,  and  $13.2  million  for  product  transition  costs  in
connection  with the  transition  from NuBus to PCI bus technology in certain of
its product  lines.  As of December  31,  1996,  the Company had  completed  the
related  restructuring  actions.  Included in the $7.0 million for restructuring
charges were  approximately  $5.0  million of cash  payments and $2.0 million of
non-cash  charges.  In the  third  quarter  of  1996,  the  Company  recorded  a
nonrecurring  charge of $8.8 million  associated  primarily  with the  Company's
decision  not to release  the Avid Media  Spectrum  product  line.  In the first
quarter of 1995,  the  Company  acquired  Digidesign,  Inc.,  Parallax  Software
Limited,  3 Space Software Limited and Elastic Reality,  Inc. In connection with
these  acquisitions,  the Company  recorded merger costs of  approximately  $5.5
million, of which $3.9 million represented direct transaction  expenses and $1.6
million consists of various restructuring charges.


Interest and Other Income, Net

Interest and other  income,  net consists  primarily of interest  income,  other
income and interest expense.  Interest and other income,  net for 1996 increased
$2.0 million from 1995 and decreased  $295,000 in 1995 compared to 1994. For the
year ended December 31, 1996, interest and other income, net increased primarily
due to  higher  cash and  investment  balances  in 1996  compared  to  1995.  In
addition,  1996 other income  increased from 1995 due to the spin-out of certain
technologies  which resulted in equity income, a gain on sale of a product line,
and royalties  received during the year. The 1995 decrease in interest and other
income, net was principally  related to higher interest expense incurred in 1995
and lower cash  balances  prior to the  Company's  offering  of Common  Stock in
September 1995.


Provision for (Benefit from) Income Taxes

The Company's  effective tax rate was 32%, 36%, and 29%,  respectively for 1996,
1995,  and 1994.  The 1996 and 1994  effective tax rates are different  than the
Federal  statutory  rate of 35%  primarily  due to the  impact of the  Company's
foreign  subsidiaries.  The 1995  effective  tax rate of 36% is greater than the
Federal  statutory rate primarily due to  non-deductible  merger costs. The 1995
provision  included  taxes of $8.7 million at an effective  rate of 32% on $27.5
million of earnings  before merger  charges.  The 1995 provision also included a
tax benefit of $640,000 on merger costs of $5.5  million,  of which $1.6 million
were tax deductible.

LIQUIDITY AND CAPITAL RESOURCES

The  Company  funded its  operations  to date  through  private  sales of equity
securities  and public  offerings  of equity  securities  in 1993 and 1995 which
generated  net  proceeds  to the  Company of  approximately  $67 million and $88
million,  respectively,  as well as through  cash flows from  operations.  As of
December 31, 1996, the Company's  principal sources of liquidity  included cash,
cash  equivalents,   and  marketable  securities  totaling  approximately  $94.0
million.

The  Company's  operating  activities  generated  cash of $40.9  million in 1996
compared to using cash of $19.3 million in 1995.  Cash was generated  during the
twelve  months ended  December 31, 1996  primarily  from  reductions in accounts
receivable  and  inventory.  In 1996,  the decrease in accounts  receivable  was
primarily due to improved  collections while the reduction in inventory resulted
from improved  stock turns and the write-off of inventory no longer  required to
support the Company's business.

The Company  purchased  $28.2 million of property and equipment and other assets
during  1996,  compared  to $42.4  million  in 1995.  These  purchases  included
primarily  the purchase of equipment for hardware and software for the Company's
information   systems  and  equipment  to  support   research  and   development
activities.

The Company had an equipment-financing  arrangement with a bank which expired on
March 31, 1996. In 1995,  the Company  entered into an unsecured  line of credit
agreement  with a  group  of  banks  which  provided  for up to  $50,000,000  in
revolving  credit.  The  original  expiration  date of June  30,  1996  has been
extended to June 28, 1997. Under the terms of the agreement,  as amended in June
1996, the Company may borrow up to $35,000,000. The Company must pay a quarterly
commitment  fee  calculated  based on the debt service  ratio of the Company and
ranges from .25% to .40% on the  $35,000,000  line. The interest rate to be paid
on any outstanding  borrowings is contingent  upon the financial  performance of
the Company and ranges from LIBOR plus 1.25% to LIBOR plus 1.75%.  Additionally,
the Company is required to maintain certain  financial ratios and covenants over
the life of the agreement,  including a restriction on the payment of dividends.
The Company has in certain  prior  periods been in default of certain  financial
covenants.  On these occasions the defaults have been waived by the banks. There
can be no assurance that the Company will not default in future periods or that,
if in  default,  it will be able to obtain  such  waivers.  The  Company  had no
borrowings against the line and was not in default of any financial covenants as
of  December  31,  1996.  The  Company  believes  existing  cash and  marketable
securities,  internally  generated funds and available borrowings under its bank
credit  line  will  be  sufficient  to meet  the  Company's  cash  requirements,
including capital  expenditures,  at least through the end of 1997. In the event
the Company requires additional  financing the Company believes that it would be
able to obtain such financing;  however, there can be no assurance that it would
be  successful  in doing  so, or that it could do so on terms  favorable  to the
Company.


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:

The Company's gross margin has fluctuated,  and may continue to fluctuate, based
on  factors  such as the mix of  products  sold,  cost  and  the  proportion  of
third-party   hardware  included  in  the  systems  sold  by  the  Company,  the
distribution channels through which products are sold, the timing of new product
introductions,  the offering of product and platform  upgrades,  price discounts
and other sales promotion programs,  the volume of sales of aftermarket hardware
products,  the costs of swapping or fixing products  released to the market with
errors or flaws, provisions for inventory obsolescence,  allocations of overhead
costs to  manufacturing  and customer  support costs to cost of goods,  sales of
third-party  computer hardware to its distributors,  and competitive pressure on
selling  prices  of  products.  The  Company's  systems  and  software  products
typically have higher gross margins than storage  devices and product  upgrades.
Gross  profit  varies  from  product  to  product  depending  primarily  on  the
proportion  and cost of  third-party  hardware  included  in each  product.  The
Company,  from time to time, adds functionality and features to its systems.  If
such  additions  are  accomplished  through  the use of  more,  or more  costly,
third-party  hardware,  and if the Company  does not  increase the price of such
systems to offset these  increased  costs,  the Company's  gross margins on such
systems would be adversely affected.

The  Company  has  recently  initiated  steps  designed  to shift an  increasing
proportion  of its sales through  indirect  channels  such as  distributors  and
resellers. The Company expects that this shift will result in an increase in the
number of software and circuit  board "kits" sold through  indirect  channels in
comparison with turnkey  systems  consisting of CPUs,  monitors,  and peripheral
devices including  accompanying  software and circuit boards sold by the Company
through  its  direct  sales  force to  customers.  Therefore,  to the extent the
Company increases its sales through indirect channels, its revenue per unit sale
will be less than it would have been had the same sale been made directly by the
Company.  In the event the Company is unable to increase  the volume of sales in
order to offset  this  decrease  in revenue  per sale or is unable to reduce its
costs associated with such sales, profits could be adversely affected.

In 1995,  the  Company  shipped  server-based,  all-digital  broadcast  newsroom
systems to a limited number of beta sites.  These systems  incorporate a variety
of the Company's products, as well as a significant amount of hardware purchased
from third parties,  including computers  purchased from Silicon Graphics,  Inc.
("SGI").  Because some of the  technology and products in these systems were new
and untested in live broadcast  environments,  the Company provided greater than
normal discounts to these initial  customers.  In addition,  because some of the
technology and products in these systems were new and untested in live broadcast
environments,  the  Company has  incurred  unexpected  delays and  greater  than
expected  costs in completing  and  supporting  these initial  installations  to
customers'  satisfaction.  As a result, the Company expects that it will report,
in the  aggregate,  a loss on these  sales,  when all  revenues  and  costs  are
recognized.  In 1996,  the  Company  recognized  approximately  $3.3  million in
revenues  from  three of these  initial  installations  and  approximately  $3.6
million of related costs. In future  quarters,  the Company expects to recognize
an additional  $5.0 million in revenues  associated  with the remaining  initial
installations.  The Company has provided a reserve for estimated costs in excess
of anticipated  revenues.  Revenues and costs are recognized  upon acceptance of
the systems by  customers.  The Company is unable to determine  whether and when
the systems  will be  accepted.  There can be no  assurance  that the  remaining
initial installations will be accepted by customers or that the Company will not
incur further costs in completing the installations.  If customers do not accept
these systems,  the Company could face additional costs associated with reducing
the value of the inventory included in the systems.  The Company's overall gross
margin  percentage  will be reduced  in any  quarter  or  quarters  in which the
remaining  initial  installations  are  recognized or written off. In 1996,  the
Company  installed  additional  server-based,   all-digital  broadcast  newsroom
systems at other customer sites. The Company  believes that such  installations,
when and if  fully  recognized  as  revenue  on  customer  acceptance,  would be
profitable.  However,  the Company is unable to  determine  whether and when the
systems will be accepted. In any event, the Company believes that because of the
high  proportion  of  third-party  hardware,  including  computers  and  storage
devices, included in such systems, that the gross margins on such sales would be
lower than the gross margins generally on the Company's other systems.

The Company's  operating  expense levels are based, in part, on its expectations
of future revenues.  In recent quarters,  40% or more of the Company's  revenues
for a quarter have been recorded in the third month of the quarter.  Further, in
many cases,  quarterly operating expense levels cannot be reduced rapidly in the
event  that  quarterly  revenue  levels  fail  to  meet  internal  expectations.
Therefore,  if quarterly revenue levels fail to meet internal expectations,  the
Company's  operating  results  would be  adversely  affected and there can be no
assurance  that the Company would be able to operate  profitably.  Reductions of
certain  operating  expenses,  if incurred,  in the face of lower than  expected
revenues could involve material  one-time charges  associated with reductions in
headcount,  trimming product lines,  eliminating  facilities and offices, and of
writing off certain assets.

The Company has  significant  deferred  tax assets in the  accompanying  balance
sheets.  The deferred  tax assets  reflect the net tax effects of tax credit and
operating  loss  carryforwards  and temporary  differences  between the carrying
amounts of assets and  liabilities  for  financial  reporting  purposes  and the
amounts  used for income tax  purposes.  Although  realization  is not  assured,
management  believes  it is more likely  than not that all of the  deferred  tax
asset  will be  realized.  The  amount  of the  deferred  tax  asset  considered
realizable,  however,  could be reduced in the near term if  estimates of future
taxable income are reduced.

The  Company  has  expanded  its  product  line to  address  the  digital  media
production needs of the television broadcast news market and the emerging market
for multimedia  production  tools,  including the corporate and industrial  user
market. The Company has limited  experience in serving these markets,  and there
can be no  assurance  that the  Company  will be able to develop  such  products
successfully, or that such products will achieve widespread customer acceptance.
A  significant  portion of the  Company's  future growth will depend on customer
acceptance  in these and other new  markets.  Any  failure of such  products  to
achieve market acceptance, additional costs and expenses incurred by the Company
to improve market acceptance of such products, or the withdrawal from the market
of such  products or of the Company from such new markets  could have a material
adverse effect on the Company's business and results of operations.

The Company's  products  operate  primarily only on Apple  computers.  Apple has
recently been suffering business and financial difficulties. In consideration of
these  difficulties,  there can be no assurance  that  customers  will not delay
purchases of  Apple-based  products,  or purchase  compatible  products based on
non-Apple  computers,  that  Apple will  continue  to  develop  and  manufacture
products  suitable for the  Company's  existing  and future  markets or that the
Company  will be able to  secure an  adequate  supply  of Apple  computers,  the
occurrence of any of which could have a material adverse effect on the Company's
business and results of operations.

The Company has from time to time developed new products,  or upgraded  existing
products  that  incorporate  advances  in  enabling  technologies.  The  Company
believes  that  further  advances  will  occur  in such  enabling  technologies,
including  microprocessors,  computers,  operating  systems,  bus architectures,
storage devices, and digital media formats.  The Company may be required,  based
on market demand,  to upgrade  existing  products or develop other products that
incorporate these further advances. In particular,  the Company believes that it
will be necessary to develop additional products which operate using the Windows
NT operating  system.  There can be no assurance  that  customers will not defer
purchases of existing  Apple-based  products in  anticipation  of the release of
NT-based products, that the Company will be successful in developing NT-based or
other new products or that they will gain market acceptance,  if developed.  Any
deferral by customers of purchases of existing Apple-based products,  failure by
the  Company  to  develop  such  products  in a  timely  way or to  gain  market
acceptance  for them  could  have a  material  adverse  effect on the  Company's
business and results of operations.

The markets for digital  media  editing  and  production  systems are  intensely
competitive and subject to rapid change. The Company  encounters  competition in
the film, video and audio production and  post-production,  television broadcast
news, and multimedia tools markets,  including the corporate and industrial user
market. Many current and potential competitors of the Company have substantially
greater  financial,  technical and marketing  resources  than the Company.  Such
competitors  may use these  resources to lower their  product  costs and thus be
able to  lower  prices  to  levels  at  which  the  Company  could  not  operate
profitably. Further, such competitors may be able to develop products comparable
or superior to those of the  Company or adapt more  quickly  than the Company to
new technologies or evolving customer requirements. Accordingly, there can be no
assurance  that the Company  will be able to compete  effectively  in its target
markets or that future  competition  will not adversely  affect its business and
results of operations.

