UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________
FORM
10-K
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(Mark
One)
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S
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31,
2009
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
__________ to __________
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Commission
File Number: 0-21174
__________________
Avid
Technology, Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State
or Other Jurisdiction of
Incorporation
or Organization)
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04-2977748
(I.R.S.
Employer
Identification
No.)
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One
Park West
Tewksbury,
Massachusetts 01876
(Address
of Principal Executive Offices, Including Zip Code)
(978)
640-6789
(Registrant’s
Telephone Number, Including Area Code)
Securities
Registered Pursuant to Section 12(b) of the Act:
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Title of Each
Class
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Name of Exchange on
which registered
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Common
Stock, $.01 Par Value
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NASDAQ
Global Select Market
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Securities
Registered Pursuant to Section 12(g) of the Act: None
__________________
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes £ No
S
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes £ No
S
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 S No
£
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 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. S
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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
Accelerated Filer £
Non-accelerated
Filer £
(Do
not check if smaller reporting company)
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Accelerated
Filer S
Smaller
Reporting Company £
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No
S
The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $379,742,000 based on the closing price of the
Common Stock on the NASDAQ National Market on June 30, 2009. The
number of shares outstanding of the registrant’s Common Stock as of March 11,
2010 was 37,668,506.
Documents Incorporated by
Reference
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Document
Description
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10-K
Part
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Portions
of the Registrant’s Proxy Statement for the 2010 Annual Meeting of
Stockholders
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III
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AVID
TECHNOLOGY, INC.
FORM
10-K
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
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F-1
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This
annual report on Form 10-K 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 annual
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 forward-looking
statements, many of which are beyond our control, including the risk factors
discussed in Item 1A of this annual report. In addition, the forward-looking
statements contained in this annual report 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.
The
information included under the heading “Stock Performance Graph” in Item 5 of
this annual report is “furnished” and not “filed” and shall not be deemed to be
“soliciting material” or subject to Regulation 14A, shall not be deemed “filed”
for purposes of Section 18 of the Exchange Act or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference in
any filing under the Securities Act or the Exchange Act.
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ITEM
1.
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BUSINESS
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OVERVIEW
We are a
leading provider of digital media content-creation solutions for film, video,
audio and broadcast professionals, as well as artists and home enthusiasts. 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. Around the globe, feature
films, primetime television shows, commercials and chart-topping music hits are
made using one or more of our solutions.
We have
been honored over time for our technological innovation with twelve EmmyÒ
awards, a GrammyÒ
award and two OscarÒ
statuettes, one for the concept, design and engineering of our Avid Film
Composer system for motion picture editing and the other for the design,
development and implementation of our Pro Tools digital audio workstation. Most
recently, on February 14, 2010, we were honored to receive the first-ever
Technical Excellence award presented by the American Cinema Editors, or A.C.E.,
for our Media Composer professional video-editing solution. Additionally, on
February 27, 2010, we received a Technical Achievement award from the Cinema
Audio Society for our Pro Tools 8 professional recording and mixing
software.
Although
we take pride in the honors bestowed upon us, greater satisfaction comes from
awards given to our customers for the films, music and television shows they
create using our solutions. The 2010 awards season once again marked tremendous
accomplishment for our customers across the music, film and television
industries. Collectively, Avid customers took home more than 50 top honor awards
at the 2010 Grammy, A.C.E. and Oscar Awards in categories that included: Grammy
wins for Record of the Year and Album of the Year, A.C.E. Eddie wins for Best
Edited Feature Film, Best Edited One Hour Commercial Television and Best Edited
Reality Series, and Oscar wins for Best Motion Picture, Achievement in Sound
Mixing, Achievement in Sound Editing and Achievement in Film Editing, among
others.
BUSINESS
TRANSFORMATION
We have
customers throughout the world who rely on us to develop products tailored to
their unique needs and requirements that will help their businesses to succeed.
For their long-term success and our own, we committed in July 2008 to becoming a
more efficient, innovative and customer-centric company. We initiated a
significant transformation of our business that included, among other things,
establishing a new management team, developing a new corporate strategy,
reorganizing our internal structure, improving operational efficiencies,
divesting non-core product lines and reducing the size of our workforce. We
believe our efforts over the last 18 months have established a strategic and
organizational foundation from which we are positioned to build momentum in our
core business.
CORPORATE
STRATEGY
We
operate our business based on the following five customer-centric strategic
principles:
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Drive
customer success. We are
committed to making each and every customer successful. Period. It’s that
simple.
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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.
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Fluid,
dependable workflows. Reliability.
Flexibility. Ease of Use. High Performance. We provide best-in-class
workflows to make our customers more productive and
competitive.
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Collaborative
support. For the
individual user, the workgroup, a community or the enterprise, we enable a
collaborative environment for
success.
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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.
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1
CUSTOMER
MARKET SEGMENTS
We
provide digital media content-creation solutions to customers in the six market
segments listed below. We actively listen to and work with our customers in each
market segment to provide comprehensive solutions that are tailored to their
unique needs and requirements.
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Education. This
market segment consists of elementary and secondary schools, career
technical education programs in high schools, colleges and universities,
post-secondary vocational schools, and all teachers and students. We offer
customers in this market segment industry-leading tools and technologies
for video, audio and music that enable students to unleash their
creativity and be prepared to succeed in a digital workplace. Our
solutions support the diverse technical environments found in schools and
on campuses. We sell directly into this market segment using our dedicated
education sales force and via e-commerce, as well as through distributors
and resellers.
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Creative
Enthusiasts. This market
segment is made up of individuals who are music, film or video enthusiasts
with varying degrees of involvement in content creation, ranging from
casual users to dedicated hobbyists, including amateur musicians, disc
jockeys and “prosumers.” For individuals in this market segment, we offer
powerful, user-friendly video and audio solutions at an affordable price.
These solutions are specifically designed for the home desktop or studio
and have rich feature sets but minimal learning curves. We sell into this
market segment through storefront and on-line retailers, through
specialized resellers and directly via
e-commerce.
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Independent
Professionals. This market
segment is made up of artists and independent professionals who earn or
aspire to make a full- or part-time living by engaging in filmmaking,
composing, video or music production, live sound performances, or
disc-jockeying. We provide scalable, innovative solutions to this market
segment that allow creative independents to pursue their artistic visions
with professional-grade tools at affordable prices. These powerful,
feature-rich solutions are accessible to persons of varying skill and
sophistication levels. We sell into this market segment through storefront
and on-line retailers, through specialized resellers and directly via
e-commerce.
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Government
and Commercial. This market
segment comprises corporate and industrial users, government agencies,
houses of worship and live sound managers. We offer
comprehensive, integrated and professional product solutions to these
customers, whether media creation is their primary business or only an
ancillary activity. We also provide a complementary array of professional
and consulting services that draw upon our deep domain expertise. We
primarily sell into the Commercial market segment through resellers and
directly to Government agencies.
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Post
Facilities. This market
segment consists of both enterprise-class and boutique, independent post
production facilities that offer services for the creation of music, film
and television content. For this market segment, we offer a wide range of
innovative products and solutions, including hardware
and software-based creative production tools, scalable media storage
options and collaborative workflows. Our extensive domain expertise also
allows us to provide customers in this market segment with a broad range
of professional services. We sell into this market segment through
our direct sales force and
resellers.
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Broadcast. This market
segment comprises both large- and small-scale public and private
broadcasters and media groups. For customers in this market segment, we
offer an array of broadcast production, content creation, automation and
graphics solutions. These solutions provide leading, open-architecture
technologies that enable efficient and flexible end-to-end workflows. We
sell into this market segment through our direct sales force, system
integrators and value-added
resellers.
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PRODUCTS
AND SERVICES
We
provide a broad range of software and hardware solutions, as well as services
offerings, to address the diverse needs, skills and sophistication levels found
within our customer market segments. Information about our reportable segments,
including revenues from external customers, contribution margin and total
assets, as well as a geographic breakdown of our revenues and long-lived assets,
can be found in Note O to our Consolidated Financial Statements in Item
8.
2
Video
Products
Professional
Video-Editing Solutions
We offer
a wide range of professional digital, nonlinear software and hardware
video-editing solutions. Our Media Composer product line is widely used to edit
television programs, commercials and films, while our NewsCutter and iNews
Instinct editors are designed for the fast-paced world of news production. Avid
Symphony Nitris DX and Avid DS are used during the “online” or “finishing” stage
of post production, during which the final program is assembled in high
resolution with finished graphics, visual effects, color grading and audio
tracks.
Our
professional video-editing solutions accounted for approximately 13%, 14% and
15% of our consolidated net revenues for 2009, 2008 and 2007,
respectively.
Consumer
Video-Editing Software
Our consumer video-editing
products, including Pinnacle Studio and Dazzle, provide consumers and
entry-level videographers with the ability to easily create professional-looking
videos. Our Pinnacle Studio product line is available in three
configurations, Pinnacle Studio, Pinnacle Studio Plus and Pinnacle Studio
Ultimate. Pinnacle Studio is designed for entry-level storytellers looking for a
quick and easy way to enhance and share their projects with family and friends.
Pinnacle Studio Plus and Pinnacle Studio Ultimate offer additional features such
as high-definition editing and output that are intended for advanced video
enthusiasts who require greater power, control and quality to create more
professional looking results.
Broadcast
Newsroom Solutions
Our
broadcast newsroom graphics, ingest, play-to-air and automation device control
solutions are designed to assist broadcasters as they bring programs from
concept to air. These products accelerate the production process by enabling
broadcasters to automate the control of ingest devices, manage teams of
broadcast journalists and editors, assemble stories into news programs, develop
and deliver real-time graphics for broadcast television, and automate the
process of playing television programming to air. Our on-air solutions include
our Deko, iNews, Sundance Digital and AirSpeed product lines.
Storage
and Workflow Solutions
Avid
Interplay is our scalable production asset management solution, designed to
enable large-scale collaboration and workflow automation for our post production
and broadcast customers. Interplay provides the core infrastructure that links
creative content production teams by integrating asset management, workflow
automation and security control. Interplay's modular architecture connects our
editing solutions, storage solutions and ingest and playout devices to automate
complex workflow processes, so that users can focus on creating content rather
than spending resources on technical administration.
Our Avid
Unity shared storage systems are modular and scalable and enable creative
professionals to collaborate on a wide range of digital formats. This product
line includes the enterprise-class Avid Unity ISIS system, which provides high
capacity, redundant storage to large numbers of users based on industry-standard
networking, and Avid Unity MediaNetwork, which is optimized for smaller
workgroups requiring high-performance collaboration.
On January 5, 2010, the
Company acquired Blue Order Solutions AG. Blue Order’s enterprise media
asset management platform, Media Archive, provides users with the ability to
easily access and use a wide range of media content, establish collaborative and
automated workflows, and manage intellectual property assets more
efficiently.
Our video
storage and workflow solutions accounted for approximately 16%, 16% and 15% of
our consolidated net revenues in 2009, 2008 and 2007,
respectively.
3
Audio
Products
Digital
Audio Software and Workstation Solutions
Our Pro
Tools digital audio software and workstation solutions facilitate the audio
production process, including music and sound creation, recording, editing,
signal processing, integrated surround mixing and mastering, and reference video
playback. The Pro Tools platform supports a wide variety of internally developed
and third-party software plug-ins and integrated hardware. Pro Tools solutions
are offered at a range of price points and are used by professionals or aspiring
professionals in music, film, television, radio, multimedia and
Internet production environments.
Aspiring or working
professionals can combine our Pro Tools LE or M-Powered software with our
musical instrument digital interface, or MIDI, keyboards/controllers, desktop
studio monitor speakers and a wide variety of third-party products to create
music and record and mix audio on their personal computers. Our Pro Tools|HD
workstations are designed for the environments in which established
professionals work — creative music production, broadcast, post production and
commercial business settings. These systems combine the processing power
available from integrated digital signal processor hardware and a computer’s
internal processor core to provide scalable power on demand.
