Avid Technology, Inc.
AVID TECHNOLOGY, INC. (Form: 10-Q, Received: 08/06/2009 14:57:05)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

 

FORM 10-Q

 

(Mark One)

 

 

x

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

 

For the quarterly period ended June 30, 2009

 

o

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

 

For the transition period from __________   to   __________

 

Commission File Number:   0-21174

 

__________________

 

Avid Technology, Inc .

( Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware

(State or Other Jurisdiction of
Incorporation or Organization)

 

04-2977748

(I.R.S. Employer
 Identification No.)

 

 

One Park West

Tewksbury, Massachusetts 01876

(Address of Principal Executive Offices, Including Zip Code)

 

(978) 640-6789

(Registrant’s Telephone Number, Including Area Code)

__________________

 

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 for 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   o

 

Indicate by check mark whether the registrant has submitted and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes   o         No   o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Large Accelerated Filer  o
Non-accelerated Filer  o
(Do not check if smaller reporting company)

 

Accelerated Filer  x
Smaller Reporting Company  o

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes   o         No   x

 

The number of shares outstanding of the registrant’s Common Stock as of August 4, 2009 was 37,383,773.

 


AVID TECHNOLOGY, INC.

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

 

TABLE OF CONTENTS

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

Condensed Consolidated Financial Statements :

 

 

Condensed Consolidated Statements of Operations (unaudited) for
the three and six months ended June 30, 2009 and 2008

1

 

Condensed Consolidated Balance Sheets (unaudited) as of
June 30, 2009 and December 31, 2008

2

 

Condensed Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 2009 and 2008

3

 

Notes to Condensed Consolidated Financial Statements (unaudited)

4

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and
Results of Operations

21

ITEM 3.

Quantitative and Qualitative Disclosure About Market Risk

31

ITEM 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

33

ITEM 1A.

Risk Factors

33

ITEM 4.

Submission of Matters to a Vote of Security Holders

33

ITEM 6.

Exhibits

33

 

 

 

SIGNATURE

34

 

 

 

EXHIBIT INDEX

35

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Section 27A of the Securities Act of 1933, as amended, or the Securities Act. For this purpose, any statements contained in this quarterly report regarding our strategy, future plans or operations, financial position, future revenues, projected costs, prospects, and objectives of management, other than statements of historical facts, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations expressed or implied in forward-looking statements. There are a number of factors that could cause actual events or results to differ materially from those indicated or implied by such forward-looking statements, many of which are beyond our control, including the factors discussed in Part I - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008, and as referenced in Part II - Item 1A of this report. In addition, the forward-looking statements contained herein represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.

 


PART I.     FINANCIAL INFORMATION

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data, unaudited)

 

 

 

Three Months Ended
June 30,

 

 

 

Six Months Ended
June 30,

 

 

 

2009

 

 

 

2008

 

 

 

2009

 

 

 

2008

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

121,912

 

 

 

$

189,115

 

 

 

$

245,553

 

 

 

$

357,291

 

Services

 

 

28,631

 

 

 

 

33,748

 

 

 

 

56,619

 

 

 

 

63,838

 

Total net revenues

 

 

150,543

 

 

 

 

222,863

 

 

 

 

302,172

 

 

 

 

421,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

58,429

 

 

 

 

92,628

 

 

 

 

119,677

 

 

 

 

177,701

 

Services

 

 

14,090

 

 

 

 

19,629

 

 

 

 

29,929

 

 

 

 

37,016

 

Amortization of intangible assets

 

 

426

 

 

 

 

2,270

 

 

 

 

946

 

 

 

 

5,524

 

Restructuring costs

 

 

 

 

 

 

 

 

 

 

799

 

 

 

 

 

Total cost of revenues

 

 

72,945

 

 

 

 

114,257

 

 

 

 

151,351

 

 

 

 

220,241

 

Gross profit

 

 

77,598

 

 

 

 

108,336

 

 

 

 

150,821

 

 

 

 

200,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

30,661

 

 

 

 

38,972

 

 

 

 

61,712

 

 

 

 

77,482

 

Marketing and selling

 

 

41,994

 

 

 

 

55,259

 

 

 

 

82,775

 

 

 

 

105,586

 

General and administrative

 

 

12,559

 

 

 

 

19,492

 

 

 

 

27,672

 

 

 

 

41,435

 

Amortization of intangible assets

 

 

2,622

 

 

 

 

3,323

 

 

 

 

4,997

 

 

 

 

6,710

 

Restructuring costs, net

 

 

5,019

 

 

 

 

937

 

 

 

 

9,241

 

 

 

 

2,000

 

Total operating expenses

 

 

92,855

 

 

 

 

117,983

 

 

 

 

186,397

 

 

 

 

233,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(15,257

)

 

 

 

(9,647

)

 

 

 

(35,576

)

 

 

 

(32,325

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

239

 

 

 

 

746

 

 

 

 

503

 

 

 

 

2,309

 

Interest expense

 

 

(185

)

 

 

 

(143

)

 

 

 

(235

)

 

 

 

(279

)

Other income (expense), net

 

 

4

 

 

 

 

14

 

 

 

 

(57

)

 

 

 

68

 

Loss before income taxes

 

 

(15,199

)

 

 

 

(9,030

)

 

 

 

(35,365

)

 

 

 

(30,227

)

Provision for (benefit from) income taxes, net

 

 

750

 

 

 

 

1,355

 

 

 

 

(2,139

)

 

 

 

1,306

 

Net loss

 

$

(15,949

)

 

 

$

(10,385

)

 

 

$

(33,226

)

 

 

$

(31,533

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

 

$

(0.43

)

 

 

$

(0.28

)

 

 

$

(0.89

)

 

 

$

(0.83

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding – basic and diluted

 

 

37,282

 

 

 

 

36,904

 

 

 

 

37,206

 

 

 

 

38,133

 

 

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

 

1

 


AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, unaudited)

 

 

 

June 30,
2009

 

 

 

December 31,
2008

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

87,360

 

 

 

$

121,792

 

Marketable securities

 

 

31,228

 

 

 

 

25,902

 

Accounts receivable, net of allowances of $16,631 and $23,182 at

 

 

 

 

 

 

 

 

 

June 30, 2009 and December 31, 2008, respectively

 

 

85,192

 

 

 

 

103,527

 

Inventories

 

 

93,399

 

 

 

 

95,755

 

Deferred tax assets, net

 

 

598

 

 

 

 

612

 

Prepaid expenses

 

 

9,044

 

 

 

 

9,274

 

Other current assets

 

 

26,890

 

 

 

 

34,083

 

Total current assets

 

 

333,711

 

 

 

 

390,945

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

35,643

 

 

 

 

38,321

 

Intangible assets, net

 

 

32,200

 

 

 

 

38,143

 

Goodwill

 

 

225,375

 

 

 

 

225,375

 

Other assets

 

 

11,221

 

 

 

 

10,801

 

Total assets

 

$

638,150

 

 

 

$

703,585

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

27,785

 

 

 

$

29,419

 

Accrued compensation and benefits

 

 

23,697

 

 

 

 

27,346

 

Accrued expenses and other current liabilities

 

 

41,450

 

 

 

 

64,511

 

Income taxes payable

 

 

3,950

 

 

 

 

9,250

 

Deferred revenues

 

 

61,566

 

 

 

 

68,581

 

Total current liabilities

 

 

158,448

 

 

 

 

199,107

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

12,705

 

 

 

 

11,823

 

Total liabilities

 

 

171,153

 

 

 

 

210,930

 

 

 

 

 

 

 

 

 

 

 

Contingencies (Notes 11 and 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock

 

 

423

 

 

 

 

423

 

Additional paid-in capital

 

 

986,197

 

 

 

 

980,563

 

Accumulated deficit

 

 

(406,679

)

 

 

 

(365,431

)

Treasury stock at cost, net of reissuances

 

 

(116,224

)

 

 

 

(124,852

)

Accumulated other comprehensive income

 

 

3,280

 

 

 

 

1,952

 

Total stockholders’ equity

 

 

466,997

 

 

 

 

492,655

 

Total liabilities and stockholders’ equity

 

$

638,150

 

 

 

$

703,585

 

 

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

 

2

 


AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2009

 

 

 