The Company is  involved  in various  legal  proceedings,  including  patent and
securities litigation;  an adverse resolution of any such proceedings could have
a material  adverse effect on the Company's  business and results of operations.
See  Item  3.  "LEGAL  PROCEEDINGS,"  and  Note  K  to  Consolidated   Financial
Statements.







<PAGE>











                               AVID TECHNOLOGY, INC.

                            ANNUAL REPORT ON FORM 10-K

                           YEAR ENDED DECEMBER 31, 1996


 
                                     ITEM 8

           FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION














<PAGE>


                               AVID TECHNOLOGY, INC.

                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                         AND FINANCIAL STATEMENT SCHEDULE


CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:

Report of Independent Accountants................................     23

Consolidated Statements of Operations for the years ended 
  December 31, 1996, 1995 and 1994...............................     24

Consolidated Balance Sheets as of December 31, 1996 and 1995.....     25

Consolidated Statements of Stockholders' Equity for the years 
  ended December 31, 1996, 1995 and 1994.........................     26

Consolidated Statements of Cash Flows for the years ended 
  December 31, 1996, 1995 and 1994...............................     27

Notes to Consolidated Financial Statements.......................     28


Consolidated Financial Statement Schedule for the years ended 
  December 31, 1996, 1995 and 1994 included in Item 14(d):

Schedule II -          Valuation and Qualifying Accounts             F-1


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



<PAGE>



                         REPORT OF INDEPENDENT ACCOUNTANTS


The Board of Directors and Stockholders
Avid Technology, Inc.:

We have audited the consolidated  balance sheets of Avid Technology,  Inc. as of
December  31,  1996  and  1995,  and  the  related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for each of the three years in
the period  ended  December 31, 1996.  We also audited the  financial  statement
schedule of Avid Technology,  Inc. listed in Item 14(d) of this Form 10-K. These
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated  financial position of Avid Technology,
Inc.  as of  December  31, 1996 and 1995,  and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1996, in conformity with generally accepted accounting  principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial  statements taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.






/s/ COOPERS & LYBRAND L.L.P.


Boston, Massachusetts
February 6, 1997





<PAGE>


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

                                            For the Year Ended December 31,
                                           -----------------------------------
                                            1996          1995          1994
                                           -------       -------       -------
Net revenues                              $429,009      $406,650      $233,633
Cost of revenues                           238,808       198,841       108,057
                                           -------       -------       -------
   Gross profit                            190,201       207,809       125,576

Operating expenses:
   Research and development                 69,405        53,841        28,223
   Marketing and selling                   127,006       107,780        61,366
   General and administrative               24,203        18,085        12,575
   Nonrecurring costs                       28,950         5,456
                                           -------       -------       -------
       Total operating expenses            249,564       185,162       102,164
                                           -------       -------       -------

Operating income (loss)                    (59,363)       22,647        23,412

Interest and other income                    3,786         2,216         1,801
Interest expense                              (370)         (836)         (126)
                                           -------       -------       -------
Income (loss) before income taxes          (55,947)       24,027        25,087

Provision for (benefit from) income taxes  (17,903)        8,588         7,294
                                           -------       -------       -------

Net income (loss)                         $(38,044)      $15,439       $17,793
                                           ========      =======       =======

Net income (loss) per common share          $(1.80)        $0.77         $0.99
Weighted average common and common
   equivalent shares outstanding            21,163        20,165        17,921













The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


<PAGE>
AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
                                                            December 31,
                                                        1996             1995
ASSETS                                              ------------   -----------
Current assets:
   Cash and cash equivalents                             $75,795        $32,847
   Marketable securities                                  17,248         17,543
   Accounts receivable, net of allowances of $7,519
     and $6,472 in 1996 and 1995, respectively            86,187        107,859
   Inventories                                            28,359         63,387
   Deferred tax assets                                    15,852         13,006
   Prepaid expenses                                        6,310          4,907
   Other current assets                                    1,947          3,404
                                                     ------------   ------------
       Total current assets                              231,698        242,953

   Marketable securities                                     997         30,102
   Property and equipment, net                            49,246         48,992
   Long-term deferred tax assets                          15,538              -
   Other assets                                            3,500          9,557
                                                     ------------   ------------
       Total assets                                     $300,979       $331,604
                                                     ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                      $25,332        $29,836
   Current portion of long-term debt                       1,726          1,781
   Accrued compensation and benefits                       9,085          7,192
   Accrued expenses                                       21,844         13,595
   Income taxes payable                                    3,258          6,171
   Deferred revenues                                      25,133         22,118
                                                     ------------   ------------
       Total current liabilities                          86,378         80,693
                                                     ------------   ------------

Long-term debt, less current portion                       1,186          2,945
Commitments and contingencies (Note K)

Stockholders' equity:
 Preferred stock, $.01 par value, 1,000,000 shares
   authorized; no shares issued or outstanding                 -              -
 Common stock, $.01 par value, 50,000,000 shares
   authorized; 21,338,369 and 20,935,145 shares 
   issued and outstanding at December 31, 1996 
    and 1995, respectively                                   213            209
   Additional paid-in capital                            212,474        208,918
   Retained earnings                                       1,451         39,495
   Cumulative translation adjustment                        (724)          (700)
   Net unrealized gains on marketable securities               1             44
                                                     ------------   -----------
       Total stockholders' equity                        213,415        247,966
                                                     ------------   -----------
       Total liabilities and stockholders'equity        $300,979       $331,604
                                                     ============   ===========

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

<PAGE>
AVID TECHNOLOGY, INC.
Consolidated Statements of Stockholders' Equity 
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                            Net
                                                                                                      Unrealized Gains
                                                               Additional     Cumulative                 (Losses) on       Total
                                          Common Stock           Paid-in      Retained     Translation    Marketable   Stockholders'
                                      Shares         Amount      Capital      Earnings     Adjustment     Securities      Equity
                                     ----------------------------------------------------------------------------------------------
<S>                                   <C>               <C>      <C>           <C>             <C>           <C>        <C>
Balances at December 31, 1993.......  15,956,988        $160     $103,357       $4,205         $(990)                   $106,732
Exercise of stock options
 and related tax benefits...........     468,365           5        3,812                                                  3,817
Sale of common stock under
 Employee Stock Purchase Plan.......      19,991                      405                                                    405
Stock issued in connection 
 with acquisition...................     100,000           1           11                                                     12
Adjustment for duplicate period
 due to pooling of interests........                                            (1,078)                                   (1,078)
Translation adjustment..............                                                             412                         412
Net unrealized losses on
 marketable securities..............                                                                         $(206)         (206)
Net income..........................                                            17,793                                    17,793
                                     ----------------------------------------------------------------------------------------------
Balances at December 31, 1994........ 16,545,344         166      107,585       20,920          (578)         (206)      127,887
Exercise of stock options and
 related tax benefits...............     741,313           7       11,899                                                 11,906
Sale of common stock under
 Employee Stock Purchase Plan.......      50,744           1        1,203                                                  1,204
Stock issued in connection
  with acquisitions.................   1,522,744          14           85        3,136                                     3,235
Sale of common stock in a
 public offering, net of issuance
 costs of $560......................   2,075,000          21       88,146                                                 88,167
Translation adjustment..............                                                            (122)                       (122)
Net unrealized gains on
 marketable securities..............                                                                           250           250
Net income..........................                                            15,439                                    15,439
                                     ----------------------------------------------------------------------------------------------
Balances at December 31, 1995.......  20,935,145         209      208,918       39,495          (700)           44       247,966
Exercise of stock options...........     260,055           3        1,185                                                  1,188
Sale of common stock under
 Employee Stock Purchase Plan.......     143,169           1        2,371                                                  2,372
Translation adjustment..............                                                             (24)                        (24)
Net unrealized losses on
 marketable securities..............                                                                           (43)          (43)
Net loss............................                                           (38,044)                                  (38,044)
                                    ----------------------------------------------------------------------------------------------
Balances at December 31, 1996.......  21,338,369        $213     $212,474       $1,451         $(724)           $1      $213,415
                                    ==============================================================================================
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

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

<TABLE>
<CAPTION>
                                                                          For the Year Ended December 31,
                                                                            1996       1995       1994
<S>                                                                       <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                      $(38,044)    $15,439     $17,793
   Adjustments to reconcile net income (loss) to
      net cash provided by (used in) operating activities:
        Adjustment for duplicate period due to pooling of interests                                 (1,078)
        Depreciation and amortization                                       29,641      19,539      10,980
        Provision for accounts receivable allowances                         6,627       3,006       2,007
        Deferred income taxes                                              (18,384)     (8,158)       (820)
        Tax benefit of stock option exercises                                            6,023       1,978
        Provision for product transition costs and nonrecurring
         inventory write-offs, non-cash portion                             18,750
        Provision for other nonrecurring costs, non-cash portion             7,048
        Loss (gain) on disposal of equipment                                 1,410         (80)         (4)
        Changes in operating assets and liabilities, net of acquisitions:
          Accounts receivable                                               13,836     (51,877)    (22,445)
          Inventories                                                       14,479     (31,648)    (11,606)
          Prepaid expenses and other current assets                            147       1,271      (5,537)
          Accounts payable                                                  (3,819)     11,559      10,817
          Income taxes payable                                              (3,206)      1,747       2,079
          Accrued expenses                                                   9,107       7,062       3,191
          Deferred revenues                                                  3,356       6,825       6,253
                                                                          --------    --------    --------
      NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                   40,948     (19,292)     13,608

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capitalized software development costs                                   (2,295)     (3,570)     (1,057)
   Purchases of property, equipment and other assets                       (28,219)    (42,410)    (22,859)
   Purchases of marketable securities                                      (29,430)    (68,911)    (30,096)
   Proceeds from sales of marketable securities                             58,786      50,152      29,950
   Payments for acquisitions, net of cash acquired                                                  (2,150)
   Proceeds from disposal of equipment                                       1,550         423          13
                                                                          --------    --------    --------
      NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                      392     (64,316)    (26,199)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term debt                                                                      3,702
   Payments of long-term debt                                               (2,000)     (2,148)     (1,182)
   Proceeds from issuance of common stock                                    3,560      95,353       2,256
                                                                          --------    --------    --------
      NET CASH PROVIDED BY FINANCING ACTIVITIES                              1,560      93,205       4,776
Effects of exchange rate changes on cash and cash equivalents                   48          (5)        216
                                                                          --------    --------    --------
Net increase (decrease) in cash and cash equivalents                        42,948       9,592      (7,599)
Cash and cash equivalents at beginning of year                              32,847      23,255      30,854
                                                                          --------    --------    --------
Cash and cash equivalents at end of year                                   $75,795     $32,847     $23,255
                                                                          ========    ========    ========
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
FOR THE YEAR ENDED 1996:
   Acquisition  of equipment  under capital lease  obligations,  $186
FOR THE YEAR ENDED 1995:
   Acquisition of equipment under capital lease obligations,  $2,719 
   Issuance of common stock in connection with acquisitions, $99

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

<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  disk-based  systems  for  creating  and  manipulating
digital media content. Avid's digital,  nonlinear video and film editing systems
are designed to improve the  productivity  of video and film editors by enabling
them to edit moving pictures and sound in a faster,  easier, more creative,  and
more cost-effective manner than traditional analog tape-based systems. Avid also
develops and sells digital  editing  systems and newsroom  computer  systems for
creating  content in the  television  broadcast  news  market and  digital  news
gathering  ("DNG") systems for delivering news content to air. Avid develops and
sells   digital  audio   systems  for  the  music  and  audio   production   and
post-production  markets.  Avid's  products are used worldwide in production and
post-production facilities;  film studios; network,  affiliate,  independent and
cable television stations; recording studios;  advertising agencies;  government
and educational  institutions;  and corporate video  departments.  The Company's
digital  editing  systems  have  accounted  for the  majority  of the  Company's
revenues to date.


As described in Note O, in January 1995, Avid effected a merger with Digidesign,
Inc. (Digidesign).  Digidesign designs, assembles,  markets, and supports random
access  digital  audio  production  software  and  related  application-specific
hardware  components,  some of which are used in Avid  products.  The merger has
been  accounted  for as a pooling of interests and the  historical  consolidated
financial  statements  of Avid  Technology,  Inc.  for all periods  prior to the
acquisition  presented  herein  have been  restated  to  include  the  financial
position, results of operations and cash flows of Digidesign.


B.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


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

Basis of Presentation

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

The Company's  preparation of financial  statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amount of assets and  liabilities  and
disclosure of contingent  assets and  liabilities  at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods.  The most significant  estimates included in these financial statements
include accounts receivable and sales allowances, inventory valuation and income
tax valuation allowances. Actual results could differ from those estimates.


Translation of Foreign Currencies

The  functional  currency of the  Company's  foreign  subsidiaries  is the local
currency,  except for the Irish  manufacturing  branch and Avid Technology Sales
Ltd. in Ireland, whose functional currencies are the U.S. dollar. The assets and
liabilities of the subsidiaries  whose functional  currencies are other than the
U.S.  dollar are translated  into U.S.  dollars at the current  exchange rate in
effect at the balance sheet date.  Income and expense items are translated using
the average exchange rate during the period.  Cumulative translation adjustments
are reflected as a separate component of stockholders' equity.  Foreign currency
transaction gains and losses are included in results of operations.