Pro Tools
solutions accounted for approximately 17%, 14% and 15% of our consolidated net
revenues in 2009, 2008 and 2007, respectively.
Control
Surfaces
In the
large-format digital mixing console category, our ICON (Integrated Console
System) system features the D-Control and D-Command mixing surfaces, our
high-end, expandable hardware control surfaces for tactile control of Pro Tools
software and hardware. ICON systems can be customized to provide a solution for
any studio, providing from 16 to 80 channels of simultaneous control. An ICON
system, integrated with a Pro Tools|HD workstation, input-output and
pre-amplification peripherals, and studio reference monitors (speakers) options,
provides an end-to-end solution for audio professionals.
Audio
Interfaces
We offer
a wide range of audio interfaces that allow users to get high-quality sound in
and out of their computers. Our interfaces enable users to create audio
recordings on their personal computers using our Pro Tools software or
third-party product offerings.
Live
Systems Products
Our VENUE
product family includes products for mixing audio for live sound reinforcement
for concerts, theater performances and other public address events. We offer a
range of VENUE solutions that are designed for large performance settings, such
as stadium concerts, as well as medium-sized theatres and houses of worship.
VENUE systems allow the direct integration of Pro Tools systems to create and
playback live recordings.
Our MIDI
keyboards/controllers and our digital pianos are used by musicians in the
recording studio and for live performances.
Desktop
and Studio Monitors
We
provide a wide range of speakers for use with desktop computer systems and in
the studios of creative independents, established professionals, commercial
businesses, post production facilities and broadcasters. These monitors provide
high quality audio output at reasonable prices for those engaged in audio
production or simply personal listening.
Other
Software
Our
Sibelius-branded software allows users to electronically create, edit and
publish musical scores. Sibelius software is used by composers, arrangers and
other music professionals. Student versions are also available to assist in the
teaching of music composition and score writing.
4
We also provide the Torq computer-based
disc jockey performance software package. When combined with our purpose-built
M-Audio branded disc jockey hardware interfaces, Torq offers the flexibility and
immediacy of digital music with the traditional interaction model and
improvisational potential of vinyl recordings on turntables.
Customer
Support and Professional Services
Our
customer success and professional services organizations provide software and
application support and professional services. Our teams of in-house and
contract professionals are dedicated to helping our customers improve
efficiencies and realize the full potential of our products and solutions. Our
customer success team provides online and telephone support and access to
software upgrades for customers whose products are under warranty or covered by
a maintenance contract. Our professional services team provides installation,
integration, planning, consulting and training services. Our services revenues
are derived primarily from sales of maintenance contracts.
Customer
support and professional services revenues accounted for approximately 19%, 15%
and 13% of our consolidated net revenues in 2009, 2008 and 2007,
respectively.
COMPETITION
Our
customer market segments are highly competitive and subject to rapid change. Our
competition is fragmented with a large number of companies providing different
types of products in different market segments and geographic areas. We provide
integrated solutions that compete based on features, quality, service and price.
Companies with which we compete in some contexts may also act as partners in
other contexts, such as large enterprise customer environments. We compete
across multiple business units and market segments with companies such as Apple
Inc., Adobe Systems Incorporated and Sony Corporation.
Our
professional Video products compete with products offered by Apple, Autodesk,
Inc., Bit Central, Inc., Harris Corporation, Quantel Inc., Sony and Thomson
Grass Valley in most of our markets. Our consumer video-editing products compete
with software products offered by Adobe and Sony, as well as Corel Corporation,
Sonic Solutions and Magic AG.
Our Audio
products compete with products offered by Apple and Yamaha Corporation in many
of our market segments. Other companies
that compete with our Audio offerings include Loud Technologies, Inc. and Roland
Corporation.
SALES
AND SERVICE CHANNELS
We market
and sell our solutions through a combination of direct and indirect sales
channels, the latter of which include a global network of independent
distributors, value-added resellers, dealers and retailers. Our direct sales
channel consists of internal sales representatives serving select customers and
market segments, as well as our e-commerce sales programs. Net revenues derived
through indirect channels were approximately 67% for 2009, compared to 70% for
both 2008 and 2007.
We have
significant international operations with offices in 22 countries around the
world. Revenues from our international operations accounted for 58%, 61% and
58%, respectively, of our consolidated net revenues for 2009, 2008 and
2007.
We
generally ship our products shortly after the receipt of an order, which is
typical for our industry. Historically, a high percentage of our revenues has
been generated in the third month of each fiscal quarter and concentrated in the
latter part of that month. Accordingly, orders may exist at the end of a quarter
that have not been shipped and have not been recognized as revenues. Backlog
that may exist at the end of any quarter is not a reliable indicator of future
sales levels.
We have
historically experienced increased sales for our consumer video-editing products
and certain of our Audio products in the fourth quarter due to holiday season
demand. In the fourth quarter of 2008, we did not experience a sequential
increase in these sales, which we believe was largely the result of unfavorable
macroeconomic conditions. In the fourth quarter of 2009, coincident with a
modest improvement in the macroeconomic conditions, we once again experienced a
sequential increase in sales for certain of these products. The historical
patterns should not be considered a reliable indicator of future sales
levels.
5
We provide customer
service and support directly through regional support centers and major-market
field service representatives and indirectly through dealers, value-added
resellers and authorized third-party service providers. Depending on the
solution, customers may choose from a variety of support offerings, including
telephone and online technical support, on-site assistance, hardware replacement
and extended warranty, and software upgrades. In addition to support services,
we offer a broad array of professional services and customer training. Training
is also available at Avid-certified training centers around the
world.
MANUFACTURING
AND SUPPLIERS
Our
manufacturing operations consist primarily of the testing of subassemblies and
components purchased from third parties, the duplication of software, and the
configuration, assembly and testing of board sets, software, related hardware
components and complete systems. In addition to our internal manufacturing
operations, we rely on a network of contractors around the globe to manufacture
some of our products, components and subassemblies. Our products undergo testing
and quality assurance at the final assembly stage. We depend on sole-source
vendors for certain key hardware components. For the risks associated with our
use of contractors and sole-source vendors, see “Risk Factors” in Item 1A of
this annual report.
Our
company-operated manufacturing operations are currently located in: Tewksbury,
Massachusetts; Dublin, Ireland; and Mountain View, California. During 2010, our
Tewksbury manufacturing operations will relocate to newly leased facilities in
Burlington, Massachusetts.
Avid
Green Initiative
We
provide for the recycling of our products and removal of specific toxic
substances that may be found in our products as required by environmental
regulations. During 2007, we hired a corporate environmental manager, who
initially focused on the Waste Electrical and Electronic Equipment Directive, or
WEEE, and Restriction of the use of certain Hazardous Substances in electrical
and electronic equipment, or RoHS, compliance initiatives. Since that time, we
have continued to develop our “Design for Environment” program, which
incorporates environmental considerations into products from initial concept to
end-of-life, as well as our Corporate Environment Management
System.
In early
2010, we released our Avid Environmental Policy, which is based on the principle
that it is our responsibility to minimize our impact on the environment and
establishes the following environmental goals:
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·
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Endorse
product stewardship by adopting and integrating Design for Environment
practices to ensure minimal environmental impact throughout the product
lifecycle.
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Promote
environmental responsibility in our supply
chain.
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Adopt
the principles of reduce, reuse, and recycle while promoting
waste-reduction programs in our global
operations.
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Build
an Environmental Management System that
ensures:
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·
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goals
are established and monitored;
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processes
and technologies are continually reviewed for best
practices;
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·
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process
improvements are continuously championed;
and
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·
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all
employees are aware of and responsible for maintaining environmentally
sound business practices.
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·
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Continue
compliance with global laws and directives affecting our products and
operations.
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In 2009,
2008 and 2007, we incurred costs of approximately $0.7 million, $0.7 million and
$0.6 million, respectively, directly related to our environmental programs. We
expect our 2010 environmental costs to remain approximately the same as our 2009
costs.
6
INTELLECTUAL
PROPERTY
We regard
our software and hardware as proprietary and protect our proprietary interests
under the laws of patents, copyrights, trademarks and trade secrets, as well as
through contractual provisions.
We have
obtained patents and have registered copyrights, trademarks and service marks in
the United States and in many foreign countries. At December 31, 2009, we held
201 U.S. patents, with expiration dates through 2027, and had 49 patent
applications pending with the U.S. Patent and Trademark Office. We have also
registered or applied to register various trademarks and service marks in the
United States and a number of foreign countries, including Avid, Media Composer,
NewsCutter, Digidesign, Pro Tools, M-Audio and Sibelius. As a technology
company, we regard our patents, copyrights, trademarks, service marks and trade
secrets as being among our most valuable assets, together with the innovative
skills, technical competence and marketing abilities of our
personnel.
Our
software is licensed to end users pursuant to shrink-wrap, embedded,
click-through or signed paper license agreements. Our products generally contain
copy-protection and/or copy-detection features to guard against unauthorized
use. Policing unauthorized use of computer software is difficult, and software
piracy is a persistent problem for us, as it is for the software industry in
general. This problem is particularly acute in some of the international markets
in which we operate.
RESEARCH
AND DEVELOPMENT
We are
committed to delivering best-in-class digital media content-creation solutions
market-tailored to the unique needs, skills and sophistication levels of our
target customer market segments. We are known as a pioneer and innovator of
digital media content-creation solutions with research and development, or
R&D, centers around the globe. Our R&D efforts are focused on the
development of digital media content-creation tools and workgroup solutions that
operate primarily on the Macintosh and Windows platforms. Our R&D efforts
also include networking and storage initiatives intended to deliver
standards-based media transfer and media asset management tools, as well as
stand-alone and network-attached media storage systems for workgroups. In
addition to our internal R&D efforts, we are offshoring an increasing
portion of certain R&D projects to internationally based partners. Our
R&D expenditures for 2009, 2008 and 2007 were $121.0 million, $148.6 million
and $150.7 million, respectively. For the risks associated with our use of
partners for R&D projects, see “Risk Factors” in Item 1A of this annual
report.
Our
company-operated R&D operations are located in: Tewksbury, Massachusetts;
Daly City, California; Mountain View, California; Irwindale, California;
Madison, Wisconsin; Munich, Germany; Kaiserslautern, Germany; and London,
England. During 2010, our Tewksbury R&D operations will be relocated to
newly leased facilities in Burlington, Massachusetts.
OPERATIONS
We are
currently headquartered in Tewksbury, Massachusetts, with operations in the
United States, Canada, South America, Europe, Asia and Australia. During 2010,
our headquarters will be relocated to recently leased facilities in Burlington,
Massachusetts. We employed 2,142 people worldwide at December 31,
2009.
WEB
SITE ACCESS
We make
available free of charge on our website, www.avid.com, copies
of our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our
current reports on Form 8-K and all amendments to those reports as soon as
practicable after filing with the Securities and Exchange Commission.
Additionally, we will provide paper copies of all of these filings free of
charge upon request. Alternatively, these reports can be accessed at the SEC’s
Internet website at www.sec.gov.
7
Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks and uncertainties described below in addition to the other
information included or incorporated by reference in this annual report before
making an investment decision regarding our common stock. If any of the
following risks were to actually occur, our business, financial condition or
operating results would likely suffer, possibly materially, the trading price of
our common stock could decline, and you could lose part or all of your
investment.
Our
success depends in significant part on our ability to provide innovative
solutions in response to dynamic and rapidly evolving market
demand.