2008

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,226

)

 

 

$

(31,533

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

15,763

 

 

 

 

23,352

 

Provision for doubtful accounts

 

 

1,550

 

 

 

 

941

 

Non-cash provision for restructuring

 

 

925

 

 

 

 

16

 

Loss on disposal of fixed assets

 

 

74

 

 

 

 

17

 

Compensation expense from stock grants and options

 

 

7,042

 

 

 

 

6,473

 

Changes in deferred tax assets and liabilities

 

 

(372

)

 

 

 

(376

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

18,256

 

 

 

 

25,481

 

Inventories

 

 

1,565

 

 

 

 

(3,406

)

Prepaid expenses and other current assets

 

 

6,361

 

 

 

 

(4,122

)

Accounts payable

 

 

(1,614

)

 

 

 

1,267

 

Accrued expenses, compensation and benefits and other liabilities

 

 

(28,749

)

 

 

 

(1,604

)

Income taxes payable

 

 

(5,275

)

 

 

 

(1,203

)

Deferred revenues

 

 

(5,506

)

 

 

 

374

 

Net cash (used in) provided by operating activities

 

 

(23,206

)

 

 

 

15,677

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(6,101

)

 

 

 

(8,543

)

Payments for other long-term assets

 

 

(1,030

)

 

 

 

(1,018

)

Purchases of marketable securities

 

 

(43,604

)

 

 

 

(16,872

)

Proceeds from sales of marketable securities

 

 

38,315

 

 

 

 

23,701

 

Proceeds from notes receivable

 

 

1,364

 

 

 

 

 

Net cash used in investing activities

 

 

(11,056

)

 

 

 

(2,732

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Purchases of common stock for treasury

 

 

 

 

 

 

(93,187

)

Payments related to stock option purchase

 

 

(526

)

 

 

 

 

Payments related to the issuance of common stock under employee stock plans, net

 

 

(276

)

 

 

 

(128

)

Net cash used in financing activities

 

 

(802

)

 

 

 

(93,315

)

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

632

 

 

 

 

1,188

 

Net decrease in cash and cash equivalents

 

 

(34,432

)

 

 

 

(79,182

)

Cash and cash equivalents at beginning of period

 

 

121,792

 

 

 

 

208,619

 

Cash and cash equivalents at end of period

 

$

87,360

 

 

 

$

129,437

 

 

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

 

3

 


 

AVID TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1.   

FINANCIAL INFORMATION

 

The accompanying condensed consolidated financial statements include the accounts of Avid Technology, Inc. and its wholly owned subsidiaries (collectively, “Avid” or the “Company”). These financial statements are unaudited. However, in the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of only normal, recurring adjustments, necessary for their fair statement. Interim results are not necessarily indicative of results expected for a full year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include all information and footnotes necessary for a complete presentation of operations, financial position and cash flows of the Company in conformity with generally accepted accounting principles. The accompanying condensed consolidated balance sheet as of December 31, 2008 was derived from Avid’s audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. The Company filed audited consolidated financial statements for the year ended December 31, 2008 in its 2008 Annual Report on Form 10-K, which included all information and footnotes necessary for such presentation. The financial statements contained in this Form 10-Q should be read in conjunction with the audited consolidated financial statements in the Form 10-K.

 

The Company’s preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. The most significant estimates reflected in these financial statements include revenue recognition, stock-based compensation expenses, restructuring costs, accounts receivable and sales allowances, inventory valuation, goodwill and intangible asset valuations, fair value measurements and income tax asset valuation allowances. Actual results could differ from the Company’s estimates.

 

On January 1, 2009, the Company transitioned to a new business structure that combined the previous Professional Video and Consumer Video units into a single Video reporting segment and consolidated its sales and marketing teams into a single customer-facing organization. As a result, the Company has reclassified its 2008 segment reporting to conform to the 2009 presentation. The change to the current presentation did not affect the Company’s consolidated operating results. See Note 14 for a summary of the Company’s revenues and contribution margin by reportable segment for the three- and six-month periods ended June 30, 2009 and 2008.

 

The Company evaluated subsequent events through August 6, 2009, the date of issuance of these financial statements, to determine if any event since the date of these financial statements required disclosure in these statements. The evaluation determined that there were no recognized or unrecognized subsequent events, other than the disclosure included in Note 18 of these financial statements, requiring recognition or disclosure.

 

4

 


2.      NET INCOME (LOSS) PER COMMON SHARE

 

Net income (loss) per common share is presented for both basic earnings (loss) per share (“Basic EPS”) and diluted earnings (loss) per share (“Diluted EPS”). Basic EPS is based on the weighted-average number of common shares outstanding during the period, excluding non-vested restricted stock held by employees. Diluted EPS is based on the weighted-average number of common and potential common shares outstanding during the period.

 

The following table sets forth (in thousands) potential common shares, on a weighted-average basis, that were considered anti-dilutive securities and excluded from the Diluted EPS calculations either because the sum of the exercise price per share and the unrecognized compensation cost per share was greater than the average market price of the Company’s common stock for the relevant period, or because they were considered contingently issuable. The contingently-issuable potential common shares result from certain stock options and restricted stock units granted to the Company’s executive officers that vest based on performance and market conditions.

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2009

 

2008

 

2009

 

2008

Options

4,217

 

4,120

 

4,264

 

3,778

Warrant (a)

 

1,155

 

 

1,155

Non-vested restricted stock and restricted stock units

748

 

1,201

 

859

 

1,054

Anti-dilutive potential common shares

4,965

 

6,476

 

5,123

 

5,987

 

 

(a)

In connection with the acquisition of Softimage Inc. in 1998, the Company issued a ten-year warrant to purchase 1,155,235 shares of the Company’s common stock at a price of $47.65 per share. The warrant expired on August 3, 2008.

 

During periods of net loss, certain potential common shares that would otherwise be included in the Diluted EPS calculation are excluded because the effect would be anti-dilutive. The following table sets forth (in thousands) common stock equivalents that were excluded from the calculation of Diluted EPS due to the net loss for the relevant period.

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2009

 

2008

 

2009

 

2008

Options

15

 

148

 

12

 

169

Non-vested restricted stock and restricted stock units

10

 

4

 

6

 

4

Anti-dilutive common stock equivalents

25

 

152

 

18

 

173

 

3.   

FAIR VALUE MEASUREMENTS

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements , which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements.

 

SFAS No. 157 establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:

 

 

Level 1 – Quoted unadjusted prices for identical instruments in active markets.

 

 

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.

 

 

Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company.

 

5

 


Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including cash equivalents, marketable securities and foreign-currency forward contracts. All of the Company’s financial assets and liabilities were classified as either Level 1 or Level 2 in the fair value hierarchy at June 30, 2009. Instruments valued using quoted market prices in active markets and classified as Level 1 are primarily money market securities and deferred compensation investments. Investments valued based on other observable inputs and classified as Level 2 include commercial paper, certificates of deposit, asset-backed obligations, discount notes, corporate and agency bonds, and foreign currency contracts.

 

The following table summarizes the Company’s fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis at June 30, 2009 (in thousands):

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

June 30,
2009

 

 

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

 

 

Significant Other
Observable Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

$

47,814

 

 

$

15,086

 

 

$

$32,728

 

 

$

 

Deferred compensation plan investments

 

 

658

 

 

 

658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan

 

$

658

 

 

$

658

 

 

$

 

 

$

 

Foreign currency forward contracts

 

 

671

 

 

 

 

 

 

671

 

 

 

 

 

The following table summarizes the costs (amortized costs of debt instruments) and fair values of the Company’s available for sale securities at June 30, 2009 (in thousands):

 

 

 

Costs

 

 

Net Unrealized Gains (Losses)

 

 

Fair Values

 

Money market

 

$

15,086

 

 

$

 

 

$

15,086

 

Certificates of deposit

 

 

3,751

 

 

 

9

 

 

 

3,760

 

Commercial paper

 

 

4,999

 

 

 

 

 

 

4,999

 

Municipal bonds

 

 

12,049

 

 

 

 

 

 

12,049

 

Corporate bonds

 

 

4,811

 

 

 

(1

)

 

 

4,810

 

Foreign bonds

 

 

3,499

 

 

 

5

 

 

 

3,504

 

Asset-backed obligations

 

 

99

 

 

 

(12

)

 

 

87

 

Agency bonds and discount notes

 

 

3,512

 

 

 

7

 

 

 

3,519

 

 

 

$

47,806

 

 

$

8

 

 

$

47,814

 

 

All fixed income securities held at June 30, 2009 had effective maturities of less than one year. All income generated from these investments has been recorded as interest income. The Company calculates realized gains and losses on a specific identification basis. Realized gains and losses from the sale of marketable securities were not material for the three or six months ended June 30, 2009.