The Company enters into foreign exchange  forward  contracts to hedge the effect
of certain asset and liability positions of its foreign subsidiaries.  Gains and
losses  associated  with  currency rate changes on the contracts are recorded in
results of  operations,  offsetting  losses and gains on the related  assets and
liabilities.  The cash flows related to the gains and losses of foreign currency
forward contracts are classified in the statements of cash flows as part of cash
flows from  operations.  The market risk  exposure  from  forward  contracts  is
assessed in light of the  underlying  currency  exposures  and is limited by the
term of the Company's  contracts,  generally one month. Credit risk from forward
contracts  is  minimized  through  the  placement  of  contracts  with  multiple
financial  institutions.  Forward  contracts  are revalued  monthly by comparing
contract rates to month-end exchange rates.


Cash and Cash Equivalents

The Company  considers  all highly  liquid debt  instruments  purchased  with an
original  maturity  of  three  months  or  fewer  to be cash  equivalents.  Cash
equivalents  consist  primarily of taxable and  tax-exempt  money market  funds,
bankers'   acceptances,   short-term   time  deposits,   short-term   government
obligations, and commercial paper.


Marketable Securities

Marketable  securities,  consisting  primarily of state and municipal  bonds and
commercial paper,  represent  investment of funds available for sale to fund the
operations  of the  Company.  Certain  of  these  marketable  securities  have a
maturity in excess of one year and are  classified as long-term  investments  in
marketable  securities.  The  Company  has  classified  its debt  securities  as
"available for sale," and reports them at fair value,  with unrealized gains and
losses  excluded from  earnings and reported as an  adjustment to  stockholders'
equity.


Inventories

Inventories,  principally purchased components,  are stated at the lower of cost
(determined  on a first-in  first-out  basis) or market value.  Inventory in the
digital media market,  including  the Company's  inventory,  is subject to rapid
technological  change  or  obsolescence;   therefore   utilization  of  existing
inventory may differ from the Company's estimates.

Property and Equipment

Property  and  equipment  is  recorded  at  cost  and   depreciated   using  the
straight-line  method over the  estimated  useful  life of the asset.  Leasehold
improvements  are  amortized  over  the  shorter  of  the  useful  life  of  the
improvement or the remaining term of the lease. Expenditures for maintenance and
repairs are  expensed as  incurred.  Upon  retirement  or other  disposition  of
assets,  the cost and related  accumulated  depreciation are eliminated from the
accounts and the  resulting  gain or loss is reflected in income.  A significant
portion  of the  property  and  equipment  is  subject  to  rapid  technological
obsolescence;  as a result,  the  depreciation  and  amortization  periods could
ultimately shorten to reflect the change in future technology.


Revenue Recognition

Revenue is recognized upon product shipment, provided that no significant vendor
obligations   remain   outstanding  and  the  resulting   receivable  is  deemed
collectible by management.  In instances where product ships with the commitment
to provide a future upgrade or extended installation  services, the Company will
defer the  revenue  related to the upgrade or  installation.  In  addition,  the
Company  may offer  rebates  on  certain  products  from time to time  which are
accounted  for as offsets to  revenues  upon  shipment.  Maintenance  revenue is
recognized ratably over the term of the maintenance agreement.  Service revenue,
principally  training,  is recognized as the services are provided.  Included in
accounts  receivable  allowances  are sales  allowances  provided  for  expected
returns and credits and an allowance for bad debts.


Warranty Expense

The Company  provides a warranty  reserve at the time of sale for the  estimated
costs to repair or replace defective hardware products.


Research and Development Costs

Research  and  development  costs are  expensed as incurred  except for costs of
internally   developed  or  externally   purchased  software  that  qualify  for
capitalization.  Capitalized costs are amortized using the straight-line  method
upon general release, over the expected life of the related products,  generally
12 to 24 months. The straight-line method generally results in approximately the
same amount of expense as that  calculated  using the ratio that current  period
gross product revenues bear to total  anticipated  gross product  revenues.  The
Company evaluates the net realizable value of capitalized software on an ongoing
basis,  relying on a number of business and economic  factors which could result
in shorter amortization periods.


Income Taxes

The Company  utilizes the asset and liability  approach of accounting for income
taxes,  pursuant to which  deferred  income  taxes are  determined  based on the
difference  between  the  financial  statement  and  tax  bases  of  assets  and
liabilities  using  enacted  tax  rates in  effect  in the  years  in which  the
differences  are expected to reverse.  Tax credits are treated as  reductions of
income  taxes in the year in which the  credits  are  utilized  for  income  tax
purposes.  U.S.  taxes have not been  provided  for  undistributed  earnings  of
foreign  affiliates which have been permanently  reinvested in those operations.
Valuation  allowances  are  provided  if,  based  upon the  weight of  available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.


Computation of Net Income (Loss) Per Common Share

Net income per common share is based upon the weighted  average number of common
and common equivalent shares  outstanding  during the period.  Common equivalent
shares  are  included  in the per share  calculations  where the effect of their
inclusion  would  be  dilutive.  Net  loss per  common  share is based  upon the
weighted average number of common shares outstanding  during the period.  Common
equivalent shares result from the assumed exercise of outstanding stock options,
the  proceeds  of  which  are  then  assumed  to have  been  used to  repurchase
outstanding  common stock using the treasury  stock  method.  Fully  diluted net
income per share is not  materially  different  from the  reported  primary  net
income per share for all periods presented.


C.    MARKETABLE SECURITIES

Gross realized and unrealized  gains and losses for the years ended December 31,
1996 and 1995 were immaterial.  The amortized cost,  including accrued interest,
and fair value of marketable  securities as of December 31, 1996 and 1995 are as
follows (in thousands):

                                                Gross          Gross
                                              Unrealized     Unrealized   Fair
                                  Amortized     Holding        Holding    Value
                                    Cost         Gains         Losses
                                  --------  -------------   ----------   ------
             1996
Federal,  State, and Municipal      
Obligations......................   $11,465           $1          $3    $11,463
Commercial paper.................     6,779            3                  6,782
                                   --------      -------      -------   -------
                                    $18,244           $4          $3    $18,245
                                   ========      =======      =======   =======

             1995
Federal,  State, and Municipal   
Obligations......................   $47,601          $51          $7    $47,645
                                    =======      =======     =======    =======


The  maturities  of  marketable  securities  held at December 31,  1996,  are as
follows (in thousands):

                                                            Fair
                                      Amortized Cost        Value
                                     ---------------   ---------------
Within one year....................       $17,247           $17,248
After one year, within five years..           997               997
                                     ---------------   ---------------
                                          $18,244           $18,245
                                     ===============   ===============


D.    INVENTORIES

Inventories consist of the following (in thousands):
                                                   DECEMBER 31,
                                               1996            1995
                                             --------       --------
      Raw materials........................   $19,182        $55,690
      Work in process......................       870          1,355
      Finished goods.......................     8,307          6,342
                                            ---------      ---------
                                              $28,359        $63,387
                                            =========      =========


E.    CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Capitalized purchased and internally developed software costs, included in other
assets at December 31, 1996 and 1995, consist of the following (in thousands):

                                                      DECEMBER 31,
                                                   1996        1995
                                               --------      -------
       Capitalized software development costs.  $6,322        $4,856
       Less accumulated amortization..........   4,595         1,744
                                               --------      -------
                                                $1,727        $3,112
                                               ========      ========

Computer  software  costs  capitalized  during 1996,  1995, and 1994 amounted to
approximately $2,295,000, $3,570,000, and $1,057,000, respectively. Amortization
of computer  software costs during those periods was  approximately  $3,185,000,
$1,220,000, and $466,000, respectively. During 1996, as part of the nonrecurring
costs,  described  in  Note  N,  capitalized  software  costs  of  $829,000  and
accumulated amortization of $334,000 were written off.



F.    PROPERTY AND EQUIPMENT

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

                                           Depreciable        DECEMBER 31,
                                              LIFE          1996        1995
                                            ---------   ------------  ---------
      Computer and video equipment........  3 to 5 years   $68,171     $61,085
      Office equipment....................  3 to 5 years     4,233       4,601
      Furniture and fixtures..............  3 to 5 years     6,915       4,800
      Leasehold improvements..............  3 to 10 years   12,962      10,404
                                                           --------    --------
                                                            92,281      80,890
      Less accumulated depreciation and amortization        43,035      31,898
                                                           --------    --------
                                                           $49,246     $48,992
                                                           ========    ========

As of  December  31,  1996  and 1995  included  in  property  and  equipment  is
approximately $6,607,000 and $6,421,000 of equipment under capital leases.


G.    LONG TERM DEBT


Capital Leases

As of December 31, 1996, future minimum lease payments under capital leases were
as follows (in thousands):

          YEAR                                       AMOUNT
         -----                                      --------
          1997...................................... $1,846
          1998......................................    831
          1999......................................    412
                                                    --------
          Total minimum lease payments..............  3,089
          Less amounts representing interest........    177
                                                    --------
          Present value of minimum lease payments...  2,912
          Less current portion of long-term debt....  1,726
                                                    --------
                                                     $1,186
                                                    ========

Total cash  payments for  interest in 1996,  1995,  and 1994 were  approximately
$311,000, $741,000, and $98,000, respectively.


Capital Leases

During  November  1994 and January  1995,  the Company  entered  into  equipment
financing   arrangements  with  a  bank  for  aggregate   borrowings  of  up  to
$10,000,000, at various interest rates (ranging from 4.6% to 8.1%) determined at
the borrowing date. This equipment  financing  arrangement expired in March 1996
and  was  not  renewed.  As of  December  31,  1996  and  1995,  $2,912,000  and
$4,726,000,   respectively  were  outstanding  as  capital  leases  under  these
arrangements. Borrowings are collateralized by certain assets of the Company.


Line of Credit

In 1995, the Company  entered into an unsecured line of credit  agreement with a
group of banks which  provided for up to $50,000,000  in revolving  credit.  The
original  expiration  date of June 30, 1996 has been  extended to June 28, 1997.
Under the terms of the  agreement,  as  amended in June 1996,  the  Company  may
borrow up to  $35,000,000.  The  Company  must pay a quarterly  commitment  fee,
calculated  based on the debt service  ratio of the Company and ranges from .25%
to .40% on the $35,000,000 line. The interest rate to be paid on any outstanding
borrowings  is  contingent  upon the  financial  performance  of the Company and
ranges from LIBOR plus 1.25% to LIBOR plus 1.75%.  Additionally,  the Company is
required to maintain certain financial ratios and covenants over the life of the
agreement,  including a restriction on the payment of dividends. The Company had
no borrowings against this facility as of December 31, 1996.

Two of the Company's European  subsidiaries have unsecured overdraft  facilities
that permit aggregate  borrowings of $200,000 and DM800,000.  No borrowings were
outstanding under these facilities as of December 31, 1996.



H.    INCOME TAXES

Income (loss) before income taxes and the components of the income tax provision
for the years  ended  December  31,  1996,  1995,  and 1994 are as  follows  (in
thousands):

                                                 1996       1995      1994
                                               ---------  --------- ---------
     Income (loss) before income taxes:
       United States........................   $(61,242)    $5,582    $16,386
       Foreign..............................      5,295     18,445      8,701
                                               ----------  --------  ---------
       Total income (loss) before income taxes $(55,947)   $24,027    $25,087
                                               ==========  =========  ========

     Provisions for (benefit from)
      income taxes
       Current tax expense:
       Federal..............................    $(3,235)    $7,433     $5,072
       Foreign..............................      3,189      5,487      1,961
       State................................        (16)     1,094      1,034
                                               ---------  ---------  --------
       Total current........................        (62)    14,014      8,067
                                      
       Deferred tax benefit:
       Federal..............................    (15,820)    (4,968)      (628)
       Foreign..............................          -        (32)       (76)
       State................................     (2,021)      (426)       (69)
                                               ---------  ---------- ---------
       Total deferred.......................    (17,841)    (5,426)      (773)
                                               ---------  ---------- ---------
       Total income tax  provision (benefit)   $(17,903)    $8,588     $7,294
                                               =========  ==========  ========
         

Cash  payments  for  income  taxes in 1996,  1995,  and 1994 were  approximately
$4,911,000, $7,927,000, and $3,754,000 respectively.

The  cumulative  amount  of  undistributed  earnings  of  subsidiaries  which is
intended to be  permanently  reinvested and for which income taxes have not been
provided totaled $29,579,000 at December 31, 1996.