To
succeed in our market, we must deliver innovation. Innovation requires both that
we accurately predict future market trends and customer expectations and that we
possess the flexibility and nimbleness to quickly adapt our product roadmap and
development efforts in response. Predicting market trends is difficult, as our
market is dynamic and rapidly evolving. Additionally, given the complex,
sophisticated nature of our solutions and our typically lengthy product
development cycles, we may not be able to rapidly change our product direction
or strategic course. If we are unable to accurately predict market trends or
adapt to evolving market conditions, our ability to innovate and capture
customer demand will suffer and our financial performance and market reputation
will be negatively affected. Even to the extent we make accurate predictions and
possess the requisite flexibility to adapt, we may be able to pursue only a
handful of possible innovations as a result of limited resources. Our success,
therefore, further depends on our ability to identify and focus on the most
promising innovations. We additionally have the challenge of protecting our
product roadmap and new product initiatives from leaks to competitors that might
reduce or eliminate any innovative edge that we seek to gain.
Our
revenues and operating results depend on several variables and may fluctuate
from period to period.
Our
revenues and operating results depend on several variables, which include, but
are not limited to:
|
·
|
timing
and market acceptance of new product introductions by us and our
competitors;
|
|
·
|
competitive
pressure on product pricing;
|
|
·
|
mix
of products and services sold;
|
|
·
|
our
ability to recognize revenues from large or enterprise-wide
sales;
|
|
·
|
length
of sales cycles and associated
costs;
|
|
·
|
global
macroeconomic conditions;
|
|
·
|
changes
in operating expenses;
|
|
·
|
changes
in foreign currency exchange rates;
|
|
·
|
reliance
on third-party reseller and distribution
channels;
|
|
·
|
remedial
costs and reputational harm associated with product defects or
errors;
|
|
·
|
cost
of third-party technology or components incorporated into or bundled with
products sold;
|
|
·
|
seasonal
factors, such as higher consumer demand at year-end;
and
|
|
·
|
price
protections and provisions for inventory obsolescence extended to
resellers and distributors.
|
The
occurrence and interaction of these variables may cause our revenues and
operating results to fluctuate from period to period. As a result,
period-to-period comparisons of our revenues and operating results may not
provide a good indication of our future performance.
8
We
expect the global economic downturn to continue to have a negative impact on our
business, although the magnitude of that impact is uncertain.
We
believe that the global economic downturn negatively affected our revenues and
operating results in 2009. Although we are unable to predict future economic
conditions or the magnitude of the downturn’s impact on our business, global
economic activity is expected to remain slow. To the extent our customers’
businesses have been or expect to be negatively impacted by the economic
downturn, we anticipate that they may delay or postpone purchases of our
solutions. Of additional concern, certain of our professional customers rely on
credit to finance purchases of our solutions, including through third-party
leasing arrangements that we offer. Credit markets remain constrained by
historic standards; to the extent credit is unavailable, even customers
otherwise willing to proceed with purchases might be unable to do so unless or
until they are able to arrange for alternative financing. Additionally, certain
of our customers have become insolvent, and others may become so in the future.
To the extent our customers suffer from lack of liquidity or become insolvent,
our sales cycles may lengthen and our accounts receivable collection rates may
suffer, which would negatively affect our revenues, or, in some circumstances,
we may have to consider extended or alternative payment arrangements, which
could delay revenue recognition.
We may
also be affected to the extent the economic downturn continues to negatively
impact our resellers and distributors. Our resellers and distributors have in
some cases, and may in the future, reduce on-hand inventory of our products as a
precaution. The downturn has also caused certain of our resellers and
distributors, and may cause others, particularly in the retail sector, to seek
bankruptcy protection. With respect to any reseller or distributor that enters
bankruptcy, we may be unable to collect from that reseller or distributor monies
due to us or arrange for the return of unsold inventory.
As
the media industry evolves, our customers’ needs, businesses and revenue models
will change in ways that may deviate from our traditional strengths, making our
existing products and solutions less relevant.
The media
content creation industry is rapidly transforming. Content distribution models
and consumption habits have changed dramatically in just the last five years.
With increasing amounts of free content and minimal entry costs for creation and
distribution, our traditional customers’ industries and businesses are changing,
and consequently their relationships with us may change significantly. Our
business customers require vendors that can provide them with tools to help
manage a growing number of media assets and distribution channels, while also
reducing their costs. Our consumer customers increasingly look to participate in
new ways in this media revolution. Our future success depends on our ability to
develop products that effectively satisfy these demands. Our customers may also
seek to pool or share facilities and resources with others in their industry and
engage with providers of software as a service. Open platforms, online
collaboration tools, and cloud computing are replacing the traditional business
infrastructures and maintenance, which we currently provide to them. Traditional
advertising channels face competition from web and mobile platforms. Diminished
revenue from traditional advertising will cause some customers’ budgets for
purchase of our solutions to decline; this may be particularly true among local
television stations, which in the past have been an important customer segment
for us. If we are unable to stay ahead of or adapt to the changes in our
customers’ businesses, our future financial performance will
suffer.
The
market segments in which we operate are highly competitive, and our competitors
may be able to draw upon a greater depth and breadth of resources than those
that are available to us.
We
operate in highly competitive market segments characterized by pressure to
innovate, expand feature sets and functionality, accelerate new product releases
and reduce prices. Markets for certain of our products also have limited
barriers to entry. Customers consider many factors when evaluating our products
relative to those of our competitors, including innovation, ease of use, feature
sets, functionality, reliability, performance, reputation, and training and
support, and we may not compare favorably against our competitors in all
respects. Some of our current and potential competitors have longer operating
histories, greater brand recognition and substantially greater financial,
technical, marketing, distribution and support resources than we do. As a
result, they may be able to deliver greater innovation, respond more quickly to
new or emerging technologies and changes in market demand, devote more resources
to the development, marketing and sale of their products, or price their
products more aggressively than we can.
9
Our
efforts to transform our business may not yield the intended results of improved
financial performance and increased returns for our stockholders.
We are in
the process of a significant transformation that began in 2008 and includes,
among other things, a new corporate strategy, reorganization of our internal
structure, the improvement of operational efficiencies and a reduction in the
size of our workforce. Although the majority of our transformation activities
are complete, the effects of the transformation are yet to be fully determined.
While we undertook these activities with the goals of improving our financial
performance and creating greater returns for our stockholders, they may
ultimately prove to be misdirected and insufficient or ill-timed, and we cannot
be certain that they will yield the intended results.
Our
engagement of contractors for product development and manufacturing may reduce
our control over those activities, provide uncertain cost savings and expose our
proprietary assets to greater risk of misappropriation.
We
outsource a portion of our software development and our hardware design and
manufacturing to contractors, both domestic and offshore. These relationships
provide us with more flexible resource capabilities, access to global talent and
cost savings, but also expose us to risks that may not exist or may be less
pronounced with respect to our internal operations. We are able to exercise only
limited oversight of our contractors, including with respect to their
engineering and manufacturing processes, resource allocations, delivery
schedules, security procedures and quality control. Language, cultural and time
zone differences further complicate effective management of contractors that are
located offshore. Additionally, competition for talent in certain locations may
lead to high turnover rates that disrupt development or manufacturing
continuity. Pricing terms offered by certain contractors may be highly variable
over time reflecting, among other things, order volume, local inflation and
exchange rates. Some of our contractor relationships are based in contract,
while others operate on a purchase order basis, where we do not have the benefit
of written protections with respect to pricing or other critical
terms.
Many of
our contractors require access to our intellectual property and confidential
information to perform their services. Protection of these assets in relevant
offshore locations is significantly less robust than in the United States. We
must rely on policies and procedures we have instituted with our contractors and
certain confidentiality and contractual provisions in our written agreements, to
the extent they exist, for protection. Although these various safeguards provide
reasonable assurance of protection, they may be inadequate to prevent breaches
in all circumstances. If a breach were to occur, available legal or other
remedies may be limited or otherwise insufficient to compensate us for any
resulting damages.
Certain
of our contractor relationships involve complex and mission-critical
dependencies. If any of the preceding risks were to occur, we might not be able
to rapidly wind down these relationships or quickly transition to alternative
providers.
We
have incurred net losses in each of our three most recently completed fiscal
years and we may continue to incur net losses in future periods.
We have
incurred, on the basis of U.S. generally accepted accounting principles, net
losses in each of the past three fiscal years: $68.4 million in 2009, $198.2
million in 2008, and $8.0 million in 2007. These losses, among other things,
adversely affect our stockholders’ equity and working capital. These losses, and
the principal factors or components underlying them, are discussed in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7 of this annual report. Although, as discussed above, we
have undertaken efforts to transform our operations, we cannot be certain when,
or if, our operations will return to profitability.
Our
success depends in part on our ability to retain competent and skilled
management and technical personnel.
As part
of our recent and ongoing transformation efforts, we have established a new
management team and continue to restructure our internal organization. Although
we believe that we have the competencies and skill sets necessary to succeed
long term, our ability to do so will depend in part upon our ability to retain
our management and technical personnel in competitive job markets. We rely on
cash bonuses and equity awards as significant compensation and retention tools
for key personnel. The value of these bonuses and awards are typically tied to
our financial performance or stock price. To the extent our financial
performance or stock price declines, the value of these bonuses or awards,
together with their usefulness as retention mechanisms, may be diminished or
eliminated. In addition to compensation, we seek to foster an innovative work
culture to retain employees. We also rely on the attractiveness of developing
technology for the film, television and music industries as a means of
retention. Nonetheless, our competitors may in some instances be able to offer a
more dynamic work environment or more opportunities to work with cutting-edge
technology.
10
Potential
acquisitions could be difficult to integrate, disrupt our business, dilute
stockholder value or impair our financial results.
As part
of our business strategy, we periodically acquire companies, technologies and
products that we believe can improve our ability to compete in our existing
customer market segments or will allow us to enter new markets. The potential
risks associated with any acquisition include, but are not limited
to:
|
·
|
failure
to realize anticipated returns on investment, cost savings and
synergies;
|
|
·
|
difficulty
in assimilating the operations, policies and personnel of the acquired
company;
|
|
·
|
distraction
of management’s attention from normal business
operations;
|
|
·
|
potential
loss of key employees of the acquired
company;
|
|
·
|
impairment
of relationships with customers or
suppliers;
|
|
·
|
possibility
of incurring impairment losses related to goodwill and other intangible
assets;
|
|
·
|
unidentified
issues not discovered in due diligence, which may include product quality
issues or legal contingencies; and
|
|
·
|
potential
dilution to existing stockholders if we issue common stock or other equity
rights in the acquisition.
|
We
obtain certain hardware product components under sole-source supply
arrangements, and any disruptions to these arrangements could jeopardize the
manufacturing or distribution of certain of our hardware products.
Although
we generally prefer to establish multi-source supply arrangements for our
hardware product components, multi-source arrangements are not always possible
or cost-effective. We consequently depend on sole-source suppliers for certain
hardware product components, including some critical items. We do not generally
carry significant inventories of, and may not in all cases have guaranteed
supply arrangements for, these sole-sourced components. If any of our
sole-source suppliers were to cease, suspend or otherwise limit production or
shipment of components, or adversely modify supply terms or pricing, our ability
to manufacture, distribute and service our finished hardware products may be
impaired. We cannot be certain that we will be able to obtain sole-sourced
components, or acceptable substitutes, from alternative suppliers or that we
will be able to do so on commercially reasonable terms. We may also be required
to expend significant development resources to redesign our products to work
around the exclusion of any sole-sourced component or accommodate the inclusion
of any substitute component.
We
depend on the availability and proper functioning of certain third-party
technology that we incorporate into or bundle with our products.