 

At June 30, 2009, there were no securities whose unrealized losses were deemed by the Company to be other-than-temporary impairments, as the Company has no intent to sell and it is not more likely than not the Company will be required to sell any investment with unrealized losses until it has recovered the full cost basis.

 

6

 


The Company uses the following valuation techniques to determine fair values of its investment instruments:

 

 

Money Market : The fair value of the Company’s money market fund investment is determined using the unadjusted quoted price from an active market of identical assets.

 

Commercial Paper and Certificates of Deposit: The fair values for the Company’s commercial paper holdings and certificates of deposit are derived from a pricing model using the straight-line amortized cost method and incorporate observable inputs, which include maturity date, issue date, credit rating of the issuer, current commercial paper rate and settlement date.

 

Corporate, Municipal and Foreign Bonds : The determination of the fair value of corporate bonds includes the use of observable inputs from market sources and the incorporation of relative credit information, observed market movements and sector news into a pricing model.

 

Asset-Backed Obligations : The fair value of asset-backed obligations is determined using a pricing methodology based on observable market inputs, which include an analysis of pricing, spread and volatility of similar asset-backed obligations. Based on the market inputs, cash flows are generated for each tranche, the benchmark yield is determined and deal collateral performance and other market information is incorporated to determine the appropriate spreads.

 

Agency Bonds & Discount Notes: The fair values of agency bonds and discount note investments are determined using observable market inputs for benchmark yields, base spreads, yield-to-maturity and relevant trade data.

 

See Note 16 for information on the Company’s foreign currency forward contracts that are also measured at fair value on a recurring basis.

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

 

The following tables summarize the Company’s fair value hierarchy for assets and liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 30, 2009 (in thousands):

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

Three Months
Ended
June 30, 2009

 

Quoted Prices in
Active Markets for Identical Assets (Level 1)

 

Significant
Other
Observable
Inputs (Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total
Related
Expenses

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facilities-related restructuring accruals

 

$

1,517

 

$

 

$

1,517

 

$

 

$

1,517

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

Six Months
Ended
June 30, 2009

 

Quoted Prices in
Active Markets for Identical Assets (Level 1)

 

Significant
Other
Observable
Inputs (Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total
Related
Expenses

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facilities-related restructuring accruals

 

$

4,316

 

$

 

$

4,316

 

$

 

$

4,316

 

The Company typically uses the following valuation techniques to determine fair values of assets and liabilities measured on a nonrecurring basis:

 

 

Goodwill: When performing goodwill impairment tests, the Company estimates the fair value of its reporting units using an income approach, generally a discounted cash flow methodology, that includes assumptions for, among other things, forecasted revenues, gross profit margins, operating profit margins, working capital cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgments by management. The Company also considers comparable market data based on multiples of revenue as well as the reconciliation of the Company’s market capitalization to the total fair value of its reporting units. If the estimated fair value of any reporting unit is less that its carrying value, an impairment exists.

 

7

 


 

Intangible Assets: When performing an intangible asset impairment test, the Company estimates the fair value of the asset using a discounted cash flow methodology, which includes assumptions for, among other things, budgets and economic projections, market trends, product development cycles and long-term discount rates. If the estimated fair value of the asset is less that its carrying value, an impairment exists.

 

Assets Held-for-Sale: In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, a disposal group is measured at the lower of its carrying amount or fair value less the cost to sell. The Company estimates the fair value of assets held-for-sale at the lower of cost or the average selling price in available markets.

 

Facilities-Related Restructuring Accruals: During the three and six months ended June 30, 2009, the Company recorded accruals associated with exiting all or portions of certain leased facilities. The Company estimates the fair value of such liabilities, which are discounted to net present value at an assumed risk-free interest rate, based on observable inputs, including the remaining payments required under the existing lease agreements, utilities costs based on recent invoice amounts, and potential sublease receipts based on quoted market prices for similar sublease arrangements.

 

4.   

GOODWILL AND INTANGIBLE ASSETS

 

Goodwill

 

Goodwill resulting from the Company’s acquisitions consisted of the following at June 30, 2009 and December 31, 2008 (in thousands):

 

 

Video

 

 

Audio

 

 

 

Total

 

Balances at June 30, 2009 and December 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

$

256,070

 

 

$

141,205

 

 

 

$

397,275

 

Accumulated impairment losses

 

(107,600

)

 

 

(64,300

)

 

 

 

(171,900

)

 

$

148,470

 

 

$

76,905

 

 

 

$

225,375

 

 

Amortizable Identifiable Intangible Assets

 

Amortizable identifiable intangible assets resulting from the Company’s acquisitions consisted of the following at June 30, 2009 and December 31, 2008 (in thousands):

 

 

 

June 30, 2009

 

 

 

December 31, 2008

 

 


Gross

 

 

 

Accumulated
Amortization

 

 

 


Net

 

 

 


Gross

 

 

 

Accumulated
Amortization

 

 

 


Net

Completed technologies
    and patents

 

$

65,357

 

 

 

$

(63,232)

 

 

 

$

2,125

 

 

 

$

65,357

 

 

 

$

(62,003)

 

 

 

$

3,354

Customer relationships

 

 

63,072

 

 

 

 

(36,500)

 

 

 

 

26,572

 

 

 

 

63,072

 

 

 

 

(32,964)

 

 

 

 

30,108

Trade names

 

 

13,714

 

 

 

 

(10,225)

 

 

 

 

3,489

 

 

 

 

13,714

 

 

 

 

(9,102)

 

 

 

 

4,612

License agreements

 

 

560

 

 

 

 

(546)

 

 

 

 

14

 

 

 

 

560

 

 

 

 

(491)

 

 

 

 

69

 

 

$

142,703

 

 

 

$

(110,503)

 

 

 

$

32,200

 

 

 

$

142,703

 

 

 

$

(104,560)

 

 

 

$

38,143

 

During the three months ended June 30, 2009, the Company reduced the expected lives of certain trade name intangible assets as a result of a rebranding program initiated by the Company in April 2009. The change in the expected lives resulted in the Company recording $0.2 million of additional amortization expense in its statements of operations during the three and six months ended June 30, 2009. Amortization expense related to all intangible assets in the aggregate was $3.0 million and $5.6 million, respectively, for the three-month periods ended June 30, 2009 and 2008, and $5.9 million and $12.2 million, respectively, for the six-month periods ended June 30, 2009 and 2008. The Company expects amortization of these intangible assets to be approximately $6 million for the remainder of 2009, $9 million in 2010, $6 million in 2011, $3 million in 2012, $2 million in 2013, $2 million in 2014 and $4 million thereafter.

 

8

 


5.   

ACCOUNTS RECEIVABLE

 

Accounts receivable, net of allowances, consisted of the following at June 30, 2009 and December 31, 2008 (in thousands):

 

 

 

June 30,
2009

 

 

 

December 31,
2008

 

Accounts receivable

 

$

101,823

 

 

 

$

126,709

 

Less:

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

 

(3,035

)

 

 

 

(3,504

)

Allowance for sales returns and rebates

 

 

(13,596

)

 

 

 

(19,678

)

 

 

$

85,192

 

 

 

$

103,527

 

 

The accounts receivable balances at June 30, 2009 and December 31, 2008 excluded approximately $11.5 million and $8.4 million, respectively, for large solution sales and certain distributor sales that were invoiced, but for which revenues had not yet been recognized and payments were not then due.

 

6.   

INVENTORIES

 

Inventories consisted of the following at June 30, 2009 and December 31, 2008 (in thousands):

 

 

 

June 30,
2009

 

 

 

December 31,
2008

Raw materials

 

$

17,707

 

 

 

$

22,067

Work in process

 

 

6,449

 

 

 

 

9,296

Finished goods

 

 

69,243

 

 

 

 

64,392

 

 

$

93,399

 

 

 

$

95,755

 

At June 30, 2009 and December 31, 2008, the finished goods inventory included inventory at customer locations of $16.1 million and $17.8 million, respectively, associated with products shipped to customers for which revenues had not yet been recognized.