Deferred tax assets are comprised of the following (in thousands):
                                                               December 31,
                                                           --------------------
                                                             1996         1995
                                                           -------     --------
           Net foreign operating loss carry-forwards.......               $222
           Allowances for accounts receivable..............   $1,406     1,681
           Difference in accounting for:
             Revenue.......................................    2,440     1,629
             Costs and expenses............................    6,764     2,826
             Inventories...................................    4,650     4,422
             Purchased technology..........................      324       605
           Deferred intercompany profit....................      589       582
           Federal tax return carryforwards................   15,538     1,316
           Other...........................................     (321)      (55)
           Valuation allowance.............................               (222)
                                                            --------   --------
             Net deferred tax assets.......................  $31,390   $13,006
                                                            ========   ========

For U.S.  Federal  Income Tax purposes at December 31, 1996, the Company has tax
credit carryforwards of approximately  $3,700,000 which will expire between 1997
and 2011 and a net operating  loss  carryforward  of  approximately  $33,500,000
which will expire in 2011.  Deferred  tax assets  reflect the net tax effects of
the tax  credit and  operating  loss  carryforwards  and  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.  Although  realization is
not  assured,  management  believes  it is more  likely than not that all of the
deferred  tax asset  will be  realized.  The  amount of the  deferred  tax asset
considered  realizable,  however, could be reduced in the near term if estimates
of future taxable income are reduced. At December 31, 1995, the Company placed a
valuation  allowance  against certain of its foreign  deferred tax assets due to
the uncertainty surrounding their realization.

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

                                                   1996       1995        1994
                                                 -------    --------     ------
   Statutory rate .............................      (35%)       35%        35%
   Nondeductible merger costs .................                   6
   Tax Credits ................................       (1)        (3)        (3)
   Foreign taxes and losses not benefited .....        4         (2)        (4)
   State taxes, net of federal benefit ........       (2)         2          2
   Municipal bond interest ....................                  (2)        (1)
   Foreign sales corporation ..................                  (1)        (2)
   Other ......................................        2          1          2
                                                     -----      -----     ------
                                                     (32%)       36%        29%
                                                     =====      =====     =====

Consolidated  results of operations include results of manufacturing  operations
in Ireland.  Income  from the sale of  products  manufactured  or  developed  in
Ireland is subject to a 10% Irish tax rate through the year 2010.  The favorable
Irish tax rate resulted in tax benefits of approximately  $1,300,000 in 1995 and
$1,400,000 in 1994.  The 1996 Irish tax benefit was immaterial to the results of
operations.  The 1995 and 1994 per  share tax  benefits  were  $0.06 and  $0.07,
respectively.


I.    CAPITAL STOCK

Preferred Stock

The Company is authorized to issue up to one million shares of Preferred  Stock,
$.01 par value per share.  Each such series of  Preferred  Stock shall have such
rights,  preferences,  privileges  and  restrictions,  including  voting rights,
dividend  rights,  conversion  rights,  redemption  privileges,  and liquidation
preferences as shall be determined by the Board of Directors.

In February 1996, the Board of Directors approved a Shareholder Rights Plan. The
rights were distributed in March 1996 as a dividend at the rate of one right for
each share of Common  Stock  outstanding.  No value has been  assigned  to these
rights.  The rights may be exercised to purchase  shares of a new series of $.01
par value junior participating preferred stock or to purchase a number of shares
of the Company's Common Stock which equals the exercise price of the right, $115
divided by one-half of the then-current market price, upon occurrence of certain
events, including the purchase of 20% or more of the Company's Common Stock by a
person or group of  affiliated  or  associated  persons.  The  rights  expire on
February 28, 2006,  and may be redeemed by the Company for $.01 each at any time
prior to the tenth  day  following  a change in  control  and in  certain  other
circumstances.

Common Stock

In January 1995, the Company increased its authorized number of shares of Common
Stock to 50,000,000.  Effective with the merger between Avid and Digidesign, all
issued and outstanding shares of Digidesign Common Stock were converted into the
right to receive Avid Common Stock at an exchange ratio of .79.

In  September  1995,  the Company  issued  2,000,000  shares of its Common Stock
through a public  offering.  The Company  issued an additional  75,000 shares in
October  1995 as the  underwriters  exercised a portion of their  over-allotment
option.  Proceeds  to the  Company  totaled  approximately  $88,167,000,  net of
expenses and underwriters' commissions associated with the offering.


J.    EMPLOYEE BENEFIT PLANS


PROFIT SHARING PLANS

1991 Profit Sharing Plan

The Company  has a profit  sharing  plan under  section  401(k) of the  Internal
Revenue  Code  covering  substantially  all  U.S.  employees.  The  plan  allows
employees  to  make  contributions  up  to  a  specified   percentage  of  their
compensation.  The Company may, upon resolution by the Board of Directors,  make
discretionary contributions to the plan. No discretionary contributions had been
made as of December  31,  1995.  Effective  January 1, 1996,  the Company  began
contributing  33% of up to the first 6% of an employee's  salary  contributed to
the plan by the  employee.  The  Company's  contributions  to this plan  totaled
$946,000 in 1996.

In addition,  the Company has various retirement plans covering certain European
employees.   Certain  of  the  plans  require  the  Company  to  match  employee
contributions up to a specified  percentage as defined by the plans. The Company
made contributions of approximately  $400,000,  $302,000,  and $123,000 in 1996,
1995, and 1994, respectively.

1997 Profit Sharing Plan

In January 1997,  the Board of Directors  approved the 1997 Profit  Sharing Plan
(the  Plan).  The Plan,  effective  January 1, 1997,  covers  substantially  all
employees of the Company and its  participating  subsidiaries,  other than those
employees  covered by other incentive  plans. The Plan provides that the Company
contribute  a varying  percentage  of salary (0% to 10%) based on the  Company's
achieved target of return on invested capital in 1997, as defined by the Plan.


STOCK PLANS

1989 Stock Option Plan

The 1989  Stock  Option  Plan (the  "1989  Plan")  allows  for the  issuance  of
incentive  and  non-qualified  stock  options to purchase the  Company's  Common
Stock.  Incentive  stock options may not be granted at less than the fair market
value of the Company's Common Stock at the date of grant and are exercisable for
a term not to exceed ten years. For holders of 10% or more of the total combined
voting power of all classes of the Company's  stock,  options may not be granted
at less than 110% of the fair  market  value of the Common  Stock at the date of
grant,  and the  option  term may not  exceed 5 years.  In  connection  with the
establishment  of the 1993 Stock  Incentive  Plan,  the 1989 Plan was amended to
provide that, subject to certain exceptions,  no further options or awards could
be issued thereunder.


1991 Stock Option Plan

Digidesign  had an employee  stock option plan whereby an aggregate of 1,500,000
shares  of  common  stock  were  reserved  for  issuance.   Effective  upon  the
acquisition by Avid, the stock option  agreements were assigned to Avid and Avid
registered the 670,884 shares,  equivalent to the number of options outstanding,
taking into  effect the  exchange  ratio of .79 shares of Avid Common  Stock for
each share of Digidesign Common Stock. Under the plan, options may be granted to
employees, directors,  consultants, and advisors to the Company. Incentive stock
options  may be  granted  at  prices  not  lower  than  fair  market  value,  as
established by the Board of Directors on the date of grant.  Non-qualified stock
options may be granted at not less than 85% of fair market value, as established
by the Board of Directors on the date of grant. Avid has not granted any options
under this plan.  The options expire in a maximum of ten years and may be either
incentive  stock  options or  non-qualified  stock  options,  determined  at the
discretion  of the Board of  Directors.  Options  are  immediately  exercisable,
subject to a right of repurchase which generally lapses as to 25% of the subject
shares on the first anniversary of the vesting  commencement  date, and as to an
additional 2.083% for each succeeding full month of continuous employment.


1993 Stock Incentive Plan

Under the 1993  Stock  Incentive  Plan (the "1993  Plan"),  a maximum of 800,000
shares of Common Stock may be issued upon exercise of incentive stock options or
non-qualified  stock options,  or in connection with awards of restricted  stock
grants,  stock  appreciation  rights  or  performance  shares.  The terms of the
incentive  stock options granted under this plan are  substantially  the same as
for those granted under the 1989 Plan. The options generally vest ratably over a
four-year period.


1993 Director Stock Option Plan

The 1993 Director Stock Option Plan (the "Director  Plan"), as amended April 12,
1996,  provides  for the grant of options to purchase up to a maximum of 220,000
shares of Common Stock of the Company to non-employee  directors of the Company,
at an exercise  price equal to the fair market value of the stock on the date of
grant.  Certain options vest immediately whereas other options vest ratably over
a four-year period from the date of grant.


1994 Stock Option Plan

The 1994 Stock  Option Plan,  as amended on February  12,  1996,  allows for the
issuance of incentive and  non-qualified  options to purchase up to a maximum of
2,400,000 shares of the Company's Common Stock. The terms of the options granted
under this plan are  essentially  the same as for those  granted  under the 1989
Plan.


1997 Stock Incentive Plan

In February 1997, the Board of Directors approved the 1997 Stock Incentive Plan.
This  plan,  which  is  subject  to  shareholder  approval,   covers  employees,
consultants,  and  directors  of the  Company,  and allows for the  issuance  of
incentive  and  non-qualified  stock  options  and  restricted  stock  grants to
purchase the Company's  Common Stock. An aggregate of 1,000,000 shares of Common
Stock are reserved for issuance under the plan including up to 500,000 shares of
restricted stock which may be issued pursuant to the plan.


Employee Stock Purchase Plan

On July 31, 1996,  the 1993 Employee  Stock  Purchase  Plan (the "1993  Purchase
Plan")  expired and was replaced with the 1996 Employee Stock Purchase Plan. The
1996  Employee  Stock  Purchase  Plan  authorizes  the  issuance of a maximum of
200,000 shares of Common Stock in semi-annual  offerings at a price equal to the
lower of 85% of the closing price on the applicable  offering  commencement date
or 85% of the closing price on the applicable offering termination date.


The Company has seven stock-based compensation plans, which are described above.
In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation", which is effective for periods beginning after December 15, 1995.
SFAS No. 123 requires that companies either recognize  compensation  expense for
grants of stock,  stock  options,  and other  equity  instruments  based on fair
value, or provide pro forma  disclosures of net income and earnings per share in
the notes to the  financial  statements.  The  Company has adopted the pro forma
disclosure  provisions  of  SFAS  No.  123  effective  in 1996  and has  applied
Accounting   Principles  Board  Opinion  25  "Accounting  for  Stock  Issued  to
Employees" and related Interpretations in accounting for its plans. Accordingly,
no  compensation  expense has been  recognized  for the stock option plans.  Had
compensation  cost  for  the  Company's  stock-based   compensation  plans  been
determined based on the fair value at the grant dates for the awards under these
plans  consistent  with the  methodology  prescribed  under  SFAS No.  123,  the
Company's  net income  (loss) and  earnings per share would have been reduced to
the pro forma amounts indicated below:


                           1996                                1995
              ---------------------------------   -----------------------------

              Net Income       Earnings per       Net Income       Earnings per
                (Loss)            Share                               Share
              ---------------   ---------------   ---------------   ------------

As Reported     $(38,044)          $(1.80)           $15,439            $0.77
              ===============   ===============   ===============   ============

Pro Forma       $(46,400)          $(2.19)           $10,889            $0.53
              ===============   ===============   ===============   ============


The fair value of each option  granted  during 1996 and 1995 is estimated on the
date of  grant  using  the  Black-Scholes  option-pricing  model  utilizing  the
following weighted-average  assumptions:  (1) zero-coupon U.S. government issues
with  interest  rates of 6.05% and 6.26%,  for 1996 and 1995  respectively,  (2)
expected option life from vesting of 17 months, (3) expected stock volatility of
58.31%, and (4) expected dividend yield of 0.0%.

The fair value of the employee stock purchase plans periods during 1996 and 1995
is estimated on the date of the purchase using the Black-Scholes  option-pricing
model utilizing the following weighted average assumptions: (1) expected life of
6 months, (2) expected  volatility of 58.31%, and (3) expected dividend yield of
0.0%.  The  risk-free  interest rate used in  determining  the fair value of the
plans was determined to be the rate on a zero-coupon  six month U.S.  Government
issue on the first day of the offering period for each of the four plan periods.
These  interest  rates  ranged from 4.97% to 6.21%.  The amount of  compensation
expense,  net of income taxes  related to the  Employee  Stock  Purchase  plans,
included  in the pro forma net income  (loss) and  earnings  per share  detailed
above, is approximately $626,000 and $837,000 for 1996 and 1995 respectively.