We
license third-party technology for incorporation into or bundling with our
products. This technology may provide us with critical or strategic feature sets
or functionality. The profit margin for each of our products depends in part on
the royalty, license and purchase fees we pay in connection with third-party
technology. To the extent we add additional third-party technology to our
products and we are unable to offset associated costs, our profit margins may
decline and our operating results may suffer. In addition to cost implications,
third-party technology may include defects or errors that could adversely affect
the performance of our products, which may harm our market reputation or
adversely affect our product sales. Third-party technology may also include
certain open source software code that if used in combination with our own
software may jeopardize our intellectual property rights. If any third-party
technology license expires, is terminated or ceases to be available on
commercially reasonable terms, we may be required to expend considerable
resources integrating alternative third-party technology or developing our own
substitute technology. In the interim, sales of our products may be delayed or
suspended or we may be forced to distribute our products with reduced feature
sets or functionality.
11
Our
future results could be materially adversely affected if we are accused of or
found to be infringing third parties’ intellectual property rights.
Because
of technological change in our industry, extensive and sometimes uncertain
patent coverage, and the rapid issuance of new patents, it is possible that
certain of our products or business methods may inadvertently infringe the
patents or other intellectual property rights of third parties. Third parties
contact us from time to time alleging that our products infringe their
intellectual property rights. Allegations from opportunistic patent owners often
lack merit and are undertaken with the goal of inducing the alleged infringer
into a quick settlement to thereby spare the alleged infringer the nuisance and
expense of legal discovery and a trial. Our general practice is to mount a
vigorous defense against any claim that we believe lacks merit and eschew a
quick settlement. This practice may cause us to incur significant legal defense
costs that could have a negative impact on our operating results. With respect
to legitimate allegations, our general practice is to negotiate licenses to the
patented inventions as appropriate, which may include back-royalties to
compensate for past use or distribution of the patented invention. Additional
royalties will increase our cost-of-goods-sold and reduce our operating results.
To the extent licenses are not available to us on commercially reasonable terms
or at all, we may be required to expend considerable time and resources to
develop a non-infringing alternative. In the interim, sales of our products may
be delayed or suspended or we may be forced to distribute our products with
reduced feature sets or functionality.
In
addition to allegations made directly against us, in some cases we have
indemnification obligations with respect to claims of infringement made against
our customers and other related parties. A broadly targeted claim of
infringement made against our customers or other related parties may result in
significant defense costs for us.
Our
intellectual property and trade secrets are valuable assets that may be subject
to third-party infringement and misappropriation.
As a
technology company, our intellectual property and trade secrets are among our
most valuable assets. Infringement or misappropriation of these assets results
in lost revenues to us and thereby ultimately reduces their value. We rely on a
combination of patent, copyright, trademark and trade secret laws, as well as
confidentiality procedures, contractual provisions and anti-piracy technology in
certain of our products to protect our intellectual property and trade secrets.
Most of these tools require vigilant monitoring of competitor and other
third-party activities and of end-user usage of our products to be effective.
These tools may not provide adequate protection in all instances, may be subject
to circumvention, or may require a vigilance that in some cases exceeds our
capabilities or resources. Additionally, the legal regimes of certain countries
in which we operate may not protect our intellectual property or trade secrets
to the same extent as do the laws of the United States. Regardless of
jurisdiction, assuming legal protection exists and infringement or
misappropriation is detected, any enforcement action that we may pursue could be
costly and time-consuming, the outcome will be uncertain, and the alleged
offender in some cases may seek to have our intellectual property rights
invalidated.
Our
revenues and operating results depend significantly on our third-party reseller
and distribution channels.
We
distribute many of our products indirectly through third-party resellers and
distributors. Relatively few resellers and distributors account for a
significant portion of our consumer revenues. The loss of one or more of these
or other key resellers or distributors may significantly reduce our revenues. To
the extent we distribute our products directly to end-user customers, we may be
in competition with our resellers and distributors. In response to our direct
sales strategies or for other business reasons, our current resellers and
distributors may from time to time choose to resell our competitors’ products in
addition to, or in place of, ours. Certain of our resellers and distributors
have limited rights of return, as well as inventory stock rotation and price
protection. Accordingly, reserves for estimated returns and exchanges, and
credits for price protection, are recorded as a reduction of revenues upon
applicable product shipment, and are based upon our historical experience. To
date, actual returns of relevant products have not differed materially from our
management’s estimates. To the extent that returns exceed estimates, our
revenues and operating results may be adversely affected.
12
A
catastrophic event may significantly limit our ability to conduct business as
normal.
We
operate a complex, geographically dispersed business, which includes a
significant personnel and facilities presence in California near major
earthquake fault lines. We may not have a sufficiently comprehensive
enterprise-wide disaster recovery plan in place, and we are predominantly
uninsured for losses and disruptions caused by catastrophic events. Disruption
or failure of our networks or systems, or injury or damage to our personnel or
physical infrastructure, caused by a natural disaster, public health crisis,
terrorism, cyber attack, act of war or other catastrophic event may
significantly limit our ability to conduct business as normal, including our
ability to communicate and transact with our customers, suppliers, distributors
and resellers, and negatively affect our revenues and operating results.
Additionally, a catastrophic event could cause us to suspend all or a portion of
our operations for a significant period of time, result in a permanent loss of
resources, and require the relocation of personnel and materiel to alternate
facilities that may not be available or adequate. A prolonged disruption of our
business could damage our reputation, particularly among our global news
organization customers who are likely to require our solutions and support
during such time.
Our
products may experience quality issues that could negatively impact our customer
relationships, our market reputation and our operating results.
Our
software products, as is typical of sophisticated, complex software,
occasionally include coding defects or errors (commonly referred to as “bugs”),
which in some cases may interfere with or impair a customer’s ability to operate
or use the software. Similarly, our hardware products could include design or
manufacturing defects that could cause them to malfunction. Although we employ
quality control measures, those measures are not designed or intended to detect
and remedy all defects. The time and resources available to devote to quality
control measures are, in part, dependent on other business considerations, such
as meeting customer expectations with respect to release schedules. Any product
defects could result in loss of customers or revenues, delays in revenue
recognition, increased product returns, damage to our market reputation and
significant warranty or other expense.
Our
global brand alignment effort could affect customer acceptance of certain
rebranded products, thereby impacting our future success.
We have
undergone an effort to achieve global brand alignment as part of the effort to
transform our business that is discussed above. This effort is still underway,
and brand migration poses risks of both business disruption and customer
acceptance, particularly with respect to acquired legacy brands that we are
assimilating into the Avid brand. Our customer outreach and similar efforts may
not mitigate fully the risks of our branding efforts, which may lead to
reductions in revenues in some markets, which may adversely affect our business,
financial position and results of operations, and could cause the market value
of our common stock to decline.
We
may incur financial and operational risk in connection with the move of our
headquarters from Tewksbury, Massachusetts to Burlington,
Massachusetts.
In
November 2009, we announced plans to move our corporate headquarters to
Burlington, Massachusetts from Tewksbury, Massachusetts. In connection with the
move, we have signed three lease agreements for approximately 200,000 square
feet of space in three existing structures. We anticipate that the move will
occur in the second quarter of 2010, and will require the significant build-out,
both within and without the existing structures, of customer-facing, training,
office, and research and development space. Risks associated with the relocation
include delays in receiving necessary permits and approvals, the failure of
contractors to meet agreed construction milestones, the disruption of our
ongoing business, distraction of management and employees, and the possible loss
of key employees who may be unable or unwilling to work in the new location.
Additionally, while we expect the relocation to result in estimated annual cash
savings, savings from relocating a facility can be highly variable and
uncertain. Furthermore, under the terms of the lease of our current
headquarters, prior to vacating the premises we are obligated to cover certain
campus restoration costs, the scope of which is currently
uncertain.
13
Lengthy
procurement lead times and unpredictable life cycles and customer demand for
some of our products may result in significant inventory risks.
With
respect to many of our products, we must procure component parts and build
finished inventory far in advance of product shipments. Certain of these
products may have unpredictable life cycles and encounter rapid technological
obsolescence as a result of dynamic market conditions. We procure product
components and build inventory based upon our forecasts of product life cycle
and customer demand. If we are unable to accurately forecast product life cycle
and customer demand or unable to manage our inventory levels in response to
shifts in customer demand, the result may be insufficient, excess or obsolete
product inventory. Insufficient product inventory may impair our ability to
fulfill product orders and negatively affect our revenues, while excess or
obsolete inventory may require a write-down on products and components to their
net realizable value, which would negatively affect our results of
operations.
Qualifying
and supporting our products on multiple computer platforms is time-consuming and
expensive.
Hardware
and operating systems change rapidly in our industry, and changes made by our
suppliers can adversely affect the operation of our products. We devote
significant time and resources to support state of the art computer platforms.
These efforts may add significantly to our development expenses and adversely
affect our operating results. Failure to achieve qualification on a timely basis
may additionally adversely affect our operating results.
Our
international operations expose us to significant exchange rate fluctuations, as
well as regulatory, intellectual property and other risks that may adversely
affect our operating results.
We derive
more than half of our revenues from customers outside of the United States. Our
international sales are, for the most part, transacted through foreign
subsidiaries and generally in the currency of the end-user customers. We
consequently are exposed to currency exchange risks that may adversely affect
our revenues, operating results and cash flow. To hedge against the
international exchange exposure of certain forecasted receivables, payables and
cash balances of our foreign subsidiaries, we enter into foreign currency
forward-exchange contracts. The success of our hedging program depends on the
accuracy of our forecasts of transaction activity in the various currencies. To
the extent that these forecasts are over- or understated during periods of
currency volatility, we may experience currency gains or losses.
In
addition to exposing us to currency and exchange risks, our international
operations require us to comply with myriad environmental, tax and export laws,
as well as other business regulations. The risks associated with these laws and
regulations may from time to time include, among other things, high compliance
costs, rapid adoption requirements, inconsistencies among jurisdictions, and a
lack of administrative or judicial interpretative guidance. We additionally tend
to encounter in our international operations longer collection cycles for
accounts receivable and, as discussed in a previous risk factor, greater
difficulties in protecting our intellectual property.
The
market price of our common stock has been and may continue to be
volatile.
The
market price of our common stock has experienced volatility in the past and may
continue to fluctuate substantially in the future in response to various
factors, some of which are beyond our control. These factors include, but are
not limited to:
|
·
|
period-to-period
variations in our revenues or operating
results;
|
|
·
|
market
reaction to significant corporate initiatives or
announcements;
|
|
·
|
our
ability to innovate;
|
|
·
|
our
relative competitive position within our
markets;
|
|
·
|
shifts
in markets or demand for our
solutions;
|
|
·
|
changes
in our relationships with suppliers, resellers, distributors or
customers;
|
|
·
|
our
failure to accurately forecast revenues or operating
results;
|
14
|
·
|
our
commencement of, or involvement in,
litigation;
|
|
·
|
short
sales, hedging or other derivative transactions involving shares of our
common stock; and
|
|
·
|
shifts
in financial markets.
|
Additionally,
broader financial market and global economic trends may negatively affect the
market price of our common stock, regardless of our operating
performance.
None.
Our
principal corporate and administrative offices, as well as significant Video
R&D and manufacturing activities, are located in three adjacent buildings in
an office park located in Tewksbury, Massachusetts. Our leases on these
buildings expire in June 2010. In November 2009, we signed leases for new
corporate office space in Burlington, Massachusetts. The leases for these
facilities expire in May 2020. We plan to relocate our Tewksbury operations to
the Burlington, Massachusetts facilities during 2010.
We also
lease office space in Daly City, California, primarily for R&D and sales and
marketing activities, and in Mountain View, California, primarily for R&D,
product management and manufacturing activities. We lease facilities in Iver
Heath, United Kingdom for our European headquarters, which includes
administrative, sales and support functions, and a facility in Dublin, Ireland
for the manufacture and distribution of our products in Europe. We also lease a
facility in Singapore for our Asian headquarters.