 

7.   

PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net, consisted of the following at June 30, 2009 and December 31, 2008 (in thousands):

 

 

 

June 30,
2009

 

 

 

December 31,
2008

 

Computer and video equipment and software

 

$

108,646

 

 

 

$

102,457

 

Manufacturing tooling and testbeds

 

 

6,719

 

 

 

 

6,601

 

Office equipment

 

 

3,381

 

 

 

 

3,172

 

Furniture and fixtures

 

 

10,746

 

 

 

 

10,714

 

Leasehold improvements

 

 

30,597

 

 

 

 

30,655

 

 

 

 

160,089

 

 

 

 

153,599

 

Accumulated depreciation and amortization

 

 

(124,446

)

 

 

 

(115,278

)

 

 

$

35,643

 

 

 

$

38,321

 

 

 

9

 


8.   

LONG-TERM LIABILITIES

 

Long-term liabilities consisted of the following at June 30, 2009 and December 31, 2008 (in thousands):

 

 

 

June 30,
2009

 

 

 

December 31,
2008

Long-term deferred tax liabilities, net

 

$

3,630

 

 

 

$

4,002

Long-term deferred revenue

 

 

5,592

 

 

 

 

4,081

Long-term deferred rent

 

 

2,140

 

 

 

 

2,436

Long-term accrued restructuring

 

 

1,343

 

 

 

 

1,304

 

 

$

12,705

 

 

 

$

11,823

 

9.   

ACCOUNTING FOR STOCK-BASED COMPENSATION

 

Stock Option Purchase

 

In June 2009, the Company completed a cash tender offer for certain employee stock options. The tender offer applied to 547,133 outstanding stock options having an exercise price equal to or greater than $40.00 per share and granted under the Company’s Amended and Restated 2005 Stock Incentive Plan, Amended and Restated 1999 Stock Option Plan (including the U.K. sub-plan), 1998 Stock Option Plan, 1997 Stock Option Plan, 1997 Stock Incentive Plan, as amended, and 1994 Stock Option Plan, as amended. Members of the Company’s Board of Directors, officers who file reports under Section 16(a) of the Securities Exchange Act of 1934 and members of the executive staff were not eligible to participate in this offer. Under the offer, eligible options with exercise prices equal to or greater than $40.00 and less than $50.00 per share were eligible to receive a cash payment of $1.50 per share, and eligible options with exercise prices equal to or greater than $50.00 per share were eligible to receive a cash payment of $1.00 per share.

 

Options to purchase a total of 419,042 shares of the Company’s common stock, of which 366,769 shares are available for future grant, were tendered under the offer for an aggregate purchase price of approximately $0.5 million paid in exchange for the cancellation of the eligible options. As a result of the tender offer, the Company incurred stock-based compensation charges of approximately $0.1 million in its condensed consolidated statements of operations for the three and six months ended June 30, 2009. This is the first time the Company has offered to purchase outstanding stock options in exchange for cash, and there is no current intent to make another such offer in the future.

 

Stock Incentive Plans

 

Under its stock incentive plans, the Company may grant stock awards or options to purchase the Company’s common stock to employees, officers, directors (subject to certain restrictions) and consultants, generally at the market price on the date of grant. The options become exercisable over various periods, typically four years for employees and one year for non-employee directors, and have a maximum term of seven years. Restricted stock and restricted stock unit awards typically vest over four years. At June 30, 2009, 5,662,916 shares were available for issuance under the Company’s Amended and Restated 2005 Stock Incentive Plan, including 1,126,365 that may alternatively be issued as awards of restricted stock or restricted stock units.

 

The Company records stock-based compensation cost, based on the fair value estimated in accordance with SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), for stock-based awards granted over the requisite service periods for the individual awards, which generally equals the vesting period. Stock-compensation expense is recognized using the straight-line attribution method. As permitted under SFAS 123(R), the Company generally uses the Black-Scholes option pricing model to estimate the fair value of stock option grants. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. The fair values of restricted stock awards, including restricted stock and restricted stock units, are based on the intrinsic values of the awards at the date of grant.

 

10

 


The following table sets forth the weighted-average key assumptions and fair value results for stock options with time-based vesting granted during the three- and six-month periods ended June 30, 2009 and 2008:

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2009

 

2008

 

2009

 

2008

Expected dividend yield

0.00%

 

0.00%

 

0.00%

 

0.00%

Risk-free interest rate

2.02%

 

2.67%

 

1.96%

 

2.48%

Expected volatility

55.9%

 

40.9%

 

56.2%

 

39.4%

Expected life (in years)

4.57 

 

4.71 

 

4.57 

 

4.43 

Weighted-average fair value of options granted

$6.36 

 

$8.67 

 

$6.19 

 

$8.42 

 

In December 2007, the Company began issuing options to purchase shares of Avid common stock that had vesting based on market conditions or a combination of performance and market conditions. The compensation costs and derived service periods for stock option grants with vesting based on market conditions or a combination of performance and market conditions are estimated using the Monte Carlo valuation method. For stock option grants with vesting based on a combination of performance and market conditions, the compensation costs are also estimated using the Black-Scholes valuation method, and compensation costs for these grants are recorded based on the higher estimate for each vesting tranche. At June 30, 2009, the Company had 1,440,260 options outstanding that had vesting based on either market conditions or a combination of performance and market conditions.

 

The following table sets forth the weighted-average key assumptions and fair value results for stock options with vesting based on market conditions or a combination of performance and market conditions granted during the three-and six-month periods ended June 30, 2009 and 2008:

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2009

 

2008 (a)

 

2009

 

2008

Expected dividend yield

0.00%

 

 

0.00%

 

0.00%

Risk-free interest rate

3.51%

 

 

3.32%

 

3.42%

Expected volatility

56.2%

 

 

57.6%

 

38.4%

Expected life (in years)

3.58 

 

 

3.81 

 

4.26 

Weighted-average fair value of options granted

$6.07 

 

 

$5.21 

 

$7.11 

 

 

(a)

There were no grants of stock options with vesting based on market conditions or a combination of performance and market conditions during the three months ended June 30, 2008.

 

During the first quarter of 2008, the Company issued 27,200 restricted stock units to executives as part of the Company’s annual grant program that have vesting based on market conditions or a combination of performance and market conditions. The compensation cost and derived service periods for these restricted stock units were estimated using the Monte Carlo valuation method using a volatility of 38.95% and a risk-free interest rate of 3.29%. For restricted stock units with vesting based on a combination of performance and market conditions, compensation costs were also estimated using the intrinsic value on the date of grant factored for probability. Compensation costs for each vesting tranche were recorded based on the higher estimate. The weighted-average fair value of these restricted stock units is $18.61 and the derived service periods range from 3.04 to 4.75 years with a weighted average of 4.17 years.

 

The Company estimates forfeiture rates at the time awards are made based on historical turnover rates and applies these rates in the calculation of estimated compensation cost. At June 30, 2009, the Company’s annualized estimated forfeiture rates were 0% for non-employee director awards, and 10% for both executive management staff and other employee awards.

 

11

 


The following table summarizes changes in the Company’s stock options during the six-month period ended June 30, 2009:

 

 

 

Stock Options

 

 

Shares

 

 

Weighted-
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value
(in thousands)

 

Options outstanding at December 31, 2008

 

4,450,286

 

 

$30.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

979,780

 

 

$12.88

 

 

 

 

 

Exercised

 

(12,252

)

 

$9.13

 

 

 

 

 

Forfeited or expired (a)

 

(1,115,508

)

 

$39.49

 

 

 

 

 

Options outstanding at June 30, 2009

 

4,302,306

 

 

$23.73

 

6.19

 

$922

 

Options vested at June 30, 2009 or expected to vest

 

3,691,147

 

 

$24.37

 

6.03

 

$773

 

Options exercisable at June 30, 2009

 

1,362,105

 

 

$31.84

 

4.08

 

$275

 

 

 

(a)

Forfeited or expired shares includes options to purchase 419,042 shares canceled as a result of the tender offer to purchase certain employee stock options completed in June 2009. See the “Stock Option Purchase” section in this note for further information on the tender offer.