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

<TABLE>
<CAPTION>
                                          1996                   1995              1994
                                  -------------------    --------------------    ---------
                                              Wtd Avg.                Wtd Avg.
                                               Price                   Price 
                                    Shares    Per Share    Shares     Per Share    Shares
                                  ---------   ---------  ----------   ---------  ----------
<S>                               <C>           <C>       <C>          <C>       <C>
Options outstanding at 
beginning of year January 1,       2,986,595    $21.59    2,956,569              2,746,530

Granted                            2,273,398    $17.01    1,105,040    $33.60      744,974
Exercised                           (260,055)    $4.56     (741,313)    $8.03     (399,082)
Canceled                          (1,452,582)   $30.55     (333,701)   $26.26     (135,853)
                                  -----------             -----------           -----------

Options outstanding at
end of year December 31,           3,547,356    $16.18    2,986,595    $21.59    2,956,569
                                  ==========    ======   ==========    ======   ==========

Options exercisable at
December 31,                       1,237,924                999,602                622,014
                                  ==========              ==========             ==========

Options available for
future grant at December 31,         866,759                821,801                846,825
                                  ==========              ==========             ==========

Weighted average fair value of
options granted during the year        $6.93                 $15.59
                                  ==========              ==========

</TABLE>


The following table summarizes  information  about stock options  outstanding at
December 31, 1996:

<TABLE>
<CAPTION> 
                                                                                Options
                         Options Outstanding                                  Exercisable
- -------------------------------------------------------------------    -------------------------

                                 Weighted-Average
    Range of                         Remaining      Weighted-Average                Weighted-Average
 Exercise Prices       Number       Contractual         Exercise         Number          Exercise
                     Outstanding      Life               Price         Exercisable        Price
- ------------------ -------------  --------------    ---------------   ------------  ----------------
<S>                    <C>             <C>            <C>              <C>              <C>

$0.0100 to $13.0000      782,724       6.26            $8.3925           635,078         $7.4797
$13.2500 to $15.1900     165,770       9.01           $14.2683            57,370        $15.0698
$15.6600 to $16.5000   1,389,293       9.16           $16.4836            45,980        $16.4147
$16.6875 to $19.6250     730,870       8.20           $18.5272           285,121        $17.6826
$19.7500 to $46.7500     478,699       8.03           $24.6290           214,375        $25.9562
                       ---------                                       ---------                
$0.0100 to $46.7500    3,547,356       8.16           $16.1179         1,237,924        $13.7129
                       =========       ====           ========         =========        ========
</TABLE>



On February 12, 1996, the Board of Directors  authorized  all option  agreements
that  granted  options  under the 1994 Stock  Option Plan at an  exercise  price
greater or equal to $28.48 to be eligible to be  exchanged  for options  with an
exercise  price at the then fair  market  value of $16.50  per share and a first
vest date of February  21,  1997.  This  cancellation  and  reissuance  of stock
options affected approximately 860,000 options.


K.    COMMITMENTS AND CONTINGENCIES


Lease Commitments

The Company leases its office space and certain  equipment under  non-cancelable
operating   leases.   The  future   minimum   lease   commitments   under  these
non-cancelable leases at December 31, 1996 are as follows (in thousands):

            1997......................................        $12,019
            1998......................................         10,208
            1999......................................          8,613
            2000......................................          8,453
            2001......................................          4,616
            Thereafter...............................          35,942
                                                            ---------
            Total.....................................        $79,851
                                                            =========

The Company's two leases for corporate office space in Tewksbury, Massachusetts,
and the lease for the Company's  Burbank,  California  sales and support office,
expiring September 2000, June 2010 and January 2007,  respectively,  all contain
renewal options to extend the respective terms for an additional 60 months.

The accompanying  consolidated  results of operations  reflect rent expense on a
straight-line  basis  over the term of the  leases.  Total  rent  expense  under
non-cancelable operating leases was approximately  $11,425,000,  $6,818,000, and
$3,612,000 for the years ended December 31, 1996, 1995, and 1994, respectively.


Purchase Commitments

During 1994, the Company entered into a development and manufacturing  licensing
agreement with an unrelated  company.  Included in prepaid  expenses at December
31, 1995 are approximately  $500,000 of refundable  prepaid purchases related to
this agreement. This agreement may be terminated by either party, as defined.

The Company currently buys certain key components used in its products from sole
source suppliers.  These components are purchased through purchase orders placed
from time to time. The Company generally does not carry significant  inventories
of these sole source  components and has no guaranteed  supply  arrangements for
them. These purchasing  arrangements can result in delays in obtaining  products
from time to time. While the Company believes that alternative sources of supply
for its sole source  components could be developed,  its business and results of
operations  could be  adversely  affected  if it were to  encounter  an extended
interruption in its source of supply.


Accounts Sold with Recourse

The Company from time to time sells systems to unrelated financial  institutions
which  lease  such   systems  to  end-user   customers.   In  certain  of  these
transactions,  the  Company  accepts  varying  amounts  of  recourse  from  such
unrelated  third-party  lessors.  At December 31, 1996 and 1995, the third party
lessors'   uncollected  balance  of  lease  receivables  with  recourse  totaled
approximately  $22,565,000  and  $10,700,000,  respectively  with  approximately
$7,964,000 and $3,470,000, respectively of associated recourse to Avid. Included
in the Company's accrued expenses are provisions for estimated losses under such
recourse  agreements.  To date,  the  Company  has  experienced  no  significant
write-offs or returns under such recourse agreements.


Research and Development Contracts

During 1995, the Company  entered into research and  development  contracts with
third parties under which it received $4.3 million to be used in the development
of certain  specified  products.  Approximately  $2,900,000  was  recorded  as a
reduction of the related  development  costs during 1995.  At December 31, 1995,
$1,400,000 was included in accrued expenses due to the status of related product
development and other terms of the underlying contracts.  The Company granted to
such third  parties,  among other  things,  discounted  pricing on the  products
developed. At December 31, 1996 $179,000 remained in accrued expenses.


Contingencies

On June 7, 1995, the Company filed a patent infringement complaint in the United
States   District  Court  for  the  District  of   Massachusetts   against  Data
Translation,  Inc.,  a Marlboro,  Massachusetts-based  company.  Avid is seeking
judgment against Data Translation that, among other things, Data Translation has
willfully  infringed  Avid's  patent  number  5,045,940,  entitled  "Video/Audio
Transmission System and Method." Avid is also seeking an award of treble damages
together  with  prejudgment  interest  and costs,  Avid's  costs and  reasonable
attorneys'  fees,  and an injunction to prohibit  further  infringement  by Data
Translation.  The litigation has been  temporarily  stayed pending a decision by
the U.S. Patent and Trademark  Office on a reissue patent  application  based on
the issued patent.

In December 1995, six purported  shareholder  class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company  and  certain  of  its   underwriters  and  officers  and  directors  as
defendants.  On July  31,  1996,  the six  actions  were  consolidated  into two
lawsuits:  one  brought  under the 1934  Securities  Exchange  Act (the "`34 Act
suit") and one under the 1933  Securities  Act (the "`33 Act  suit").  Principal
allegations  contained in the two complaints  include claims that the defendants
violated federal  securities laws and state common law by allegedly making false
and  misleading  statements  and  by  allegedly  failing  to  disclose  material
information that was required to be disclosed,  purportedly causing the value of
the Company's stock to be artificially inflated. The `34 Act suit was brought on
behalf of all persons who bought the  Company's  stock between July 26, 1995 and
December 20, 1995.  The `33 Act suit was brought on behalf of persons who bought
the Company's  stock  pursuant to its September 21, 1995 public  offering.  Both
complaints  seek  unspecified  damages  for  the  decline  of the  value  of the
Company's stock during the applicable  period.  A motion to dismiss both the `34
Act and the `33 Act suit  was  filed  on  October  18,  1996.  Plaintiffs  filed
oppositions to both motions on December 13, 1996. The  defendants'  Reply Briefs
were filed and the Court heard oral  argument on all pending  motions on January
28 and 29, 1997.  Both motions  have been taken under  advisement  by the court.
Although the Company  believes that it and the other defendants have meritorious
defenses to the allegations  made by the plaintiffs and intends to contest these
lawsuits  vigorously,  an adverse  resolution  of this  litigation  could have a
material  adverse  effect on the Company's  consolidated  financial  position or
results of  operations  in the period in which the  litigation  is  resolved.  A
reasonable  estimate of the Company's  potential loss for damages cannot be made
at this time. No costs have been accrued for this possible loss contingency.

On March 11, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company,  a California  partnership  located in Beverly Hills,
California.  On May 16,  1996,  the suit was  transferred  to the United  States
District  Court for the Southern  District of New York on motion by the Company.
The complaint  alleges  infringement  by Avid of U.S.  patent number  4,258,385,
issued in 1981,  and seeks  injunctive  relief,  treble  damages and costs,  and
attorneys'  fees. The Company  believes that it has meritorious  defenses to the
complaint and intends to contest it vigorously.  However,  an adverse resolution
of this  litigation  could have an adverse effect on the Company's  consolidated
financial  position  or  results  of  operations  in the  period  in  which  the
litigation is resolved.

On April 23, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the District of Massachusetts
by Data  Translation,  Inc., of Marlboro,  Massachusetts.  The complaint alleges
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief,  treble damages and costs and attorneys' fees. The Company believes that
it  has  meritorious  defenses  to  the  complaint  and  intends  to  defend  it
vigorously.  However,  an adverse  resolution of this  litigation  could have an
adverse effect on the Company's  consolidated  financial  position or results of
operations in the period in which the litigation is resolved.

The Company also receives  inquiries from time to time with regard to additional
possible patent infringement  claims.  These inquiries are generally referred to
counsel  and  are in  various  stages  of  discussion.  If any  infringement  is
determined to exist, the Company may seek licenses or settlements.  In addition,
from time to time as a normal incidence of the nature of the Company's business,
various claims,  charges,  and litigation are asserted or commenced  against the
Company arising from or related to contractual or employee  relations or product
performance.  Management  does not believe  these  claims  would have a material
adverse  effect on the  financial  position  or  results  of  operations  of the
Company.



L.    FINANCIAL INSTRUMENTS


Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk consist of temporary cash  investments  and trade  receivables.  The
Company places its excess cash in marketable investment grade securities.  There
are no  significant  concentrations  in  any  one  issuer  of  debt  securities.
Concentrations  of credit risk with respect to trade receivables are limited due
to the large number of customers  comprising the Company's  customer bases,  and
their dispersion across different  regions.  The Company also maintains reserves
for  potential  credit  losses and such  losses  have been  within  management's
expectations.


Forward Exchange Contracts

As of December 31, 1996 and 1995, the Company had approximately  $24,738,000 and
$37,087,000,  respectively of foreign  exchange forward  contracts  outstanding,
denominated in various  European and Asian  currencies,  the Canadian dollar and
the Australian dollar, as a hedge against its committed exposures. The following
table  summarizes the December 31, 1996 currencies and  approximate  U.S. dollar
amounts  involved;  the Company is the seller with respect to each contract with
the exception of the Irish pound contract (in thousands):




                                                             Approximate
                                   Local Currency            U.S. Dollar
                                       Amount                Equivalent
                                   -----------------     ---------------
            Australian Dollar          2,000                   $1,589
            Singapore Dollar           1,000                      716
            British Pound              1,000                    1,711
            Canadian Dollar            1,600                    1,176
            German Mark               11,000                    7,084
            Italian Lire           4,200,000                    2,745
            Irish Pound                  900                    1,489
            French Franc              29,000                    5,531
            Japanese Yen             309,000                    2,697
                                                              --------
                                                              $24,738
                                                              ========

The forward exchange contracts generally have maturities of one month. Net gains
(losses) of  approximately  $968,000,  $(687,000),  and $107,000  resulting from
foreign exchange contracts were included in results of operations in 1996, 1995,
and 1994,  respectively.  The fair values of these forward exchange contracts as
of December 31, 1996 and 1995 approximate the contract amounts.


M.    GEOGRAPHICAL INFORMATION


A summary of the Company's  operations by geographical  area for the years ended
December 31, 1996, 1995 and 1994 follows (in thousands):


                                               1996          1995         1994
                                             ---------     --------      -------
Net revenues:
   North America............................  $283,959     $283,474    $182,230
   Asia Pacific and  Latin America..........    36,424       23,365       5,667
   Europe...................................   153,311      131,014      64,180
   Eliminations of transfers from North
    America to other areas..................   (44,685)     (31,203)    (18,444)
                                              ----------   ---------   ---------
       Total net revenues...................  $429,009     $406,650    $233,633
                                              ==========   =========   ========

Operating income:
   North America............................  $(63,451)(1)  $11,111     $14,610
   Asia Pacific and  Latin America..........      (191)(1)    1,480         283
   Europe...................................     4,991 (1)   16,732       8,316
   Eliminations.............................      (712)      (6,676)(2)     203
                                               ----------   ----------  --------
       Total operating income (loss)          $(59,363)     $22,647     $23,412
                                               ==========  ===========  ========

Identifiable assets:
   North America............................  $158,846      $196,143   $112,122
   Asia Pacific and  Latin America..........    15,965        20,408      4,294
   Europe...................................    49,385        61,412     48,897
   Eliminations.............................   (17,257)      (26,851)   (35,030)
                                               ---------    ---------  ---------
       Total identifiable assets............  $206,939      $251,112   $130,283
         Corporate assets...................    94,040        80,492     51,891
                                               ---------    ---------  ---------
            Total assets at December 31,....  $300,979      $331,604   $182,174
                                               =========   ==========  =========


(1)  Includes  nonrecurring  costs,  as  described  in Note  N, of  $24,248,000,
     $632,000,  and $4,070,000  recorded in North America,  Asia Pacific,  Latin
     America, and Europe, respectively in 1996.

(2)  Includes expenses of $5,456,000 related to merger costs.

Sales  outside  North  America  included  in  North  American   operations  were
approximately $22,477,000, $35,680,000, and $31,317,000 in 1996, 1995, and 1994,
respectively.

Transfers  between  geographic  areas  are  accounted  for at prices  which,  in
general, provide a profit after coverage of all manufacturing costs.

Identifiable assets are those assets of the Company that are identified with the
operations in each geographic  area.  Corporate  assets are principally cash and
marketable securities.