The above
descriptions of our properties are based on the primary functions located at
each facility based on our historical business structure. Effective January 1,
2009, as a result of changes in our business unit structure and consolidation of
operations, several of our facilities began to increasingly support more than
one of our reporting segments.
We are
involved in legal proceedings from time to time arising from the normal course
of business activities, including claims of alleged infringement of intellectual
property rights and commercial, employment, piracy prosecution and other
matters. We do not believe these matters will have a material adverse effect on
our financial position or results of operations. However, our financial position
or results of operations may be negatively affected by the unfavorable
resolution of one or more of these proceedings.
None.
15
|
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
common stock is listed on the NASDAQ Global Select
Market under the symbol AVID. The table below shows the high and low sales
prices of the common stock for each calendar quarter of the fiscal years ended
December 31, 2009 and 2008.
|
2009
|
2008
|
||||||||
|
High
|
Low
|
High
|
Low
|
||||||
|
First
Quarter
|
$12.18
|
$8.40
|
$28.38
|
$17.61
|
|||||
|
Second
Quarter
|
$15.48
|
$9.00
|
$25.61
|
$16.97
|
|||||
|
Third
Quarter
|
$15.29
|
$10.81
|
$29.91
|
$16.60
|
|||||
|
Fourth
Quarter
|
$15.42
|
$11.52
|
$25.00
|
$9.68
|
|||||
On March
11, 2010, the last reported sale price of our common stock on the NASDAQ Global
Select Market was $14.51 per share. The approximate number of holders of record
of our common stock at March 2, 2010 was 432. This number does not include
shareholders for whom shares were held in a “nominee” or “street”
name.
We have
never declared or paid cash dividends on our capital stock, and we do not
anticipate paying any cash dividends in the foreseeable future.
Issuer
Purchases of Equity Securities
The
following table is a summary of our stock repurchases during the quarter ended
December 31, 2009:
|
Period
|
Total
Number
of
Shares
Repurchased(a)
|
Average
Price
Paid
Per Share
|
Total
Number of
Shares
Repurchased
as
Part of the
Publicly
Announced
Program
|
Dollar
Value of
Shares
That May
Yet
be Purchased
Under
the Program(b)
|
|||||
|
October
1 – October 31, 2009
|
–
|
–
|
–
|
$80,325,905
|
|||||
|
November
1 – November 30, 2009
|
–
|
–
|
–
|
$80,325,905
|
|||||
|
December
1 – December 31, 2009
|
1,982
|
$12.46
|
–
|
$80,325,905
|
|||||
|
1,982
|
$12.46
|
–
|
$80,325,905
|
|
(a)
|
In
December 2009, we repurchased 1,982 shares of restricted stock for $12.46
per share from an employee to pay required withholding taxes upon the
vesting of restricted stock. The purchase price of a share of stock used
for tax withholding is determined based on the market price of the stock
on the date of vesting of the restricted
stock.
|
|
(b)
|
In
April 2007, we initiated a stock repurchase program which ultimately
authorized the repurchase of up to $200 million of our common stock
through transactions on the open market, in block trades or otherwise. At
December 31, 2009, $80.3 million remained available for future stock
repurchases under the program. The stock repurchase program is funded
through working capital and has no expiration date. No shares of common
stock were repurchased under this program in
2009.
|
16
Stock
Performance Graph
The
following graph compares the cumulative stockholder return on our common stock
during the period from December 31, 2004 through December 31, 2009 with the
cumulative return during the period for:
|
·
|
the
NASDAQ Computer, Data Processing Index,
and
|
|
·
|
the
NASDAQ Index (all companies traded on NASDAQ Capital, Global or Global
Select Markets).
|
This
comparison assumes the investment of $100 on December 31, 2004 in our common
stock, the NASDAQ Market Index and the NASDAQ Computer, Data Processing Index
and assumes that dividends, if any, were reinvested.
17
The
following table sets forth our selected condensed consolidated financial data.
The selected condensed consolidated financial data below should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the consolidated financial statements and notes
thereto included elsewhere in this filing. See Note G to our Consolidated
Financial Statements in Item 8 for information regarding our acquisitions and
divestitures that affect the comparability of the selected condensed
consolidated financial data presented.
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
(in
thousands except per share data)
|
For
the Year Ended December 31,
|
||||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||||||
|
Net
revenues
|
$
|
628,970
|
$
|
844,901
|
$
|
929,570
|
$
|
910,578
|
$
|
775,443
|
||||||||||||||
|
Cost
of revenues
|
305,948
|
452,476
|
480,427
|
465,894
|
364,687
|
|||||||||||||||||||
|
Gross
profit
|
323,022
|
392,425
|
449,143
|
444,684
|
410,756
|
|||||||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||||||
|
Research
and development
|
120,989
|
148,598
|
150,707
|
141,363
|
111,334
|
|||||||||||||||||||
|
Marketing
and selling
|
173,601
|
208,735
|
210,456
|
203,967
|
170,787
|
|||||||||||||||||||
|
General
and administrative
|
61,087
|
78,591
|
77,463
|
63,250
|
47,147
|
|||||||||||||||||||
|
Amortization
of intangible assets
|
10,511
|
12,854
|
13,726
|
14,460
|
9,194
|
|||||||||||||||||||
|
Impairment
of goodwill and intangible assets
|
—
|
129,972
|
—
|
53,000
|
—
|
|||||||||||||||||||
|
Restructuring
costs, net
|
26,873
|
25,412
|
9,410
|
2,613
|
3,155
|
|||||||||||||||||||
|
In-process
research and development
|
—
|
—
|
—
|
879
|
32,390
|
|||||||||||||||||||
|
Gain
on sale of assets
|
(155
|
)
|
(13,287
|
)
|
—
|
—
|
—
|
|||||||||||||||||
|
Total
operating expenses
|
392,906
|
590,875
|
461,762
|
479,532
|
374,007
|
|||||||||||||||||||
|
Operating
income (loss)
|
(69,884
|
)
|
(198,450
|
)
|
(12,619
|
)
|
(34,848
|
)
|
36,749
|
|||||||||||||||
|
Interest
and other income, net
|
(123
|
)
|
2,936
|
7,637
|
7,274
|
5,586
|
||||||||||||||||||
|
Income
(loss) before income taxes
|
(70,007
|
)
|
(195,514
|
)
|
(4,982
|
)
|
(27,574
|
)
|
42,335
|
|||||||||||||||
|
(Benefit
from) provision for income taxes
|
(1,652
|
)
|
2,663
|
2,997
|
15,353
|
8,355
|
||||||||||||||||||
|
Net
income (loss)
|
$
|
(68,355
|
)
|
$
|
(198,177
|
)
|
$
|
(7,979
|
)
|
$
|
(42,927
|
)
|
$
|
33,980
|
||||||||||
|
Net
income (loss) per common share – basic
|
$
|
(1.83
|
)
|
$
|
(5.28
|
)
|
$
|
(0.19
|
)
|
$
|
(1.03
|
)
|
$
|
0.90
|
||||||||||
|
Net
income (loss) per common share – diluted
|
$
|
(1.83
|
)
|
$
|
(5.28
|
)
|
$
|
(0.19
|
)
|
$
|
(1.03
|
)
|
$
|
0.86
|
||||||||||
|
Weighted-average
common shares outstanding - basic
|
37,293
|
37,556
|
40,974
|
41,736
|
37,762
|
|||||||||||||||||||
|
Weighted-average
common shares outstanding - diluted
|
37,293
|
37,556
|
40,974
|
41,736
|
39,517
|
|||||||||||||||||||
CONSOLIDATED
BALANCE SHEET DATA:
(in
thousands)
|
As
of December 31,
|
||||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||||||
|
Cash,
cash equivalents and marketable securities
|
$
|
108,877
|
$
|
147,694
|
$
|
224,460
|
$
|
172,107
|
$
|
238,430
|
||||||||||||||
|
Working
capital
|
143,499
|
191,838
|
308,589
|
287,757
|
299,276
|
|||||||||||||||||||
|
Total
assets
|
611,038
|
703,585
|
1,005,953
|
997,034
|
1,062,046
|
|||||||||||||||||||
|
Long-term
liabilities
|
14,483
|
11,823
|
17,495
|
20,471
|
20,048
|
|||||||||||||||||||
|
Total
stockholders' equity
|
443,118
|
492,655
|
779,783
|
780,381
|
839,597
|
|||||||||||||||||||
18
EXECUTIVE
OVERVIEW
Our
Company
We are a
leading provider of digital media content-creation solutions for film, video,
audio and broadcast professionals, as well as artists and home enthusiasts. 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. Around the globe, feature
films, primetime television shows, commercials and chart-topping music hits are
made using one or more of our solutions.
We have
customers throughout the world who rely on us to develop products tailored to
their unique needs and requirements that will allow their businesses to succeed.
For their long-term success and our own, we committed in 2008 to becoming a more
efficient, innovative and customer-centric company. We initiated a significant
transformation of our business that included, among other things, establishing a
new management team, developing a new corporate strategy, reorganizing our
internal structure, improving operational efficiencies, divesting non-core
product lines and reducing the size of our workforce.
Prior to
2009 and since our acquisition of Pinnacle in 2005, our organizational structure
was based on three strategic business units: Professional Video,
Audio and Consumer Video. As part of our transformation, we combined our
Professional Video and Consumer Video business units into one Video reporting
unit and consolidated our sales and marketing team into a single customer-facing
organization, which better aligns our business structure 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. These
changes also enable us to leverage our deep domain expertise, brand recognition
and technology synergies across customer market segments. Our reporting
structure in 2009 was based on two strategic business units Video and Audio,
which equated to our reporting units. We are reporting our financial results in
this annual report with reference to these two reportable segments to reflect
the way we operated in 2009.
In the
later part of 2009, we completed the reorganization of our business around
functional groups rather than product categories. Based on a preliminary
assessment of our segment reporting for 2010, we expect to report based on one
reportable segment starting January 1, 2010.
19
Financial
Summary
The
following table sets forth certain items from our consolidated statements of
operations as a percentage of net revenues for the periods
indicated:
|
For
the Year Ended December 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
|||||||||
|
Net
revenues:
|
|||||||||||
|
Product
revenues
|
81.0
|
%
|
84.5
|
%
|
86.7
|
%
|
|||||
|
Services
revenues
|
19.0
|
%
|
15.5
|
%
|
13.3
|
%
|
|||||
|
Total
revenues
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||
|
Cost
of revenues
|
48.6
|
%
|
53.6
|
%
|
51.7
|
%
|
|||||
|
Gross
margin
|
51.4
|
%
|
46.4
|
%
|
48.3
|
%
|
|||||
|
Operating
expenses:
|
|||||||||||
|
Research
and development
|
19.2
|
%
|
17.6
|
%
|
16.2
|
%
|
|||||
|
Marketing
and selling
|
27.6
|
%
|
24.7
|
%
|
22.7
|
%
|
|||||
|
General
and administrative
|
9.7
|
%
|
9.3
|
%
|
8.3
|
%
|
|||||
|
Amortization
of intangible assets
|
1.7
|
%
|
1.5
|
%
|
1.5
|
%
|
|||||
|
Impairment
of goodwill and intangible assets
|
—
|
15.4
|
%
|
—
|
|||||||
|
Restructuring
costs, net
|
4.3
|
%
|
3.0
|
%
|
1.0
|
%
|
|||||
|
Gain
on sale of assets
|
(0.0
|
%)
|
(1.6
|
%)
|
—
|
||||||
|
Total
operating expenses
|
62.5
|
%
|
69.9
|
%
|
49.7
|
%
|
|||||
|
Operating
loss
|
(11.1
|
%)
|
(23.5
|
%)
|
(1.4
|
%)
|
|||||
|
Interest
and other income (expense), net
|
(0.0
|
%)
|
0.3
|
%
|
0.8
|
%
|
|||||
|
Loss
before income taxes
|
(11.1
|
%)
|
(23.2
|
%)
|
(0.6
|
%)
|
|||||
|
(Benefit
from) provision for income taxes
|
(0.2
|
%)
|
0.3
|
%
|
0.3
|
%
|
|||||
|
Net
loss
|
(10.9
|
%)
|
(23.5
|
%)
|
(0.9
|
%)
|
|||||
Total net
revenues for the year ended December 31, 2009 were $629.0 million, a decrease of
$215.9 million, or 26%, compared to the year ended December 31, 2008. Compared
to 2008, Video revenues decreased 32% and Audio revenues decreased 13%. Of the
$176.7 million decrease in 2009 Video revenues, $59.6 million was attributable
to divested or exited product lines, including our Softimage 3D animation and
PCTV product lines divested in the fourth quarter of 2008. We believe the
remaining Video decrease of $117.1 million and the Audio decrease of $39.2
million, both primarily due to lower sales volumes, were largely attributable to
unfavorable macroeconomic conditions. The revenues of each business unit are
discussed in further detail in the section titled “Results of Operations”
below.