 

The aggregate intrinsic values of stock options exercised during the six-month periods ended June 30, 2009 and 2008 were approximately $41 thousand and $0.4 million, respectively. Cash amounts received from the exercise of stock options were $0.1 million and $0.7 million for the six-month periods ended June 30, 2009 and 2008, respectively. The Company did not realize any actual tax benefit from the tax deductions for stock option exercises during the six-month periods ended June 30, 2009 and 2008 due to the full valuation allowance on the Company’s U.S. deferred tax assets.

 

The following table summarizes changes in the Company’s non-vested restricted stock units during the six-month period ended June 30, 2009:

 

 

 

Non-Vested Restricted Stock Units

 

 

Shares

 

 

Weighted-
Average
Grant-Date
Fair Value

 

Weighted-
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value
(in thousands)

Non-vested at December 31, 2008

 

989,772

 

 

$27.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted (a)

 

34,500

 

 

$11.05

 

 

 

 

Vested

 

(264,076

)

 

$28.95

 

 

 

 

Forfeited

 

(98,762

)

 

$25.31

 

 

 

 

Non-vested at June 30, 2009

 

661,434

 

 

$26.09

 

1.41

 

$8,863

Expected to vest

 

572,341

 

 

$26.14

 

1.35

 

$7,669

 

 

(a)

Of the 34,500 restricted stock units granted during the first six months of 2009, 24,500 vest at the earlier of one year from the grant date or the first fiscal quarter certain performance-based criteria are met.

 

12

 


The following table summarizes changes in the Company’s non-vested restricted stock during the six-month period ended June 30, 2009:

 

 

 

Non-Vested Restricted Stock

 

 

Shares

 

 

Weighted-
Average
Grant-Date
Fair Value

 

Weighted-
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value
(in thousands)

Non-vested at December 31, 2008

 

100,000

 

 

$25.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Vested

 

(37,500

)

 

$25.41

 

 

 

 

Forfeited

 

 

 

 

 

 

 

Non-vested at June 30, 2009

 

62,500

 

 

$25.41

 

2.47

 

$838

 

Employee Stock Purchase Plan

 

On February 27, 2008, the Company’s board of directors approved the Company’s Second Amended and Restated 1996 Employee Stock Purchase Plan (the “ESPP”). The amended plan became effective May 1, 2008, the first day of the next offering period under the plan, and offers shares for purchase at a price equal to 85% of the closing price on the applicable offering period termination date. Shares issued under the ESPP are considered compensatory under SFAS 123(R). Accordingly, the Company is required to assign fair value to, and record compensation expense for, shares issued from the ESPP starting May 1, 2008. Prior to May 1, 2008, shares were authorized for issuance at a price equal to 95% of the closing price on the applicable offering period termination date, and shares offered under this arrangement were considered noncompensatory under SFAS 123(R).

 

The following table sets forth the weighted-average key assumptions and fair value results for shares issued under the ESPP for the three- and six-month periods ended June 30, 2009 and the two-month period ended June 30, 2008:

 

 

 

Three Months Ended
June 30, 2009

 

Six Months Ended
June 30, 2009

 

Two Months Ended
June 30, 2008

 

Expected dividend yield

 

0.00%

 

0.00%

 

0.00%

 

Risk-free interest rate

 

1.25%

 

1.90%

 

2.50%

 

Expected volatility

 

56.5%

 

59.9%

 

40.9%

 

Expected life (in years)

 

0.25

 

0.24

 

0.25

 

Weighted-average fair value of shares issued

 

$1.94

 

$1.83

 

$3.39

 

 

At June 30, 2009, 906,006 shares remained available for issuance under the ESPP.

 

13

 


Stock-Based Compensation

 

Stock-based compensation was included in the following captions in the Company’s condensed consolidated statements of operations for the three- and six-month periods ended June 30, 2009 and 2008 (in thousands):

 

 

Three Months Ended
June 30,

             

Six Months Ended
June 30,

 

2009

 

2008

 

2009

 

2008

Cost of product revenues

$   153

 

$   171

 

$   503

 

$     303

Cost of services revenues

231

 

166

 

621

 

264

Research and development expenses

612

 

1,089

 

1,082

 

1,452

Marketing and selling expenses

806

 

1,109

 

1,627

 

1,638

General and administrative expenses

1,092

 

2,053

 

3,209

 

3,076

Total stock-based compensation (a)

$2,894

 

$4,588

 

$7,042

 

$6,733

 

 

(a)

Stock-based compensation for both the three- and six- month periods ended June 30, 2009 includes $0.1 million resulting from a tender offer, completed in June 2009, related to the purchase of certain employee stock options.

 

At June 30, 2009, the Company had $32.9 million of unrecognized compensation costs before forfeitures related to non-vested stock-based compensation awards granted under its stock-based compensation plans. These costs will be recognized over the next four and one-half years.

 

10.   

STOCK REPURCHASES

 

A stock repurchase program was approved by the Company’s board of directors in April 2007, which authorized the Company to repurchase up to $100 million of the Company’s common stock through transactions on the open market, in block trades or otherwise. In February 2008, the Company’s board of directors approved a $100 million increase in the authorized funds for the repurchase of the Company’s common stock. During 2007, the Company repurchased 809,236 shares of the Company’s common stock under the program for a total purchase price, including commissions, of $26.6 million, or $32.92 per share. During 2008, the Company repurchased an additional 4,254,397 shares of the Company’s common stock for a total purchase price, including commissions, of $93.2 million. The average price per share paid for the shares repurchased during 2008, including commissions, was $21.90. At June 30, 2009, $80.3 million remained available for future stock repurchases under the program. This stock repurchase program is being funded through working capital and has no expiration date.

 

During the six-month period ended June 30, 2009, the Company repurchased 10,482 shares of restricted stock from an employee to pay required withholding taxes upon the vesting of restricted stock.

 

At June 30, 2009 and December 31, 2008, treasury shares held by the Company totaled 4,968,760 shares and 5,207,711 shares, respectively.

 

11.   

INCOME TAXES

 

During the three months ended June 30, 2009, the Company identified $0.7 million of income tax reserves related to a foreign subsidiary that were provided for, but not included in the reconciliation of uncertain tax positions presented in Note H of the consolidated financial statements for the year ended December 31, 2008 in the Company’s 2008 Annual Report on Form 10-K. During the three months ended June 30, 2009, the Company also identified $0.7 million of new tax reserves for uncertain tax positions. At June 30, 2009 and December 31, 2008, total unrecognized tax benefits were $5.3 million and $3.7 million, respectively, including $0.7 million and $0.6 million, respectively, for related accrued interest and penalties.

 

14

 


12.   

CONTINGENCIES

 

The Company receives inquiries from time to time claiming possible patent infringement by the Company. If any infringement is determined to exist, the Company may seek licenses or settlements. In addition, as a normal incidence of the nature of the Company’s business, various claims, charges and litigation have been asserted or commenced from time to time against the Company arising from or related to contractual or employee relations, intellectual property rights or product performance. Settlements related to any such claims are generally included in the “general and administrative expenses” caption in the Company’s consolidated statements of operations. Management does not believe these claims will have a material adverse effect on the financial position or results of operations of the Company.

 

On May 24, 2007, David Engelke and Bryan Engelke filed a complaint against the Company’s Pinnacle subsidiary in Pinellas County (Florida) Circuit Court, claiming that Pinnacle breached certain contracts among them and that the Engelkes are entitled to indemnification for damages (and attorneys’ fees) awarded against them in litigation with a third party. The complaint, which seeks damages of approximately $17 million, was served on September 4, 2007. On September 28, 2007, the Florida appellate court reversed the damages award for which the Engelkes seek indemnification, and, on remand, the Pinellas County Circuit Court on June 25, 2009 reduced the damage award to approximately $6.5 million plus interest of approximately $2.0 million. Because the Company cannot predict the outcome of this action at this time, no costs have been accrued for any loss contingency; however, the Company does not expect this matter to have a material effect on the Company’s financial position or results of operations.