N.    NONRECURRING COSTS

In the first  quarter of 1996,  the Company  recorded a  nonrecurring  charge of
$20,150,000.   Included  in  this   charge  was   $7,000,000   associated   with
restructuring,  consisting of approximately $5,000,000 of costs related to staff
reductions of approximately 70 employees,  primarily in the U.S., and associated
write-offs  of  fixed  assets,   and  $2,000,000  related  to  the  decision  to
discontinue  development  of certain  products  and  projects.  Included in this
$7,000,000  were  approximately   $4,976,000  of  cash  payments  consisting  of
$3,617,000 of salaries and related severance costs and $1,359,000 of other staff
reduction and discontinued development costs. The non-cash charges of $2,024,000
recorded during 1996 consists primarily of $1,459,000 for the write-off of fixed
assets.  Also included in this  $20,150,000  nonrecurring  charge is $13,150,000
related to product transition costs associated with the transition from NuBus to
PCI bus technology in some of the Company's  product  lines.  As of December 31,
1996, the Company had completed the related restructuring and product transition
actions.

In September  1996, the Company  recorded a  nonrecurring  charge of $8,800,000,
associated  primarily with the Company's  decision not to release the Avid Media
Spectrum product line. This charge includes costs to write-off inventory,  fixed
assets,  capitalized  software  and  various  other  costs  associated  with the
canceled  product  line.  Approximately  $7,200,000  of the  charge  relates  to
non-cash items associated with the write-off of assets. As of December 31, 1996,
$6,600,000 of the charge had been recorded  against the  liability.  The Company
expects that these restructuring actions will be completed by March 31, 1997.

As described in Note O, in connection  with the 1995  acquisitions,  the Company
incurred merger costs of approximately $5,456,000. Of this amount, approximately
$3,900,000  represents  provision  for direct  transaction  expenses,  primarily
professional fees, and $1,600,000 consists of various restructuring charges.


O.    ACQUISITIONS

In March  1995,  the  Company  acquired  Parallax  Software  Limited and 3 Space
Software  Limited,  developers of paint and  compositing  software,  and Elastic
Reality,  Inc., a developer of special  effects  software.  These  transactions,
which were  accounted  for as poolings of interest,  were  effected  through the
exchange of  approximately  1.5 million shares of the Company's Common Stock for
all of the issued and  outstanding  shares of these  entities.  The December 31,
1995,  accompanying balance sheet and statement of stockholders' equity includes
a retained earnings  adjustment for December 31, 1994,  retained earnings of the
companies,  as the Company's previous years' financial  statements have not been
restated.  The operations of Parallax Software Limited, 3 Space Software Limited
and  Elastic  Reality,  Inc.  are not  material  to the  Company's  consolidated
operations.

In January 1995, the Company completed a merger with Digidesign.  The merger was
accounted for as a pooling of interests and was effected through the exchange of
approximately  6 million  shares of the  Company's  Common  Stock for all of the
issued and outstanding  shares of Digidesign based on a merger exchange ratio of
 .79 shares of Avid Common Stock for each share of Digidesign  Common Stock.  The
historical  consolidated  financial  statements  for  all  years  prior  to  the
acquisition  have been  restated in the  consolidated  financial  statements  to
include  the  financial  position,  results  of  operations  and  cash  flows of
Digidesign.  Effective January 5, 1995, Digidesign's fiscal year end was changed
from  March  31  to  December  31  to  conform  with  the  Company's  year  end.
Digidesign's  results of operations for the 12-month periods ending December 31,
1994,  and March 31, 1994,  have been  included in the  Company's  1994 and 1993
results, respectively. Accordingly, Digidesign's operations for the three months
ended March 31,  1994,  are  included in the  Company's  results for both of the
years ended December 31, 1994 and 1993 (when presented). Revenues and net income
for  Digidesign for the three months ended March 31, 1994,  were  $8,510,000 and
$1,078,000,  respectively.  This  net  income  amount  has been  reported  as an
adjustment to  consolidated  retained  earnings.  Revenue and net income for the
individual entities was as follows:

                                         1994
                                       --------
           Net revenues
            Avid Technology, Inc.      $203,668
            Digidesign, Inc.             38,652
            Adjustments                  (8,687)
                                       --------
                    Combined           $233,633
                                       ========

           Net income
            Avid Technology, Inc.       $12,971
            Digidesign, Inc.              5,047
            Adjustments                    (225)
                                        --------
                     Combined           $17,793
                                        ========


The  adjustments to the historical  consolidated  financial  statements  reflect
those  necessary  to  eliminate  the  effects  on  the  consolidated   financial
statements of Digidesign sales to Avid.

On October 1, 1994,  the Company  acquired  certain  assets and assumed  certain
liabilities of Basys  Automation  Systems  (Basys),  a manufacturer  of newsroom
automation  systems.  Basys'  revenues were  approximately  $19,600,000 the year
ended  December  31,  1994.  The  effect of this  acquisition  on net  income is
immaterial.  This  transaction  was  accounted  for under the  purchase  method.
Accordingly,  the results of Basys are  included in the  consolidated  financial
statements  from the acquisition  date forward.  The purchase price was equal to
fair value of the net assets  acquired.  Additionally,  on October 1, 1994,  the
Company  acquired  SofTECH  Systems,  Inc.  (SofTECH),  a developer  of newsroom
automation software.  This transaction,  which was accounted for as a pooling of
interests,  was  effected  through the exchange of shares of Common Stock of the
Company for all the issued and outstanding shares of SofTECH.  The operations of
SofTECH are not material to the Company's consolidated operations. The aggregate
consideration   for  the  Basys  and  SofTECH   acquisitions  was  approximately
$5,000,000 in cash and stock.


P.    QUARTERLY RESULTS (UNAUDITED)

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

In thousands, except per share data:

<TABLE>
<CAPTION>
                                                                        Quarters Ended
                                ---------------------------------------------------------------------------------------------------
                                                      1996                                             1995
                                ------------------------------------------------    -----------------------------------------------
                                   Dec.        Sept.        Jun.          Mar.         Dec.       Sept.          Jun.         Mar.
                                    31           30          30            31           31         30             30           31
                                ------------------------------------------------     ----------------------------------------------
<S>                             <C>          <C>          <C>            <C>         <C>         <C>           <C>          <C>
Net revenues..................  $113,211     $114,664     $109,095       $92,039     $109,931    $114,377      $98,447      $83,895
Cost of revenues..............    66,266(1)    60,670       59,416        52,456       54,722      56,408       47,143       40,568
                                ------------------------------------------------     ----------------------------------------------
Gross profit..................    46,945       53,994       49,679        39,583       55,209      57,969       51,304       43,327
                                ------------------------------------------------     ----------------------------------------------
Operating expenses:
  Research & development......    17,583       17,569       16,637        17,616       15,657      12,834       13,141       12,209
  Marketing & Selling.........    32,182       31,303       33,088        30,433       32,926      27,747       25,449       21,658
  General & administrative....     5,857        6,767        6,081         5,498        5,282       4,459        4,110        4,234
  Nonrecurring costs..........                  8,800                     20,150                                              5,456
                                 -----------------------------------------------     ----------------------------------------------
Total operating expenses......    55,622       64,439       55,806        73,697       53,865      45,040       42,700       43,557
                                 -----------------------------------------------     -----------------------------------------------
Operating income (loss).......    (8,677)     (10,445)      (6,127)      (34,114)       1,344      12,929        8,604         (230)
Other income, net.............     1,596          523          710           587          660         (53)         408          365
                                 -----------------------------------------------     -----------------------------------------------
Income (loss) before
 income taxes.................    (7,081)      (9,922)      (5,417)      (33,527)       2,004      12,876        9,012          135
Provision for (benefit from)
 income taxes.................    (2,250)      (3,164)      (1,760)      (10,729)         491       4,122        2,882        1,093
                                 -----------------------------------------------     -----------------------------------------------
Net income (loss).............   $(4,831)     $(6,758)     $(3,657)     $(22,798)      $1,513      $8,754       $6,130        $(958)
                                 ===============================================     ===============================================
Net income (loss)
 per common share.............     $(.23)       $(.32)       $(.17)       $(1.08)        $.07        $.43         $.31        $(.05)
                                 ===============================================     ===============================================
Weighted average common
 and common equivalent
 shares outstanding...........    21,306       21,224       21,104        21,019       22,196      20,344       19,989       18,129
                                 ===============================================     ===============================================

High common stock price.......   $16.250      $20.500      $25.875       $22.750      $48.750     $47.750      $40.500      $34.000
Low common stock price........   $10.125      $12.375      $17.875       $16.375      $16.750     $37.250      $28.250      $23.000
<FN>
(1) Includes a non-cash  charge of $5.6  million  related  principally  to spare
parts which are no longer required to support the Company's business.
</FN>
</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,
marketing  expenditures,  promotional programs,  and periodic discounting due to
competitive factors. The Company's operating results may fluctuate in the future
as a result of these and other  factors,  including  the  Company's  success  in
developing and introducing  new products,  its products and customer mix and the
level  of  competition  which  it  experiences.  The  Company  operates  with  a
relatively  small  backlog.  Quarterly  sales and  operating  results  therefore
generally depend on the volume and timing of orders received during the quarter.
The  Company's  expense  levels  are  based in part on its  forecasts  of future
revenues.  If revenues are below  expectations,  the Company's operating results
may be  adversely  affected.  Accordingly,  there can be no  assurance  that the
Company will be profitable in any particular quarter.



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

Not applicable.


<PAGE>


                                     PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  response to this item is  contained  in part under the  caption  "EXECUTIVE
OFFICERS OF THE COMPANY" in Part I hereof, and the remainder is contained in the
Company's  Proxy  Statement for the Annual Meeting of Shareholders to be held on
June 4,  1997 (the  "1997  Proxy  Statement")  under the  caption  "Election  of
Directors" and is incorporated herein by reference.



ITEM 11.  EXECUTIVE COMPENSATION

The  response to this item is contained in the  Company's  1997 Proxy  Statement
under the captions "Director's Compensation" and "Executive Compensation" and is
incorporated herein by reference. Information relating to any delinquent filings
of Forms 3, 4 and 5 of the  Company is  contained  in the  Company's  1997 Proxy
Statement under the caption "Reports under Section 16(a) of the Exchange Act."



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  response to this item is contained in the  Company's  1997 Proxy  Statement
under  the  caption  "Security   Ownership  of  Certain  Beneficial  Owners  and
Management" and is incorporated herein by reference.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  response to this item is contained in the  Company's  1997 Proxy  Statement
under  the  caption  "Certain  Transactions,"  and  is  incorporated  herein  by
reference.

<PAGE>



                                      PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1.      FINANCIAL STATEMENTS

The following  consolidated  financial statements are included in Item 8:

       -  Report of Independent Accountants 

       -  Consolidated Statements of Operation for the years ended December 31,
           1996,  1995 and 1994. 

       -  Consolidated  Balance  Sheets as of  December  31,  1996 and  1995.  

       -  Consolidated Statements of Stockholders' Equity for the years ended
           December 31, 1996, 1995 and 1994.

       -  Consolidated Statements of Cash Flows for the years ended December 31,
           1996, 1995 and 1994. 

       -  Notes to Consolidated Financial Statements


(a) 2.      FINANCIAL STATEMENT SCHEDULE

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

         Schedule II   -    Valuation and Qualifying Accounts

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


(a) 3.      LISTING OF EXHIBITS

EXHIBIT NO.                               DESCRIPTION

     3.1  Certificate of Amendment of the Third Amended and Restated Certificate
          of Incorporation  of the Registrant  (incorporated by reference to the
          Registrant's   Quarterly  Report  on  Form  10-Q  as  filed  with  the
          Commission on May 15, 1995, File No. 0-21174).

     3.2  Third  Amended  and  Restated  Certificate  of  Incorporation  of  the
          Registrant (incorporated by reference to the Registrant's Registration
          Statement  on Form S-8 as filed with the  Commission  on June 9, 1993,
          File No. 33-64126).

     3.3  Amended  and  Restated  By-Laws  of the  Registrant  (incorporated  by
          reference to the  Registrant's  Registration  Statement on Form S-1 as
          declared  effective  by the  Commission  on March 11,  1993,  File No.
          33-57796).

     3.4  Certificate of Designations establishing Series A Junior Participating
          Preferred Stock (the "Certificate of  Designations")  (incorporated by
          reference to the Registrant's Annual Report on Form 10-K as filed with
          the Commission on April 1, 1996).

     3.5  Certificate  of  Correction  to  the   Certificate   of   Designations
          (incorporated by reference to the  Registrant's  Annual Report on Form
          10-K as filed with the Commission on April 1, 1996).

     4.1  Specimen  Certificate   representing  the  Registrant's  Common  Stock
          (incorporated by reference to the Registrant's  Registration Statement
          on Form S-1 as declared effective by the Commission on March 11, 1993,
          File No. 33-57796).

     4.2  Rights  Agreement,   dated  as  of  February  29,  1996,  between  the
          Registrant  and The First  National  Bank of Boston,  as Rights  Agent
          (incorporated by reference to the Registrant's  Current Report on Form
          8-K as filed with the Commission on March 8, 1996, File No. 0-21174).

    10.1  Lease  Agreement,  dated as of April  20,  1992,  by and  between  the
          Registrant and Metropolitan  Life Insurance  Company  (incorporated by
          reference to the  Registrant's  Registration  Statement on Form S-1 as
          declared  effective  by the  Commission  on March 11,  1993,  File No.
          33-57796).