Our gross
margin for the year ended December 31, 2009 improved to 51.4%, compared to 46.4%
for 2008. This improvement was largely the result of our transition to a single
company-wide production and delivery organization and the divestiture of
lower-margin products discussed above. Revised estimates for royalty accruals
resulting in favorable adjustments in 2009 were also a significant contributing
factor to the gross margin improvement.
For the
year ended December 31, 2009, we incurred a net loss of $68.4 million, compared
to a net loss of $198.2 million for 2008. The net loss for 2009 included charges
of $12.5 million for acquisition-related intangible asset amortization, $27.7
million for restructuring costs and $4.2 million related to acquisition
activities. The net loss for 2008 included charges of $130.0 million for
impairment of acquisition-related goodwill and intangible assets, $20.4 million
for acquisition-related intangible asset amortization and $27.3 million for
restructuring costs, partially offset by gains related to product divestitures
totaling $13.3 million. The 2008 charges of $130.0 million for impairment of
acquisition-related goodwill and intangible assets were composed of goodwill
impairment losses of $54.6 million and $64.3 million for our former Consumer
Video segment and Audio segment, respectively, and impairment losses for
Consumer Video intangible assets of $11.1 million. See Note G to our
Consolidated Financial Statements in Item 8 for further information regarding
our 2008 impairment losses.
20
During
the fourth quarter of 2008, we initiated a company-wide restructuring plan that,
through the second quarter of 2009, resulted in a reduction in force of more
than 500 positions, including employees associated with product line
divestitures, and the closure of all or parts of twelve facilities worldwide.
During the third and fourth quarters of 2009, as a result of the expanded use of
our internationally based partners for R&D projects and our desire to better
align our 2010 cost structure with revenue expectations, we broadened the
restructuring plan to include additional reductions in force of approximately
320 positions and the closure of one floor of our Audio segment’s Daly City,
California facility.
In
connection with restructuring actions initiated in the fourth quarter of 2008
and throughout 2009, we have incurred or expect to incur total restructuring
charges of approximately $53 million, which primarily represent cash
expenditures. We expect annual cost savings of approximately $80 million to
result from these actions, some of which are already reflected in our 2009
results. Cash expenditures resulting from restructuring obligations totaled
approximately $25.8 million during 2009. We may engage in
additional cost reduction programs, including restructuring actions, in the
future as a result of changing economic conditions as well as our ongoing
business transformation.
We derive
a significant percentage of our revenues from sales to customers outside the
United States. International sales accounted for 58% of our consolidated net
revenues in 2009, compared to 61% and 58% of our consolidated net revenues for
2008 and 2007, respectively. Our international business is, for the most part,
transacted through international subsidiaries and generally in the currency of
the customers. Changes in foreign currency exchange rates often materially
affect, either positively or adversely, our revenues, net income and cash
flow.
See “Risk
Factors” in Item 1A of this annual report for additional risk factors that may
cause our future results to differ materially from our current
expectations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. We regularly reevaluate our estimates and judgments, including
those related to the following: revenue recognition and allowances
for product returns and exchanges; stock-based compensation; the valuation of
business combinations, goodwill and other intangible assets; divestitures; and
income tax assets and liabilities. We base our estimates and judgments on
historical experience and various other factors we believe to be reasonable
under the circumstances, the results of which form the basis for judgments about
the carrying values of assets and liabilities and the amounts of revenues and
expenses that are not readily apparent from other sources. Actual results may
differ from these estimates.
We
believe the following critical accounting policies most significantly affect the
portrayal of our financial condition and involve our most difficult and
subjective estimates and judgments.
Revenue
Recognition and Allowances for Product Returns and Exchanges
We
generally recognize revenues from sales of software and software-related
products upon receipt of a signed purchase order or contract and product
shipment to distributors or end users, provided that collection is reasonably
assured, the fee is fixed or determinable and all other revenue recognition
criteria of Financial Accounting Standards Board, or FASB, Accounting Standards
Codification, or ASC, subtopic 985-605, Software – Revenue
Recognition (formerly Statement of Position 97-2, Software Revenue
Recognition), are met. However, determining whether and when some of
these criteria have been satisfied often involves assumptions and judgments that
can have a significant impact on the timing and amount of revenue we report. For
example, we often receive multiple purchase orders or contracts from a single
customer or a group of related parties that are evaluated to determine if they
are, in effect, parts of a single arrangement. If they are determined to be
parts of a single arrangement, revenues are recorded as if a single
multiple-element arrangement exists. In addition, for certain transactions where
we consider our services to be non-routine or essential to the delivered
products, we record revenues upon satisfying the criteria of ASC subtopic
985-605 and obtaining customer acceptance. Within our Video segment and much of
our Audio segment, we follow the guidance of ASC subtopic 985-605 for revenue
recognition because our products and services are software or
software-related.
21
However,
for certain offerings in our Audio segment, software is incidental to the
delivered products and services. For these products, we record revenues based on
satisfying the criteria in ASC subtopic 605-25, Revenue Recognition –
Multiple-Element Arrangements (formerly Emerging Issues Task Force, or
EITF, Issue 00-21, Revenue
Arrangements with Multiple Deliverables), and Securities and Exchange
Commission Staff Accounting Bulletin, or SAB, No. 104, Revenue
Recognition.
We use
the residual method to recognize revenues when an order includes one or more
elements to be delivered at a future date and evidence of the fair value of all
undelivered elements exists. Under the residual method, the fair values of the
undelivered elements, typically professional services, maintenance or both, are
deferred and the remaining portion of the total arrangement fee is recognized as
revenues related to the delivered element. If evidence of the fair value of one
or more undelivered elements does not exist, we defer all revenues and only
recognize them when delivery of those elements occurs or when fair value can be
established. Fair value is typically based on the price charged when the same
element is sold separately to customers. However, for certain transactions, fair
value of maintenance is based on the renewal price that is offered as a
contractual right to the customer, provided that the renewal price is
substantive. Our current pricing practices are influenced primarily by product
type, purchase volume, term and customer location. We review services revenues
sold separately and corresponding renewal rates on a periodic basis and update,
when appropriate, the fair value for services used for revenue recognition
purposes to ensure that it reflects our recent pricing experience. We are
required to exercise judgment in determining whether fair value exists for each
undelivered element based on whether our pricing for these elements is
sufficiently consistent.
In most
cases, the products we sell do not require significant production, modification
or customization of software. Installation of the products is generally routine,
requires minimal effort and does not have to be performed by us. However,
certain transactions for our Video products, typically complex solution sales
that include a significant number of products and that may involve multiple
customer sites, require us to perform an installation effort that we deem to be
complex and non-routine. In these situations, we do not recognize revenues for
either the products shipped or the services performed until the installation is
complete. In addition, if these orders include a customer acceptance provision,
no revenues are recognized until the customer’s formal acceptance of the
products and services has been received or the acceptance period has
lapsed.
Technical
support, enhancements and unspecified upgrades typically are provided at no
additional charge during an initial warranty period (generally between 30 days
and twelve months), which precedes commencement of any maintenance contracts. We
defer the fair value of this support and recognize the related revenues ratably
over the initial warranty period. We also from time to time offer certain
customers free upgrades or specified future products or enhancements. For each
of these elements that is undelivered at the time of product shipment, and
provided that we have vendor-specific objective evidence of fair value for the
undelivered element, we defer the fair value of the specified upgrade, product
or enhancement and recognize those revenues only upon later delivery or at the
time at which the remaining contractual terms relating to the upgrade have been
satisfied.
In 2009,
approximately 67% of our revenues were derived from indirect sales channels,
including authorized resellers and distributors. Within our Video segment, our
resellers and distributors are generally not granted rights to return products
to us after purchase, and actual product returns from them have been
insignificant to date. However, certain Video and many of our Audio channel
partners are offered limited rights of return, stock rotation and price
protection. In accordance with ASC subtopic 605-15, Revenue Recognition –
Products (formerly Statement of Financial Accounting Standards, or SFAS,
No. 48, Revenue Recognition
When Right of Return Exists), we record a provision for estimated returns
and other allowances as a reduction of revenues in the same period that related
revenues are recorded. Management estimates must be made and used in connection
with establishing and maintaining a sales allowance for expected returns and
other credits. In making these estimates, we analyze historical returns and
credits and the amounts of products held by major resellers and consider the
impact of new product introductions, changes in customer demand, current
economic conditions and other known factors. While we believe we can make
reliable estimates regarding these matters, these estimates are inherently
subjective. The amount and timing of our revenues for any period may be affected
if actual product returns or other reseller credits prove to be materially
different from our estimates.
22
A portion
of our revenues from sales of consumer video-editing and audio products is
derived from transactions with channel partners who have unlimited return rights
and from whom payment is contingent upon the product being sold through to their
customers. Accordingly, revenues for these channel partners are recognized when
the products are sold through to the customer instead of being recognized at the
time products are shipped to the channel partners.
At the
time of a sales transaction, we make an assessment of the collectibility of the
amount due from the customer. Revenues are recognized only if it is probable
that collection will occur in a timely manner. In making this assessment, we
consider customer credit-worthiness and historical payment experience. If it is
determined from the outset of the arrangement that collection is not probable
based on our credit review process, revenues are recognized on a cash-collected
basis to the extent that the other criteria of ASC subtopic 985-605 and SAB 104
are satisfied. At the outset of the arrangement, we assess whether the fee
associated with the order is fixed or determinable and free of contingencies or
significant uncertainties. In assessing whether the fee is fixed or
determinable, we consider the payment terms of the transaction, our collection
experience in similar transactions without making concessions, and our
involvement, if any, in third-party financing transactions, among other factors.
If the fee is not fixed or determinable, revenues are recognized only as
payments become due from the customer, provided that all other revenue
recognition criteria are met. If a significant portion of the fee is due after
our normal payment terms, which are generally 30 days, but can be up to 90 days,
after the invoice date, we evaluate whether we have sufficient history of
successfully collecting past transactions with similar terms. If that collection
history is successful, revenues are recognized upon delivery of the products,
assuming all other revenue recognition criteria are satisfied. If we were to
change any of these assumptions and judgments, it could cause a material
increase or decrease in the amount of revenue reported in a particular
period.