 

From time to time, the Company provides indemnification provisions in agreements with customers covering potential claims by third parties of intellectual property infringement. These agreements generally provide that the Company will indemnify customers for losses incurred in connection with an infringement claim brought by a third party with respect to the Company’s products. These indemnification provisions generally offer perpetual coverage for infringement claims based upon the products covered by the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is theoretically unlimited; however, to date, the Company has not incurred material costs related to these indemnification provisions. As a result, the Company believes the estimated fair value of these indemnification provisions is minimal.

 

As permitted under Delaware law and pursuant to the Company’s Third Amended and Restated Certificate of Incorporation, as amended, the Company is obligated to indemnify its current and former officers and directors for certain events that occur or occurred while the officer or director is or was serving in such capacity. The term of the indemnification period is for each respective officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited; however, the Company has mitigated the exposure through the purchase of directors and officers insurance, which is intended to limit the risk and, in most cases, enable the Company to recover all or a portion of any future amounts paid. As a result of this insurance coverage, the Company believes the estimated fair value of these indemnification obligations is minimal.

 

The Company, through third parties, provides lease financing options to its customers, including end users and, on a limited basis, resellers. During the terms of these leases, which are generally three years, the Company may remain liable for any unpaid principal balance upon default by the customer, but such liability is limited in the aggregate based on a percentage of initial amounts funded or, in certain cases, amounts of unpaid balances. At June 30, 2009 and December 31, 2008, the Company’s maximum recourse exposure totaled approximately $2.7 million and $4.6 million, respectively. The Company records revenues from these transactions upon the shipment of products, provided that all other revenue recognition criteria, including collectibility being reasonably assured, are met. Because the Company has been providing financing options to its customers for many years, the Company has a substantial history of collecting under these arrangements without providing significant refunds or concessions to the end user, reseller or financing party. To date, the payment default loss has consistently been between 2% and 6.5% per year of the original funded amount. The Company maintains a reserve for estimated losses under recourse lease programs based on historical default rates applied to the funded amount outstanding at period end. At June 30, 2009 and December 31, 2008, the Company’s accruals for estimated losses were $1.3 million and $0.8 million, respectively.

 

15

 


The Company provides warranties on externally sourced and internally developed hardware. For internally developed hardware and in cases where the warranty granted to customers for externally sourced hardware is greater than that provided by the manufacturer, the Company records an accrual for the related liability based on historical trends and actual material and labor costs. The warranty period for all of the Company’s products is generally 90 days to one year, but can extend up to five years depending on the manufacturer’s warranty or local law.

 

The following table sets forth activity for the Company’s product warranty accrual (in thousands):

 

 

 

Six Months Ended
June 30,

 

 

 

2009

 

 

 

2008

 

Accrual balance at beginning of period

 

$

5,193

 

 

 

$

5,803

 

Accruals for product warranties

 

 

3,377

 

 

 

 

4,180

 

Cost of warranty claims

 

 

(3,639

)

 

 

 

(3,800

)

Accrual balance at end of period

 

$

4,931

 

 

 

$

6,183

 

 

13.   

COMPREHENSIVE LOSS

 

Total comprehensive loss, net of taxes, consists of net loss and the net changes in foreign currency translation adjustment and net unrealized gains and losses on available-for-sale securities and other investments. The following is a summary of the Company’s comprehensive loss for the three- and six-month periods ended June 30, 2009 and 2008 (in thousands):

 

 

 

Three Months Ended
June 30,

 

 

 

Six Months Ended
June 30,

 

 

 

2009

 

 

 

2008

 

 

 

2009

 

 

 

2008

 

Net loss

 

$

(15,949

)

 

 

$

(10,385

)

 

 

$

(33,226

)

 

 

$

(31,533

)

Net changes in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

5,211

 

 

 

 

(510

)

 

 

 

1,290

 

 

 

 

2,659

 

Unrealized gains

 

 

79

 

 

 

 

 

 

 

 

38

 

 

 

 

14

 

Total comprehensive loss

 

$

(10,659

)

 

 

$

(10,895

)

 

 

$

(31,898

)

 

 

$

(28,860

)

 

14.   

SEGMENT INFORMATION

 

Since the acquisition of Pinnacle Systems, Inc. in 2005 and through 2008, the Company was organized into three strategic business units, Professional Video, Audio, and Consumer Video, each of which was a reportable segment. On January 1, 2009, the Company transitioned to a new business structure that combined the previous Professional Video and Consumer Video units into a single Video reporting segment. The Company also consolidated its sales and marketing teams, which had previously been aligned with the reporting segments, into a single customer-facing organization. Consequently, most marketing and selling expenses are no longer managed by or controlled at the segment level and are, therefore, excluded from the calculation of segment contribution margin. The Company also continues to exclude certain other costs and expenses when evaluating reportable segment performance and profitability, including general and administrative expenses, corporate research and development expenses, the amortization and impairment of acquired intangible assets, stock-based compensation expenses and restructuring expenses. The Company has revised the prior period segment disclosures to conform to the current presentation. The change to the current presentation did not affect the Company’s consolidated operating results.

 

16

 


The following is a summary of the Company’s revenues and contribution margin by reportable segment for the three-and six-month periods ended June 30, 2009 and 2008 and a reconciliation of segment contribution margin to total consolidated operating loss for each period (in thousands):

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2009

 

 

 

2008

 

 

2009

 

 

 

2008

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Video (a)

 

$

88,699

 

 

 

$

147,548

 

 

$

176,201

 

 

 

$

272,575

 

Audio

 

 

61,844

 

 

 

 

75,315

 

 

 

125,971

 

 

 

 

148,554

 

Total revenues

 

$

150,543

 

 

 

$

222,863

 

 

$

302,172

 

 

 

$

421,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution Margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Video

 

$

25,233

 

 

 

$

43,616

 

 

$

46,513

 

 

 

$

72,086

 

Audio

 

 

21,831

 

 

 

 

26,460

 

 

 

44,561

 

 

 

 

52,785

 

Segment contribution margin

 

 

47,064

 

 

 

 

70,076

 

 

 

91,074

 

 

 

 

124,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less unallocated costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

(1,837

)

 

 

 

(1,731

)

 

 

(3,591

)

 

 

 

(3,501

)

Marketing and selling

 

 

(38,056

)

 

 

 

(50,710

)

 

 

(75,571

)

 

 

 

(97,178

)

General and administrative

 

 

(11,467

)

 

 

 

(16,164

)

 

 

(24,463

)

 

 

 

(35,550

)

Amortization of acquisition-related intangible assets

 

 

(3,048

)

 

 

 

(5,593

)

 

 

(5,943

)

 

 

 

(12,234

)

Stock-based compensation

 

 

(2,894

)

 

 

 

(4,588

)

 

 

(7,042

)

 

 

 

(6,733

)

Restructuring costs, net

 

 

(5,019

)

 

 

 

(937

)

 

 

(10,040

)

 

 

 

(2,000

)

Consolidated operating loss

 

$

(15,257

)

 

 

$

(9,647

)

 

$

(35,576

)

 

 

$

(32,325

)

 

 

(a)

Video revenues for the three months ended June 30, 2009 and 2008, respectively, include revenues of $0.8 million and $16.6 million attributable to divested or exited product lines. Video revenues for the six months ended June 30, 2009 and 2008, respectively, include revenues of $1.8 million and $35.1 million attributable to divested or exited product lines.

 

15.   

RESTRUCTURING COSTS AND ACCRUALS

 

In October 2008, the Company initiated a company-wide restructuring plan (the “Plan”) that included a reduction in force of approximately 500 positions, including employees related to product line divestitures, and the closure of all or parts of some worldwide facilities. The restructuring plan is intended to improve operational efficiencies. In connection with the Plan, during the fourth quarter of 2008 the Company recorded restructuring charges of $20.4 million related to employee termination costs and $0.5 million for the closure of three small facilities. In addition, as a result of the decision to sell the PCTV product line, the Company recorded a non-cash restructuring charge of $1.9 million in cost of revenues related to the write-down of inventory. Of the total restructuring charge of $22.8 million recorded in the fourth quarter of 2008, $16.9 million related to the Video segment, $3.3 million related to the Audio segment and $2.6 million related to corporate operations.