    10.2  Second Amendment dated as of March 17, 1994 to Lease dated as of April
          20, 1992 as amended by the First Amendment thereto dated September 21,
          1992 between  Metropolitan Life Insurance Company and Avid Technology,
          Inc.  (incorporated by reference to the Registrant's  Quarterly Report
          on Form 10-Q as filed with the  Commission  on May 13, 1994,  File No.
          0-21174).

    10.3  Lease dated September 29, 1995 between Allied Dunbar Insurance PLC and
          Avid Technology Limited (incorporated by reference to the Registrant's
          Quarterly Report on Form 10-Q as filed with the Commission on November
          14, 1995, File No. 0-21174).

    10.4  Lease dated  August 30, 1995  between  Syntex  (U.S.A.)  Inc. and Avid
          Technology,  Inc.  (incorporated  by  reference  to  the  Registrant's
          Quarterly Report on Form 10-Q as filed with the Commission on November
          14, 1995, File No. 0-21174).

    10.5  Lease between MGI Andover Street, Inc. and Avid Technology, Inc. dated
          March  21,  1995   (incorporated  by  reference  to  the  Registrant's
          Quarterly  Report on Form 10-Q as filed with the Commission on May 15,
          1995, File No. 0-21174).

    10.6  Amended and  Restated  lease dated as of June 7, 1996  between MGI One
          Park West, Inc. and Avid Technology,  Inc.  (incorporated by reference
          to the  Registrant's  Quarterly  Report on Form 10-Q as filed with the
          Commission on August 14, 1996, File No. 0-21174).

    10.7  Amended and Restated Revolving Credit Agreement among Avid Technology,
          Inc.,  The First  National Bank of Boston,  as agent,  NationsBank  of
          Texas,  N.A.,  BayBank and ABN AMRO Bank N.V. dated as of July 1, 1995
          (incorporated  by reference to the  Registrant's  Quarterly  Report on
          Form 10-Q as filed with the  Commission  on August 9,  1995,  File No.
          0-21174).

    10.8  First  Amendment  dated  September  30, 1995 to Amended  and  Restated
          Revolving  Credit  Agreement by and among Avid  Technology,  Inc., The
          First National Bank of Boston, as agent,  NationsBank of Texas,  N.A.,
          BayBank  and ABN AMRO  Bank N.V.  (incorporated  by  reference  to the
          Registrant's   Quarterly  Report  on  Form  10-Q  as  filed  with  the
          Commission on November 14 , 1995, File No. 0-21174).

    10.9  Second Amendment dated as of February 28, 1996 to Amended and Restated
          Revolving  Credit  Agreement  among Avid  Technology,  Inc., The First
          National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
          and ABN AMRO  Bank N.V.  dated as of June 30,  1996  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on August 14, 1996, File No. 0-21174).

   10.10  Third  Amendment  dated  as of May 8,  1996 to  Amended  and  Restated
          Revolving  Credit  Agreement  among Avid  Technology,  Inc., The First
          National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
          and ABN AMRO  Bank N.V.  dated as of June 30,  1996  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on August 14, 1996, File No. 0-21174).

   10.11  Fourth  Amendment  dated as of June 28, 1996 to Amended  and  Restated
          Revolving  Credit  Agreement  among Avid  Technology,  Inc., The First
          National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
          and ABN AMRO  Bank N.V.  dated as of June 30,  1996  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on August 14, 1996, File No. 0-21174).

   10.12  Fifth  Amendment  dated as of July 1,  1996 to  Amended  and  Restated
          Revolving  Credit  Agreement  among Avid  Technology,  Inc., The First
          National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
          and ABN AMRO  Bank N.V.  dated as of June 30,  1996  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on August 14, 1996, File No. 0-21174).

   10.13  Form of  Distribution  Agreement  (incorporated  by  reference  to the
          Registrant's  Registration Statement on Form S-1 as declared effective
          by the Commission on March 11, 1993, File No. 33-57796).

   10.14  Form of Purchase and License  Agreement  (incorporated by reference to
          the  Registrant's  Registration  Statement  on  Form  S-1 as  declared
          effective by the Commission on March 11, 1993, File No. 33-57796).

   10.15  Form of Software Only License Agreement  (incorporated by reference to
          the  Registrant's  Registration  Statement  on  Form  S-1 as  declared
          effective by the Commission on March 11, 1993, File No. 33-57796).

  #10.16  1989  Stock   Option  Plan   (incorporated   by  reference  to  the
          Registrant's Registration Statement on Form S-1 as declared effective
          by the Commission on March 11, 1993, File No. 33-57796).

  #10.17  1993  Stock   Option  Plan   (incorporated   by  reference  to  the
          Registrant's Registration Statement on Form S-1 as declared effective
          by the Commission on March 11, 1993, File No. 33-57796).

  #10.18  1993  Director  Stock  Option  Plan,  as  amended  (incorporated  by
          reference  to the  Registrant's  Proxy  Statement  as  filed  with the
          Commission on April 27, 1995, File No. 02-1174).

  #10.19  1993 Executive Compensation Agreement  (incorporated by reference to
          the  Registrant's  Registration  Statement  on  Form  S-1 as  declared
          effective by the Commission on March 11, 1993, File No. 33-57796).

  #10.20  1993 Employee Stock Purchase Plan  (incorporated by reference to the
          Registrant's  Registration  Statement  on Form S-8 as  filed  with the
          Commission on June 9, 1993, File No. 33-64130).

  #10.21  1994 Stock Option Plan, as amended (incorporated by reference to the
          Registrant's  Registration  Statement  on Form S-8 as  filed  with the
          Commission on October 27, 1995, File No. 33-98692).

  #10.22  Digidesign,  Inc. 1991 Stock Option Plan  (incorporated by reference
          to Registrant's  Registration  Statement on Form S-8 as filed with the
          Commission on January 6, 1995, File No. 33-88318).

  #10.23  1995  Executive  Variable  Compensation  Program  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on May 15, 1995, File No. 0-21174).

  #10.24  1993  Director  Stock  Option  Plan,  as  amended  (incorporated  by
          reference to the  Registrant's  Registration  Statement on Form S-8 as
          filed with the Commission on July 25, 1996, File No. 333-08821).

  #10.25  1994 Stock Option Plan, as amended (incorporated by reference to the
          Registrant's  Registration  Statement  on Form S-8 as  filed  with the
          Commission on July 25, 1996, File No. 333-08823).

  #10.26  1996 Employee Stock Purchase Plan  (incorporated by reference to the
          Registrant's  Registration  Statement  on Form S-8 as  filed  with the
          Commission on July 25, 1996, File No. 333-08825).

  #10.27  Employment  Agreement  between  the  Company  and William J. Miller
          (incorporated  by reference to the  Registrant's  quarterly  Report on
          Form 10-Q as filed with the Commission on November 14, 1996,  File No.
          0-21174).

  #10.28  Employment  Agreement  between the Company and William L.  Flaherty
          (incorporated  by reference to the  Registrant's  quarterly  Report on
          Form 10-Q as filed with the Commission on November 14, 1996,  File No.
          0-21174).

  #10.29  Employment   agreement  between  the  Company  and  Clifford  Jenks
          (incorporated  by reference to the  Registrant's  quarterly  Report on
          Form 10-Q as filed with the Commission on November 14, 1996,  File No.
          0-21174).

   10.30  Agreement  and Plan of Merger,  dated as of October 25, 1994,  among
          Avid   Technology,   Inc.,  Avid  Technology   Merger  Co.,  Inc.  and
          Digidesign,  Inc.  (incorporated by reference to Registrant's  Current
          Report on Form 8-K as filed with the  Commission  on October 31, 1994,
          File No. 0-21174).

     *11  Statement Regarding Supplemental Computation of Per Share Earnings.

     *21  Subsidiaries of the Registrant.

     *23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants

__________________
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.

(b)   REPORTS ON FORM 8-K

For the fiscal  quarter  ended  December 31, 1996,  the Company filed no Current
Reports on Form 8-K.



<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/ WILLIAM J. MILLER                  By: /S/ WILLIAM L. FLAHERTY
     William J. Miller                          William L. Flaherty
     Chairman of the Board,                     Senior Vice President of Finance
     President and Chief Executive Officer      and Chief Financial Officer
     (Principal Executive Officer)                 
     

Date:           MARCH 20, 1997                     Date:       MARCH 20, 1997
  ------------------------------                     --------------------------


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


      NAME                           TITLE                           DATE

/S/ CHARLES T. BRUMBACK            Director                    MARCH 15, 1997
- ------------------------                                       ---------------
Charles T. Brumback

/S/ WILLIAM E. FOSTER              Director                    MARCH 20, 1997
- ------------------------                                       --------------
 William E. Foster

/S/ PETER C. GOTCHER               Director                    MARCH 17, 1997
- ------------------------                                       --------------
 Peter C. Gotcher

/S/ ROBERT M. HALPERIN             Director                    MARCH 20, 1997
- ------------------------                                       --------------
Robert M. Halperin

/S/ WILLIAM S. KAISER              Director                    MARCH 20, 1997
- ------------------------                                       --------------
 William S. Kaiser

/S/ PAUL A. MAEDER                 Director                    MARCH 17, 1997
- ------------------------                                       --------------
 Paul A. Maeder

/S/ WILLIAM J. WARNER              Director                    MARCH 20, 1997
- ------------------------                                       --------------
 William J. Warner


<PAGE>










                               AVID TECHNOLOGY, INC.

                            ANNUAL REPORT ON FORM 10-K

                           YEAR ENDED DECEMBER 31, 1996


                                    ITEM 14(d)

                           FINANCIAL STATEMENT SCHEDULES












<PAGE>

                               AVID TECHNOLOGY, INC.

           SCHEDULE II - SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS

                   Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                       Additions
                                              --------------------------------
      Description                Balance  at    Charged to
                                  beginning      costs and       Charged to                          Balance at 
                                  of period      expenses       other accounts     Deductions      end of period
- ------------------------         -----------  --------------   ----------------   -------------   ---------------
<S>                               <C>            <C>             <C>             <C>                 <C>
Allowance for doubtful accounts

      December 31, 1996           $6,011,617     $5,599,130       $792,927       $(5,444,431)(a)     $6,959,243

      December 31, 1995            2,307,817      4,304,775        179,578          (780,553)(a)      6,011,617

      December 31, 1994              953,281      1,675,780        162,954(c)       (484,198)(a)      2,307,817

Sales returns and allowances

      December 31, 1996             $460,595                      $283,478(b)      $(184,473)(a)       $559,600

      December 31, 1995              846,936                        35,837(b)       (422,178)(a)        460,595

      December 31, 1994              316,763                      $834,709(b)       (304,536)(a)        846,936

Inventory valuation allowance

      December 31, 1996           $9,780,463    $22,925,413                     $(24,333,416)(a)     $8,372,460

      December 31, 1995            5,462,514     10,089,567       $972,371        (6,743,989)(a)      9,780,463

      December 31, 1994            2,563,018      4,392,608        535,624(c)     (2,028,736)(a)      5,462,514

<FN>
(a)  Amount represents write-offs net of recoveries.
(b)  Sales returns provisions are charged directly against revenue.
(c)  Amount represents allowances acquired in business combination.
</FN>
</TABLE>


<PAGE>



                                 INDEX TO EXHIBITS




   EXHIBIT NO.                        DESCRIPTION                              

     3.1  Certificate of Amendment of the Third Amended and Restated Certificate
          of Incorporation  of the Registrant  (incorporated by reference to the
          Registrant's   Quarterly  Report  on  Form  10-Q  as  filed  with  the
          Commission on May 15, 1995, File No. 0-21174).

     3.2  Third  Amended  and  Restated  Certificate  of  Incorporation  of  the
          Registrant (incorporated by reference to the Registrant's Registration
          Statement  on Form S-8 as filed with the  Commission  on June 9, 1993,
          File No. 33-64126).

     3.3  Amended  and  Restated  By-Laws  of the  Registrant  (incorporated  by
          reference to the  Registrant's  Registration  Statement on Form S-1 as
          declared  effective  by the  Commission  on March 11,  1993,  File No.
          33-57796).

     3.4  Certificate of Designations establishing Series A Junior Participating
          Preferred Stock (the "Certificate of  Designations")  (incorporated by
          reference to the Registrant's Annual Report on Form 10-K as filed with
          the Commission on April 1, 1996).

     3.5  Certificate  of  Correction  to  the   Certificate   of   Designations
          (incorporated by reference to the  Registrant's  Annual Report on Form
          10-K as filed with the Commission on April 1, 1996).

     4.1  Specimen  Certificate   representing  the  Registrant's  Common  Stock
          (incorporated by reference to the Registrant's  Registration Statement
          on Form S-1 as declared effective by the Commission on March 11, 1993,
          File No. 33-57796).

     4.2  Rights  Agreement,   dated  as  of  February  29,  1996,  between  the
          Registrant  and The First  National  Bank of Boston,  as Rights  Agent
          (incorporated by reference to the Registrant's  Current Report on Form
          8-K as filed with the Commission on March 8, 1996, File No. 0-21174).