In
October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue
Arrangements, an amendment to ASC topic 605, Revenue Recognition, and
Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That
Include Software Elements, an amendment to ASC subtopic 985-605, Software – Revenue
Recognition (the “Updates”). The Updates provide guidance on arrangements
that include software elements, including tangible products that have software
components that are essential to the functionality of the tangible product and
will no longer be within the scope of the software revenue recognition guidance,
and software-enabled products that will now be subject to other relevant revenue
recognition guidance. The Updates also provide authoritative guidance on revenue
arrangements with multiple deliverables that are outside the scope of the
software revenue recognition guidance. Under the new guidance, when
vendor-specific objective evidence or third-party evidence of fair value for
deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method. The Updates also include
new disclosure requirements on how the application of the relative selling price
method affects the timing and amount of revenue recognition. The Updates must be
adopted in the same period using the same transition method and are effective
prospectively, with retrospective adoption permitted, for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June
15, 2010, or January 1, 2011 for us. Early adoption is also permitted; however,
early adoption during an interim period requires retrospective application from
the beginning of the fiscal year. We are currently assessing the timing and
method of adoption, as well as the possible impact of this guidance on our
revenue recognition policies.
Stock-Based
Compensation
We
account for stock-based compensation in accordance with ASC topic 718, Compensation – Stock
Compensation (formerly SFAS No. 123 (revised 2004), Share-Based Payment), which
requires the application of a fair-value-based measurement method in accounting
for share-based payment transactions with employees. During 2009, we granted
stock options as part of our key performer stock-based compensation program, as
well as stock options and restricted stock units to newly hired employees.
During 2008, we granted both stock options and restricted stock units as part of
our key performer stock-based compensation program. The vesting of stock option
grants may be based on time, performance, market conditions, or a combination of
performance and market conditions. In the future, we may grant stock awards,
options, or other equity-based instruments allowed by our stock-based
compensation plans, or a combination thereof, as part of our overall
compensation strategy.
23
The fair
values of restricted stock awards with time-based vesting, including restricted
stock and restricted stock units, are generally based on the intrinsic values of
the awards at the date of grant. As permitted under ASC topic 718, we generally
use 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. Our assumed dividend yield of zero is based on
the fact that we have never paid cash dividends and have no present intention to
pay cash dividends. Our expected stock-price volatility assumption is based on
recent (six-month trailing) implied volatility calculations. These calculations
are performed on exchange-traded options of our common stock. We believe that
using a forward-looking market-driven volatility assumption will result in the
best estimate of expected volatility. The assumed risk-free interest rate is the
U.S. Treasury security rate with a term equal to the expected life of the
option. The assumed expected life is based on company-specific historical
experience. With regard to the estimate of the expected life, we consider the
exercise behavior of past grants and model the pattern of aggregate
exercises.
In
December 2007, we began issuing options to purchase shares of our common stock
that had vesting based on market conditions, specifically Avid’s stock price, 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 factored for
the estimated probability of achieving the performance goals, and compensation
costs for these grants are recorded based on the higher estimate for each
vesting tranche.
We
estimate forfeiture rates at the time awards are made based on historical and
estimated future turnover rates and apply these rates in the calculation of
estimated compensation cost. The estimation of forfeiture rates includes a
quarterly review of historical turnover rates and an update of the estimated
forfeiture rates to be applied to employee classes for the calculation of
stock-based compensation. During 2009, forfeiture rates for the
calculation of stock-based compensation were estimated and applied based on
three classes, non-employee directors, executive management staff and other
employees. At December 31, 2009, our annualized estimated forfeiture rates were
0% for non-employee director awards and 10% for both executive management staff
and other employee awards. Then-current estimated forfeiture rates are also
applied quarterly to all outstanding stock options and non-vested restricted
stock awards, which may result in a revised estimate of compensation costs
related to these stock-based grants.
If
factors change and we employ different assumptions for estimating stock-based
compensation expense in future periods, or if we decide to use a different
valuation model, the stock-based compensation expense we recognize in future
periods may differ significantly from what we have recorded in the current
period and could materially affect our operating income, net income and earnings
per share. It may also result in a lack of comparability with other companies
that use different models, methods and assumptions. See Note B to our
Consolidated Financial Statements in Item 8 for further information regarding
stock-based compensation.
Business
Combinations
When we
acquire new businesses, we allocate the purchase price to the acquired assets,
including intangible assets, and the liabilities assumed based on their
estimated fair values, with any amount in excess of such allocations designated
as goodwill. Significant management judgments and assumptions are required in
determining the fair value of acquired assets and liabilities, particularly
acquired intangible assets. For example, it is necessary to estimate the portion
of development efforts that are associated with technology that is in process
and has no alternative future use. The valuation of purchased intangible assets
is based on estimates of the future performance and cash flows from the acquired
business. The use of different assumptions could materially impact the purchase
price allocation and our financial position and results of
operations.
24
Goodwill
and Intangible Assets
We assess
the impairment of goodwill and identifiable intangible assets on at least an
annual basis and whenever events or changes in circumstances indicate that the
carrying value of the asset may not be fully recoverable. Factors we consider
important that could trigger an impairment review include significant
underperformance relative to the historical or projected future operating
results, significant negative industry or economic trends, unanticipated
competition, loss of key personnel, a more-likely-than-not expectation that a
reporting unit or component thereof will be sold or otherwise disposed of,
significant changes in the manner of use of the acquired assets or the strategy
for our overall business, a significant decline in our stock price for a
sustained period, a reduction of our market capitalization relative to our net
book value and other similar circumstances.
In
accordance with ASC subtopic 350-20, Intangibles – Goodwill and Others –
Goodwill (formerly SFAS No. 142, Goodwill and Other Intangible
Assets), we do not amortize goodwill. The goodwill impairment test
prescribed by ASC 350-20 requires us to identify reporting units and to
determine estimates of the fair values of our reporting units at the date we
test for impairment. Our organizational structure in 2009 was based on two
strategic business units, Video and Audio, which equated to our reporting units.
Both reporting units include goodwill.
In our
annual goodwill impairment analysis, the fair value of each reporting unit is
compared to its carrying value, including goodwill. We generally use a
discounted cash flow valuation model to determine the fair values of our
reporting units. This model focuses on estimates of future revenues and profits
for each reporting unit and also assumes a terminal value for the unit based on
a constant growth valuation formula. We estimate these amounts by evaluating
historical trends, current budgets, operating plans and industry data. The model also includes
assumptions for, among others, 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. We estimate the long-term discount
rates based on our review of the weighted-average cost of capital and
appropriate equity risk premium for each reporting unit. We also consider the
reconciliation of our market capitalization to the total fair value of our
reporting units. If a reporting unit’s carrying value exceeds its fair
value, we record an impairment loss equal to the difference between the carrying
value of the goodwill and its implied fair value.
We
perform our annual goodwill impairment tests as of the end of the fourth quarter
of each year. Our annual goodwill impairment testing in the fourth quarter of
2009 determined that no goodwill impairment existed. At December 31, 2009, the fair values of our
Video and Audio reporting units exceeded their carrying values by 28% and 21%,
respectively.
When events or
circumstances exist that indicate the carrying value
of a reporting unit’s goodwill may not be recoverable, we perform an interim
goodwill impairment analysis. The interim analysis
includes calculating the fair value of the reporting unit being tested using a
model similar to that used for the annual goodwill impairment testing. The
reporting unit’s calculated fair value is then allocated among its
tangible and intangible assets and liabilities to determine the implied
fair value of the reporting unit’s
goodwill.
The fair values of the intangible assets are estimated using various
valuation models based on different approaches, such as the multi-period excess
cash flows approach, royalty savings approach and avoided-cost approach. These
approaches include assumptions for, among others, customer retention rates,
trademark royalty rates, costs to complete in-process technology and long-term
discount rates, all of which require significant judgments by management. If
the carrying
value of the
reporting unit’s goodwill exceeds the implied fair value,
we record an impairment loss equal to the difference between the carrying value
of the goodwill and its implied fair value.
Identifiable
intangible assets are also tested for impairment in accordance with ASC section
360-10-35, Property, Plant and
Equipment – Overall – Subsequent Measurement, (formerly SFAS No. 144,
Accounting for the Impairment
or Disposal of Long-Lived Assets), if events or
circumstances exist that indicate the carrying value of an asset may not be
recoverable. The fair value of each asset is compared to its carrying value, and
if the asset’s carrying value is not recoverable and exceeds its fair value, we
record an impairment loss equal to the difference between the carrying value of
the asset and its fair value. The carrying value of an asset is not recoverable
if it exceeds the sum of the undiscounted cash flows expected to result from the
use and eventual disposition of the asset. Changes in business conditions or our
assumptions could require that we record impairment charges related to our
identifiable intangible assets.
25
Assumptions,
judgments and estimates of future values are complex and often subjective. They
can be affected by a variety of factors, including external factors such as
industry and economic trends, and internal factors such as changes in our
business strategy or forecasts. Although we believe our past assumptions,
judgments and estimates used in calculating fair values for goodwill and
identifiable intangible asset impairment testing are reasonable and appropriate,
different assumptions, judgments and estimates could materially affect our
reported financial results.
Divestitures
When we
measure the gain (loss) on sale of a disposal group that is part of a reporting
unit, we determine whether a portion of the goodwill of the reporting unit
should be allocated to the disposal group if it constitutes a business, under
the guidance of ASC topic 805, Business Combinations. In
determining whether a disposal group constitutes a business, we consider whether
the integrated set of activities and assets has the required inputs and
processes to create outputs, and whether it’s capable of being conducted and
managed as a business. If the disposal group is considered a business, the
goodwill of the reporting unit is allocated based on the relative fair values of
the disposal group and the portion of the reporting unit remaining.
As discussed in Note G
to our Consolidated Financial Statements in Item 8, we completed the sales
of the Softimage 3D animation and PCTV product lines in the fourth quarter of
2008. We determined that the Softimage 3D animation product line constituted a
business; therefore, the gain on sale of this business includes an allocation of
$15.8 million of goodwill from the former Professional Video reporting unit.
Even though it was determined that the Softimage 3D animation product line
constituted a business, we concluded that this business did not represent a
component of our company that would require the presentation of the divestiture
as a discontinued operation. We made this determination based on the fact
that the Softimage 3D animation product line did not have operations or cash
flows that were clearly distinguishable and largely independent from the rest of
the Professional Video reporting unit. Also in the fourth quarter of 2008, we
determined that the PCTV product line was not a business and, therefore, should
not be reported as a discontinued operation based on the fact that the asset
group sold would not be able to continue to conduct normal, self-sustaining
operations. The application of different judgments or assumptions may have
resulted in a material increase or decrease in the amount of gains or losses
recorded for the sale of these assets.
In
accordance with ASC section 360-10-45,
Property, Plant and Equipment – Overall – Other Presentation Matters,
(formerly SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets), we classify the assets and liabilities of
a business as held-for-sale when management approves and commits to a formal
plan of sale and it is probable that the sale will be completed. The carrying
value of the net assets of the business held-for-sale are then recorded at the
lower of their carrying value or fair market value, less costs to sell, and we
cease
to record depreciation and
amortization expense associated with assets
held-for-sale.
Income
Tax Assets and Liabilities
We record
deferred tax assets and liabilities based on the net tax effects of tax credits,
operating loss carryforwards and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes compared to
the amounts used for income tax purposes. We regularly review our deferred tax
assets for recoverability with consideration for such factors as historical
losses, projected future taxable income and the expected timing of the reversals
of existing temporary differences. ASC topic 740, Income Taxes (formerly SFAS
No. 109, Accounting for Income
Taxes), requires us to record a valuation allowance when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Based on our level of deferred tax assets at December 31, 2009 and our
level of historical U.S. losses, we have determined that the uncertainty
regarding the realization of these assets is sufficient to warrant the need for
a full valuation allowance against our U.S. net deferred tax
assets.
Our
assessment of the valuation allowance on our U.S. deferred tax assets could
change in the future based on our levels of pre-tax income and other tax-related
adjustments. Reversal of the valuation allowance in whole or in part would
result in a non-cash reduction in income tax expense during the period of
reversal. To the extent some or all of our valuation allowance is reversed,
future financial statements would reflect an increase in non-cash income tax
expense until such time as our deferred tax assets are fully
utilized.