 

During the first and second quarters of 2009, respectively, the Company recorded new restructuring charges totaling $3.6 million and $4.6 million under the Plan, of which $4.3 million related to the closure of all or part of nine facilities; $3.1 million related to the termination of the employment of 48 additional employees; and $0.8 million, recorded in cost of revenues, related to the write-down of PCTV inventory. Also during the first six months of 2009, the Company recorded revisions to previously recorded restructuring estimates of $1.8 million and $0.1 million for severance and facility obligations, respectively, related to the Plan. Of the total Plan restructuring charges of $10.1 million recorded in the first six months of 2009, $5.6 million related to corporate operations, $3.5 million related to the Video segment and $1.0 million related to the Audio segment.

 

17

 


During the first quarter of 2008, the Company initiated restructuring plans within its Video business unit and corporate operations to eliminate duplicative business functions and improve operational efficiencies. During the first quarter of 2008, restructuring charges of $1.2 million were recorded under these plans related to employee termination costs for 20 employees, primarily in the marketing and selling teams and general and administrative teams. During the second quarter of 2008, the Company recorded restructuring charges of $1.0 million under these plans primarily related to employee termination costs for 26 employees, mainly in the research and development teams and sales and marketing teams. During the third quarter of 2008, the Company recorded restructuring charges of $2.0 million under these plans primarily related to employee termination costs for 45 employees, mainly in the research and development teams and general and administrative teams. Also during 2008, restructuring charges totaling $0.2 million were recorded for revised estimates of previously initiated restructuring plans.

 

The Company recorded the facility-related restructuring charges and, prior to the fourth quarter of 2008, the employee-related restructuring charges in accordance with the guidance of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities . Since the fourth quarter of 2008, as a result of changes in the Company’s policies related to the calculation of severance benefits, the Company has accounted for employee-related restructuring charges in accordance with SFAS No. 112, Employers’ Accounting for Postemployment Benefits. Restructuring charges and accruals require significant estimates and assumptions, including sub-lease income assumptions. These estimates and assumptions are monitored on at least a quarterly basis for changes in circumstances and any corresponding adjustments to the accrual are recorded in the Company’s statement of operations in the period when such changes are known.

 

The following table sets forth the activity in the restructuring accruals for the six months ended June 30, 2009 (in thousands):

 

 

 

Non-Acquisition-Related
Restructuring
Liabilities

 

 

Acquisition-Related
Facilities Restructuring
Liabilities

 


 

 

Employee-
Related

 

 

Facilities-
Related
& Other

 

 

Total

Accrual balance at December 31, 2008

 

$

15,089

 

 

$

2,199

 

 

 

$

829

 

 

 

$

18,117

 

New restructuring charges – operating expenses

 

 

3,064

 

 

 

4,316

 

 

 

 

 

 

 

 

7,380

 

New restructuring charges – cost of revenues

 

 

 

 

 

799

 

 

 

 

 

 

 

 

799

 

Revisions of estimated liabilities

 

 

1,777

 

 

 

101

 

 

 

 

(17

)

 

 

 

1,861

 

Accretion

 

 

 

 

 

79

 

 

 

 

22

 

 

 

 

101

 

Cash payments for employee-related charges

 

 

(14,868

)

 

 

 

 

 

 

 

 

 

 

(14,868

)

Cash payments for facilities, net of sublease income

 

 

 

 

 

(1,625

)

 

 

 

(211

)

 

 

 

(1,836

)

Non-cash write-offs

 

 

 

 

 

(925

)

 

 

 

 

 

 

 

(925

)

Foreign exchange impact on ending balance

 

 

(563

)

 

 

186

 

 

 

 

88

 

 

 

 

(289

)

Accrual balance at June 30, 2009

 

$

4,499

 

 

$

5,130

 

 

 

$

711

 

 

 

$

10,340

 

 

The employee-related accruals at June 30, 2009 represent severance and outplacement costs to former employees that will be paid out within the next twelve months and are, therefore, included in the caption “accrued expenses and other current liabilities” in the Company’s consolidated balance sheet at June 30, 2009.

 

The facilities-related accruals at June 30, 2009 represent estimated losses, net of subleases, on space vacated as part of the Company’s restructuring actions. The leases, and payments against the amounts accrued, will extend through 2017 unless the Company is able to negotiate earlier terminations. Of the total facilities-related accruals, $4.5 million is included in the caption “accrued expenses and other current liabilities” and $1.3 million is included in the caption “long-term liabilities” in the Company’s consolidated balance sheet at June 30, 2009.

 

18

 


16.   

FOREIGN CURRENCY FORWARD CONTRACTS

 

The Company has significant international operations and, therefore, the Company’s revenues, earnings, cash flows and financial position are exposed to foreign currency risk from foreign currency denominated receivables, payables and sales transactions, as well as net investments in foreign operations. The Company derives more than half of its revenues from customers outside the United States. This business is, for the most part, transacted through international subsidiaries and generally in the currency of the end-user customers. Therefore, the Company is exposed to the risks that changes in foreign currency could adversely affect its revenues, net income and cash flow. To hedge against the foreign exchange exposure of certain forecasted receivables, payables and cash balances of foreign subsidiaries, the Company enters into short-term foreign currency forward contracts. There are two objectives of the Company’s foreign currency forward contract program: (1) to offset any foreign exchange currency risk associated with cash receipts expected to be received from the Company’s customers over the next 30-day period and (2) to offset the impact of foreign currency exchange on the Company’s net monetary assets denominated in currencies other than the functional currency of the legal entity. These forward contracts typically mature within 30 days of execution.

 

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

 

The following table sets forth the effect of the Company’s foreign currency forward contracts recorded as marketing and selling expenses in the Company’s statements of operations during the three and six months ended June 30, 2009 and 2008 (in thousands):

 

Derivatives Not Designated as Hedging
Instruments under Statement 133

 

Amount of (Loss) Gain Recognized in Income on Derivative

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2009

 

2008

 

2009

 

2008

Foreign currency forward contracts

 

($243)

 

$902

 

$1,581

 

$1,681

 

At June 30, 2009, and December 31, 2008, the Company had foreign currency forward contracts outstanding with notional values of $32.6 million and $39.7 million, respectively, as hedges against forecasted foreign currency denominated receivables, payables and cash balances. The following table sets forth the balance sheet location and fair values of the Company’s foreign currency forward contracts at June 30, 2009 and December 31, 2008 (in thousands):

 

Derivatives Not Designated as Hedging
Instruments under Statement 133

 

Balance Sheet Location

 

Fair Value at
June 30, 2009

 

Fair Value at December 31, 2008

Financial liabilities:

 

 

 

 

 

 

Foreign currency forward contracts

 

Accrued expenses and other current liabilities

 

$  671

 

$   45

 

See Note 3 for additional information on the fair value measurements for all financial assets and liabilities, including derivative assets and derivative liabilities, that are measured at fair value on a recurring basis.

 

17.   

RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2009, the FASB issued SFAS No. 165, Subsequent Events , which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 was effective for the Company’s interim period ending June 30, 2009. Adoption of SFAS No. 165 did not have a material impact on the Company’s financial position or results of operations.

 

19

 


In April 2009, the FASB issued FASB Staff Position (“FSP”) SFAS 157-4, (“FSP 157-4”), Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly , which provides guidance on determining fair value when there is no active market or where the price inputs being used represent distressed sales. FSP 157-4 was adopted by the Company on April 1, 2009. Adoption of FSP 157-4 did not have a material impact on the Company’s financial position or results of operations.

 

In April 2009, the FASB also issued FSP SFAS 115-2 and SFAS 124-2, (“FSP 115-2 and 124-2”), Recognition and Presentation of Other-Than-Temporary Impairments , and FSP SFAS 107-1 and Accounting Principles Board (APB) 28-1, (“FSP 107-1 and APB 28-1”), Interim Disclosures about Fair Value of Financial Instruments . FSP 115-2 and 124-2 modifies the requirements for recognizing other-than-temporarily impaired debt securities and revises the existing impairment model for such securities by modifying the current intent and ability indicator in determining whether a debt security is other-than-temporarily impaired. FSP 107 and APB 28-1 enhances the disclosure of financial instruments under the scope of SFAS 157 for both interim and annual periods. Adoption of FSP 115-2 and 124-2 and FSP 107 and APB 28-1 on April 1, 2009 did not have a material impact on the Company’s financial position or results of operations.