    10.1  Lease  Agreement,  dated as of April  20,  1992,  by and  between  the
          Registrant and Metropolitan  Life Insurance  Company  (incorporated by
          reference to the  Registrant's  Registration  Statement on Form S-1 as
          declared  effective  by the  Commission  on March 11,  1993,  File No.
          33-57796).

    10.2  Second Amendment dated as of March 17, 1994 to Lease dated as of April
          20, 1992 as amended by the First Amendment thereto dated September 21,
          1992 between  Metropolitan Life Insurance Company and Avid Technology,
          Inc.  (incorporated by reference to the Registrant's  Quarterly Report
          on Form 10-Q as filed with the  Commission  on May 13, 1994,  File No.
          0-21174).

    10.3  Lease dated September 29, 1995 between Allied Dunbar Insurance PLC and
          Avid Technology Limited (incorporated by reference to the Registrant's
          Quarterly Report on Form 10-Q as filed with the Commission on November
          14, 1995, File No. 0-21174).

    10.4  Lease dated  August 30, 1995  between  Syntex  (U.S.A.)  Inc. and Avid
          Technology,  Inc.  (incorporated  by  reference  to  the  Registrant's
          Quarterly Report on Form 10-Q as filed with the Commission on November
          14, 1995, File No. 0-21174).

    10.5  Lease between MGI Andover Street, Inc. and Avid Technology, Inc. dated
          March  21,  1995   (incorporated  by  reference  to  the  Registrant's
          Quarterly  Report on Form 10-Q as filed with the Commission on May 15,
          1995, File No. 0-21174).

    10.6  Amended and  Restated  lease dated as of June 7, 1996  between MGI One
          Park West, Inc. and Avid Technology,  Inc.  (incorporated by reference
          to the  Registrant's  Quarterly  Report on Form 10-Q as filed with the
          Commission on August 14, 1996, File No. 0-21174).

    10.7  Amended and Restated Revolving Credit Agreement among Avid Technology,
          Inc.,  The First  National Bank of Boston,  as agent,  NationsBank  of
          Texas,  N.A.,  BayBank and ABN AMRO Bank N.V. dated as of July 1, 1995
          (incorporated  by reference to the  Registrant's  Quarterly  Report on
          Form 10-Q as filed with the  Commission  on August 9,  1995,  File No.
          0-21174).

    10.8  First  Amendment  dated  September  30, 1995 to Amended  and  Restated
          Revolving  Credit  Agreement by and among Avid  Technology,  Inc., The
          First National Bank of Boston, as agent,  NationsBank of Texas,  N.A.,
          BayBank  and ABN AMRO  Bank N.V.  (incorporated  by  reference  to the
          Registrant's   Quarterly  Report  on  Form  10-Q  as  filed  with  the
          Commission on November 14 , 1995, File No. 0-21174).

    10.9  Second Amendment dated as of February 28, 1996 to Amended and Restated
          Revolving  Credit  Agreement  among Avid  Technology,  Inc., The First
          National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
          and ABN AMRO  Bank N.V.  dated as of June 30,  1996  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on August 14, 1996, File No. 0-21174).

   10.10  Third  Amendment  dated  as of May 8,  1996 to  Amended  and  Restated
          Revolving  Credit  Agreement  among Avid  Technology,  Inc., The First
          National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
          and ABN AMRO  Bank N.V.  dated as of June 30,  1996  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on August 14, 1996, File No. 0-21174).

   10.11  Fourth  Amendment  dated as of June 28, 1996 to Amended  and  Restated
          Revolving  Credit  Agreement  among Avid  Technology,  Inc., The First
          National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
          and ABN AMRO  Bank N.V.  dated as of June 30,  1996  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on August 14, 1996, File No. 0-21174).

   10.12  Fifth  Amendment  dated as of July 1,  1996 to  Amended  and  Restated
          Revolving  Credit  Agreement  among Avid  Technology,  Inc., The First
          National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
          and ABN AMRO  Bank N.V.  dated as of June 30,  1996  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on August 14, 1996, File No. 0-21174).

   10.13  Form of  Distribution  Agreement  (incorporated  by  reference  to the
          Registrant's  Registration Statement on Form S-1 as declared effective
          by the Commission on March 11, 1993, File No. 33-57796).

   10.14  Form of Purchase and License  Agreement  (incorporated by reference to
          the  Registrant's  Registration  Statement  on  Form  S-1 as  declared
          effective by the Commission on March 11, 1993, File No. 33-57796).

   10.15  Form of Software Only License Agreement  (incorporated by reference to
          the  Registrant's  Registration  Statement  on  Form  S-1 as  declared
          effective by the Commission on March 11, 1993, File No. 33-57796).

  #10.16  1989  Stock   Option  Plan   (incorporated   by  reference  to  the
          Registrant's Registration Statement on Form S-1 as declared effective
          by the Commission on March 11, 1993, File No. 33-57796).

  #10.17  1993  Stock   Option  Plan   (incorporated   by  reference  to  the
          Registrant's Registration Statement on Form S-1 as declared effective
          by the Commission on March 11, 1993, File No. 33-57796).

  #10.18  1993  Director  Stock  Option  Plan,  as  amended  (incorporated  by
          reference  to the  Registrant's  Proxy  Statement  as  filed  with the
          Commission on April 27, 1995, File No. 02-1174).

  #10.19  1993 Executive Compensation Agreement  (incorporated by reference to
          the  Registrant's  Registration  Statement  on  Form  S-1 as  declared
          effective by the Commission on March 11, 1993, File No. 33-57796).

  #10.20  1993 Employee Stock Purchase Plan  (incorporated by reference to the
          Registrant's  Registration  Statement  on Form S-8 as  filed  with the
          Commission on June 9, 1993, File No. 33-64130).

  #10.21  1994 Stock Option Plan, as amended (incorporated by reference to the
          Registrant's  Registration  Statement  on Form S-8 as  filed  with the
          Commission on October 27, 1995, File No. 33-98692).

  #10.22  Digidesign,  Inc. 1991 Stock Option Plan  (incorporated by reference
          to Registrant's  Registration  Statement on Form S-8 as filed with the
          Commission on January 6, 1995, File No. 33-88318).

  #10.23  1995  Executive  Variable  Compensation  Program  (incorporated  by
          reference to the  Registrant's  Quarterly Report on Form 10-Q as filed
          with the Commission on May 15, 1995, File No. 0-21174).

  #10.24  1993  Director  Stock  Option  Plan,  as  amended  (incorporated  by
          reference to the  Registrant's  Registration  Statement on Form S-8 as
          filed with the Commission on July 25, 1996, File No. 333-08821).

  #10.25  1994 Stock Option Plan, as amended (incorporated by reference to the
          Registrant's  Registration  Statement  on Form S-8 as  filed  with the
          Commission on July 25, 1996, File No. 333-08823).

  #10.26  1996 Employee Stock Purchase Plan  (incorporated by reference to the
          Registrant's  Registration  Statement  on Form S-8 as  filed  with the
          Commission on July 25, 1996, File No. 333-08825).

  #10.27  Employment  Agreement  between  the  Company  and William J. Miller
          (incorporated  by reference to the  Registrant's  quarterly  Report on
          Form 10-Q as filed with the Commission on November 14, 1996,  File No.
          0-21174).

  #10.28  Employment  Agreement  between the Company and William L.  Flaherty
          (incorporated  by reference to the  Registrant's  quarterly  Report on
          Form 10-Q as filed with the Commission on November 14, 1996,  File No.
          0-21174).

  #10.29  Employment   agreement  between  the  Company  and  Clifford  Jenks
          (incorporated  by reference to the  Registrant's  quarterly  Report on
          Form 10-Q as filed with the Commission on November 14, 1996,  File No.
          0-21174).

   10.30  Agreement  and Plan of Merger,  dated as of October 25, 1994,  among
          Avid   Technology,   Inc.,  Avid  Technology   Merger  Co.,  Inc.  and
          Digidesign,  Inc.  (incorporated by reference to Registrant's  Current
          Report on Form 8-K as filed with the  Commission  on October 31, 1994,
          File No. 0-21174).

     *11  Statement Regarding Supplemental Computation of Per Share Earnings.

     *21  Subsidiaries of the Registrant.

     *23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants

__________________
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.







<PAGE>



                                                                     Exhibit 11

        STATEMENT REGARDING SUPPLEMENTAL COMPUTATION OF EARNINGS PER SHARE


                                                             Historical
                                                     --------------------------

                                                                       Fully
                                                       Primary        Diluted
                                                     ------------  ------------
For the year ended December 31, 1996:
Weighted average number of 
 common shares outstanding                         21,163,485        21,163,485
                                                 ------------      ------------
Net income (loss)                                $(38,044,000)     $(38,044,000)
                                                 ------------      ------------
Net income (loss) per common share                     $(1.80)           $(1.80)
                                                 ============      ============


For the year ended December 31, 1995:
Weighted average number of
 common shares outstanding                         19,009,515        19,009,515
Common stock equivalents                            1,154,948         1,162,877
                                                 ------------      ------------
                                                   20,164,463        20,172,392
                                                 ------------      ------------
Net income                                        $15,439,000       $15,439,000
                                                 ------------      ------------
Net income per common share                             $0.77             $0.77
                                                 ============      ============



For the year ended December 31, 1994:
Weighted average number of
 common shares outstanding                         16,237,765        16,237,555
Common stock equivalents                            1,683,494         1,763,693
                                                 ------------      ------------
                                                   17,921,259        18,001,248
                                                 ------------      ------------
Net income                                        $17,793,000       $17,793,000
                                                 ------------      ------------
Net income per common share                             $0.99             $0.99
                                                 ============      ============








<PAGE>





<PAGE>


                                                                     Exhibit 21


              SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1996

                    AVID TECHNOLOGY WORLDWIDE, INC. (Delaware)

                        PARALLAX SOFTWARE, INC. (Delaware)

              AVID TECHNOLOGY SECURITIES CORPORATION (Massachusetts)

                         ELASTIC REALITY, INC. (Wisconsin)

                      AVID TECHNOLOGY FSC LIMITED (Barbados)

                     AVID TECHNOLOGY EUROPE LIMITED (England)

                         AVID TECHNOLOGY LIMITED (England)

                     AVID TECHNOLOGY SYSTEMS LIMITED (England)

                        PARALLAX SOFTWARE LIMITED (England)

                        3 SPACE SOFTWARE LIMITED (England)

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

                        AVID TECHNOLOGY G.m.b.H. (Germany)

                      AVID TECHNOLOGY SALES LIMITED (Ireland)

                          AVID TECHNOLOGY S.R.L. (Italy)

                    AVID TECHNOLOGY HOLDING B.V. (Netherlands)

                 AVID TECHNOLOGY INTERNATIONAL B.V. (Netherlands)

                              AVID JAPAN K.K. (Japan)

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

                  AVID TECHNOLOGY (AUSTRALIA) PTY LTD (Australia)

                        AVID NORTH ASIA LIMITED (Hong Kong)








<PAGE>


CONSENT:


                                                                   Exhibit 23.1


Consent of Independent Accountants

We consent to the  incorporation by reference in the registration  statements of
Avid Technology,  Inc. on Form S-3 (File Nos. 33-93472,  33-96456 and 333-03128)
and Form S-8  (File  Nos.  33-64126,  33-64130,  33-64128,  33-64124,  33-82478,
33-88318,  33-98692,  333-08821,  333-08823  and  333-08825) of our report dated
February 6, 1997, on our audits of the  consolidated  financial  statements  and
financial  statement  schedule of Avid Technology,  Inc. as of December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
which report is included in this Annual Report on Form 10-K.





/s/ COOPERS & LYBRAND L.L.P.


Boston, Massachusetts
March 17,1997






<TABLE> <S> <C>


<PAGE>
<ARTICLE>                     5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET ON THE FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1996 AND THE
CONSOLIDATED STATEMENT OF INCOME AS FILED ON FORM 10-K FOR THE PERIOD ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>                                    1,000
       
<S>                             <C>
<PERIOD-TYPE>                  12-MOS
<FISCAL-YEAR-END>                              DEC-31-1996
<PERIOD-START>                                 JAN-01-1996
<PERIOD-END>                                   DEC-31-1996
<CASH>                                          75,795
<SECURITIES>                                    17,248
<RECEIVABLES>                                   93,706
<ALLOWANCES>                                     7,519
<INVENTORY>                                     28,359
<CURRENT-ASSETS>                               231,698
<PP&E>                                          92,281
<DEPRECIATION>                                  43,035
<TOTAL-ASSETS>                                 300,979
<CURRENT-LIABILITIES>                           86,378
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           213
<OTHER-SE>                                     213,202
<TOTAL-LIABILITY-AND-EQUITY>                   300,979
<SALES>                                        429,009
<TOTAL-REVENUES>                               429,009
<CGS>                                          238,808
<TOTAL-COSTS>                                  238,808
<OTHER-EXPENSES>                               249,564
<LOSS-PROVISION>                               (55,363)
<INTEREST-EXPENSE>                                (370)
<INCOME-PRETAX>                                (55,947)
<INCOME-TAX>                                   (17,903)
<INCOME-CONTINUING>                            (38,044)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (38,044)
<EPS-PRIMARY>                                    (1.80)
<EPS-DILUTED>                                    (1.80)
        


</TABLE>