 

18.   

SUBSEQUENT EVENT

 

On July 31, 2009, the Company acquired all the outstanding shares of a company that has developed server-based media management and editing technology for cash consideration of approximately $5.5 million. The Company plans to incorporate this technology into future solution offerings.

 

 

20

 


 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

EXECUTIVE OVERVIEW

 

Our Company

 

We create digital audio and video technology used to make the most listened to, most watched and most loved media in the world – from the most prestigious and award-winning feature films, music recordings, television shows, live concert tours and news broadcasts, to music and movies made at home. Some of our most influential and pioneering solutions include Media Composer, Pro Tools, Avid Unity, Interplay, Oxygen 8, Sibelius and Pinnacle Studio. Our mission is to inspire passion, unleash creativity and enable our customers to realize their dreams in a digital world. Anyone who enjoys movies, television or music has almost certainly experienced the work of content creators who use our solutions to bring their creative visions to life.

 

We operate our business based on the following five customer-centric strategic principles:

 

 

Drive customer success . We are committed to making each and every customer successful. Period. It’s that simple.

 

 

From enthusiasts to the enterprise. Whether performing live or telling a story to sharing a vision or broadcasting the news – we create products to support our customers at all stages.

 

 

Fluid, dependable workflows . Reliability. Flexibility. Ease of Use. High Performance. We provide best-in-class workflows to make our customers more productive and competitive.

 

 

Collaborative support . For the individual user, the workgroup, a community or the enterprise, we enable a collaborative environment for success.

 

 

Avid optimized in an open ecosystem . Our products are innovative, reliable, integrated and best-of-breed. We work in partnership with a third-party community resulting in superior interoperability.

 

We are deeply committed to the long-term success of our company and that of our customers. In 2008, we initiated a significant transformation of our business that included, among other things, establishing a new management team, developing a new corporate strategy, restructuring our internal organization, improving operational efficiencies, divesting non-core product lines and reducing the size of our workforce. We have established a strategic and organizational foundation from which we are positioned to build momentum in our core business and expand our operating margins with the ultimate goal of sustainable growth.

 

As part of this transformation, on January 1, 2009 we transitioned to a new business structure that combined our previous Professional Video and Consumer Video business units into a single Video reporting segment and features a single customer-facing organization. The transition to a single customer-facing organization better aligns us with the realities of many of our customers who either depend on, or would benefit from, an integrated solution that encompasses multiple Avid product and brand families. It also enables us to leverage our deep domain expertise, brand recognition and technology synergies across customer market segments. See Note 14 to our unaudited condensed consolidated financial statements included in Item 1 of this report for a summary of our revenues and contribution margin by reportable segment for the three- and six-month periods ended June 30, 2009 and 2008.

 

We routinely post important information for investors on the Investors page of our website at www.avid.com.

 

21

 


Financial Summary

 

Our revenues for the three months ended June 30, 2009 were $150.5 million, a decrease of 32% compared to the same period last year. By business unit, Video revenues decreased 40% and Audio revenues decreased 18%. Our revenues for the six months ended June 30, 2009 were $302.2 million, a decrease of 28% compared to the same period last year. By business unit, Video revenues decreased 35% and Audio revenues decreased 15%.

 

Of the $96.4 million decrease in Video revenues during the first six months of 2009, decreases of $30.1 million and $3.3 million for Video product revenues and Video services revenues, respectively, were attributable to divested or exited product lines. Unfavorable currency exchange rates and macroeconomic conditions had a significant negative impact on our first and second quarter 2009 Video and Audio revenues when compared to the same periods of 2008. The revenues of each business unit are discussed in further detail in the section titled “Results of Operations” below.

 

Our gross margins for the three- and six-month periods ended June 30, 2009 improved to 51.5% and 49.9%, respectively, from 48.6% and 47.7% for the comparable periods in 2008. These improvements were largely the result of our transition to a single company-wide production and delivery organization, the divestiture of lower margin products and the favorable adjustment of a royalty accrual.

 

Our operating expenses for the three- and six-month periods ended June 30, 2009 were $92.9 million and $186.4 million, respectively, compared to $118.0 million and $233.2 million for the same periods in 2008. These decreases were primarily the result of our business transformation, including our product line divestitures and the initiation of restructuring plans in 2008.

 

In the fourth quarter of 2008, we initiated a restructuring plan that has resulted in a reduction in force of more than 500 positions, including employees associated with our product line divestitures, and the closure of all or parts of some of our worldwide facilities. In connection with this plan, we have incurred or expect to incur total restructuring charges of approximately $33 million, which primarily represent cash expenditures. During the fourth quarter of 2008, the first quarter of 2009 and the second quarter of 2009, we recorded restructuring charges under this plan of $22.8 million, $5.0 million and $5.1 million, respectively. We expect annual cost savings of approximately $55 million to result from actions taken under this restructuring plan. Cash expenditures resulting from restructuring obligations totaled approximately $16.7 million in the first six months of 2009.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. However, actual results may differ from these estimates.

 

We believe that our critical accounting policies are those related to revenue recognition and allowances for product returns and exchanges, stock-based compensation, allowances for bad debts and reserves for recourse under financing transactions, inventories, business combinations, goodwill and intangible assets, divestitures, fair value measurements, and income tax assets. We believe these policies are critical because they are important to the portrayal of our financial condition and results of operations, and they require us to make judgments and estimates about matters that are inherently uncertain. Our critical accounting policies may be found in our 2008 Annual Report on Form 10-K in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies and Estimates.”

 

22

 


RESULTS OF OPERATIONS

 

Net Revenues

 

Our net revenues are derived mainly from sales of computer-based digital, nonlinear media-editing and finishing systems and related peripherals, including shared-storage systems, software licenses, and related professional services and maintenance contracts.

 

 

Three Months Ended June 30, 2009 and 2008

 

(dollars in thousands)

 

2009
Net Revenues

 

% of
Consolidated
Net Revenues

 

2008
Net Revenues

 

% of
Consolidated
Net Revenues

 

Change

 

% Change
in Revenues

Video:

 

 

 

 

 

 

 

 

 

 

 

Product revenues

$ 60,902

 

40.4%

 

$114,571

 

51.4%

 

($53,669)

 

(46.8%)

Services revenues

27,797

 

18.5%

 

32,977

 

14.8%

 

(5,180)

 

(15.7%)

Total

88,699

 

58.9%

 

147,548

 

66.2%

 

(58,849)

 

(39.9%)

 

 

 

 

 

 

 

 

 

 

 

 

Audio:

 

 

 

 

 

 

 

 

 

 

 

Product revenues

61,010

 

40.5%

 

74,545

 

33.4%

 

(13,535)

 

(18.2%)

Services revenues

834

 

0.6%

 

770

 

0.4%

 

64 

 

8.3% 

Total

61,844

 

41.1%

 

75,315

 

33.8%

 

(13,471)

 

(17.9%)

 

 

 

 

 

 

 

 

 

 

 

 

Total net revenues:

$150,543

 

100.0%

 

$222,863

 

100.0%

 

($72,320)

 

(32.5%)

 

 

 

Six Months Ended June 30, 2009 and 2008

 

(dollars in thousands)

 

2009
Net Revenues

 

% of
Consolidated
Net Revenues

 

2008
Net Revenues

 

% of
Consolidated
Net Revenues

 

Change

 

% Change
in Revenues

Video:

 

 

 

 

 

 

 

 

 

 

 

Product revenues

$121,457

 

40.2%

 

$210,266

 

49.9%

 

($88,809)

 

(42.2%)

Services revenues

54,744

 

18.1%

 

62,309

 

14.8%

 

(7,565)

 

(12.1%)

Total

176,201

 

58.3%

 

272,575

 

64.7%

 

(96,374)

 

(35.4%)

 

 

 

 

 

 

 

 

 

 

 

 

Audio:

 

 

 

 

 

 

 

 

 

 

 

Product revenues

124,096

 

41.1%

 

147,025

 

34.9%

 

(22,929)

 

(15.6%)

Services revenues

1,875

 

0.6%

 

1,529

 

0.4%

 

346 

 

22.6%&n