26
The
amount of income taxes we pay is subject to our interpretation of applicable tax
laws in the jurisdictions in which we file. We have taken and will continue to
take tax positions based on our interpretation of such tax laws. There can be no
assurance that a taxing authority will not have a different interpretation of
applicable law and assess us with additional taxes. Should we be assessed with
additional taxes, it could have a negative impact on our results of operations
or financial condition.
ASC topic
740 requires that a
tax position must be more likely than not to be sustained before being
recognized in the financial statements. It also requires the accrual of
interest and penalties as applicable on our unrecognized tax positions.
At December 31, 2009 and 2008, we had gross unrecognized tax benefits, including
interest, of $2.3 million and $3.7 million, respectively. At December 31, 2009
and 2008, $2.3 million and $1.4 million, respectively, represented the amount of
unrecognized tax benefits that, if recognized, would have resulted in a
reduction of our effective tax rate.
We
conduct operations through manufacturing and distribution subsidiaries in
numerous tax jurisdictions around the world. Our transfer pricing methodology is
based on economic studies. The price charged for products, services and
financing among our companies could be challenged by the various tax authorities
resulting in additional tax liability, interest and/or penalties.
RESULTS
OF OPERATIONS
Net
Revenues
Comparison
of 2009 to 2008
|
Years
Ended December 31, 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
|
$259,151
|
41.2%
|
$425,719
|
50.4%
|
($166,568)
|
(39.1%)
|
|||||
|
Services
revenues
|
115,859
|
18.4%
|
125,987
|
14.9%
|
(10,128)
|
(8.0%)
|
|||||
|
Total
|
375,010
|
59.6%
|
551,706
|
65.3%
|
(176,696)
|
(32.0%)
|
|||||
|
Audio:
|
|||||||||||
|
Product
revenues
|
250,064
|
39.8%
|
288,513
|
34.1%
|
(38,449)
|
(13.3%)
|
|||||
|
Services
revenues
|
3,896
|
0.6%
|
4,682
|
0.6%
|
(786)
|
(16.8%)
|
|||||
|
Total
|
253,960
|
40.4%
|
293,195
|
34.7%
|
(39,235)
|
(13.4%)
|
|||||
|
Total
net revenues:
|
$628,970
|
100.0%
|
$844,901
|
100.0%
|
($215,931)
|
(25.6%)
|
|||||
Excluding
a decrease of $53.4 million related to divested or exited product lines, Video
product revenues for 2009 decreased $113.2 million. This decrease was the result
of decreases in Video product revenues for all products in all geographic
regions largely due to lower sales volumes, which we believe was largely the
result of unfavorable macroeconomic conditions. Throughout 2009 for example,
broadcasters were challenged by decreasing advertising revenues, and capital
expenditure budgets for many of our customers have been reduced as a result of
tight credit markets. Internationally, changes in currency exchange rates also
contributed to the decrease in Video product revenues.
Video
services revenues are derived primarily from maintenance contracts, professional
and installation services, and training. Excluding a decrease of $6.2 million
related to divested or exited product lines, Video services revenues for 2009
decreased $3.9 million. This decrease was primarily due to a decrease in
maintenance revenues, which was primarily the result of lower average
maintenance contract values. The decrease in maintenance revenues was partially
offset by an increase in professional services revenues.
27
The
decrease in Audio product revenues for 2009 was primarily due to lower revenues
on lower volumes of our higher-end audio product lines, which we believe largely
resulted from decreased capital expenditure budgets for our customers in this
market segment. A proportionally larger decrease in Audio product revenues in
Europe, which we believe were largely attributable to unfavorable macroeconomic
conditions and changes in currency exchange rates, was also a significant
contributing factor to the decrease in Audio product revenues.
Net
revenues derived through indirect channels were approximately 67% and 70% of our
consolidated net revenues for 2009 and 2008, respectively.
Sales to
international customers accounted for 58% of our consolidated net revenues in
2009, compared to 61% in 2008. International sales decreased by $150.2 million,
or 29%, from 2008 to 2009, which is reasonably consistent with our worldwide
decrease of 26%. The decrease in international sales occurred in all geographic
regions.
Comparison
of 2008 to 2007
|
Years
Ended December 31, 2008 and 2007
|
|||||||||||
|
(dollars
in thousands)
|
|||||||||||
|
2008
Net
Revenues
|
%
of Consolidated Net Revenues
|
2007
Net
Revenues
|
%
of Consolidated Net Revenues
|
Change
|
%
Change
in
Revenues
|
||||||
|
Video:
|
|||||||||||
|
Product
revenues
|
$425,719
|
|
50.4%
|
$489,371
|
|
52.6%
|
($63,652)
|
(13.0%)
|
|||
|
Services
revenues
|
125,987
|
14.9%
|
121,206
|
13.1%
|
4,781
|
3.9%
|
|||||
|
Total
|
551,706
|
65.3%
|
610,577
|
65.7%
|
(58,871)
|
(9.6%)
|
|||||
|
Audio:
|
|||||||||||
|
Product
revenues
|
288,513
|
34.1%
|
316,732
|
34.1%
|
(28,219)
|
(8.9%)
|
|||||
|
Services
revenues
|
4,682
|
0.6%
|
2,261
|
0.2%
|
2,421
|
107.1%
|
|||||
|
Total
|
293,195
|
34.7%
|
318,993
|
34.3%
|
(25,798)
|
(8.1%)
|
|||||
|
Total
net revenues:
|
$844,901
|
100.0%
|
$929,570
|
100.0%
|
($84,669)
|
(9.1%)
|
|||||
The
decrease in Video product revenues in 2008 was primarily due to lower revenues
from our video-editing products and, to a lesser extent, decreased revenues from
large broadcast deals and consumer video products. We believe unfavorable
macroeconomic conditions contributed significantly to the overall decrease in
Video product revenues in 2008. In addition, the decrease in video-editing
revenues was the result of both the slowdown in sales in early 2008 in
anticipation of our new editor product set, which was released in June 2008, and
the price reductions for our video editors announced in the first quarter of
2008. The effect of the price reductions was partially offset by higher unit
volume sales for these products. The timing of customer acceptance and revenue
recognition was also a contributing factor for the decrease in revenues from
large broadcast deals in 2008. The decrease in consumer video product revenues
in 2008 was primarily the result of decreased revenues from our PCTV products,
largely due to changes in product mix, and lower overall revenues from consumer
video products in the fourth quarter of 2008. The divestiture of our PCTV
product line during the fourth quarter of 2008 caused a disruption in our
consumer video distribution channels that not only affected revenues for our
PCTV product line but for our consumer video-editing products as
well.
Video
services revenues are derived primarily from maintenance contracts, professional
and installation services, and training. The increase in services revenues in
2008 was due to increased revenues generated from maintenance contracts sold in
connection with our products, as well as increased revenues from professional
and installation services. Maintenance revenues increased starting in the second
quarter of 2007 due to an increase in new large deals that included maintenance
contracts.
28
The
decrease in Audio product revenues in 2008 was primarily the result of decreased
revenues from our home studio products, as well as a slowdown in sales of our
professional integrated mixing console products. The decrease in revenues from
our home studio products was due to increased competitive pressure and the
lingering effects of temporary delays in the release of products compatible with
a new version of the Mac OS X Leopard operating system. Products compatible with
the new operating system were released late in the second quarter of 2008. We
believe unfavorable macroeconomic conditions also contributed to the decrease in
revenues for our home studio products and were the most significant factor in
the slowdown in sales of our professional integrated mixing console
products.
Net
revenues derived through indirect channels were approximately 70% of our
consolidated net revenues for both 2008 and 2007.
Sales to
international customers accounted for 61% of our consolidated net revenues in
2008, compared to 58% in 2007. International sales decreased by $29.4 million,
or 5.4%, from 2007 to 2008. The decrease in international sales occurred
primarily in Europe and was partially offset by increased sales in
Asia.
Gross
Margin
Cost of
revenues consists primarily of costs associated with:
|
·
|
the
procurement of components;
|
|
·
|
the
assembly, testing and distribution of finished
products;
|
|
·
|
warehousing;
|
|
·
|
customer
support costs related to maintenance contract revenues and other services;
and
|
|
·
|
royalties
for third-party software and hardware included in our
products.
|
Cost of
revenues also includes amortization of technology, which represents the
amortization of developed technology assets acquired as part of the acquisitions
that have taken place since 2004 and is described further in the Amortization of
Intangible Assets section below. For 2009 and 2008, cost of revenues included
restructuring charges of $0.8 million and $1.9 million, respectively, related to
the write-down of inventory resulting from our decision to exit the PCTV product
line. Similarly, for 2007, cost of revenues included a charge of $4.3 million
related to the write-down of inventory resulting from our decision to exit the
transmission server product line.
Gross
margin fluctuates based on factors such as the mix of products sold, the cost
and proportion of third-party hardware and software included in the systems
sold, the offering of product upgrades, price discounts and other
sales-promotion programs, the distribution channels through which products are
sold, the timing of new product introductions, sales of aftermarket hardware
products such as disk drives, and currency exchange-rate
fluctuations.
Comparison
of 2009 to 2008
|
Years
Ended December 31, 2009 and 2008
|
|||||||||
|
(dollars
in thousands)
|
|||||||||
|
2009
Costs
|
Gross
Margin
|
2008
Costs
|
Gross
Margin
|
Change
in
Gross
Margin %
|
|||||
|
Cost
of products revenues
|
$243,362
|
52.2%
|
$369,186
|
48.3%
|
3.9%
|
||||
|
Cost
of services revenues
|
59,754
|
50.1%
|
73,888
|
43.5%
|
6.6%
|
||||
|
Amortization
of intangible assets
|
2,033
|
—
|
7,526
|
—
|
—
|
||||
|
Restructuring
costs
|
799
|
—
|
1,876
|
—
|
—
|
||||
|
Total
|
$305,948
|
51.4%
|
$452,476
|
46.4%
|
5.0%
|
||||
Our
transition to a single company-wide production and delivery organization and the
divestiture of lower-margin product lines were the most significant contributing
factors to our improved product gross margins for 2009. In addition, revised
estimates for royalty accruals resulting in favorable adjustments in 2009 were
also a contributing factor. These improvements were partially offset by the
impact on revenues of changes in foreign currency exchange rates.
29
The
increase in services gross margin for 2009 primarily resulted from improved
efficiencies in our customer success and professional services organizations
related to our business transformation. The improved efficiencies were the
result of the reorganization and consolidation of services activities and the
related reductions in headcount.
Comparison
of 2008 to 2007
|
Years
Ended December 31, 2008 and 2007
|
|||||||||
|
(dollars
in thousands)
|
|||||||||
|
2008
Costs
|
Gross
Margin
|
2007
Costs
|
Gross
Margin
|
Change
in
Gross
Margin %
|
|||||
|
Cost
of products revenues
|
$369,186
|
48.3%
|
$390,725
|
51.5%
|
(3.2%)
|
||||
|
Cost
of services revenues
|
73,888
|
43.5%
|
68,529
|
44.5%
|
(1.0%)
|
||||
|
Amortization
of intangible assets
|
7,526
|
—
|
16,895
|
—
|
—
|
||||
|
Restructuring
costs
|
1,876
|
—
|
4,278
|
—
|
—
|
||||
|
Total
|
$452,476
|
46.4%
|
$480,427
|
48.3%
|
(1.9%)
|
||||
Significant
contributing factors for our decreased product gross margin percentages for 2008
were increased royalty expenses, accrued duties related to an unfavorable tariff
ruling in Europe and inventory write-downs largely related to discontinued or
divested products. The decrease in product gross margin attributable to these
items was 3.2%, of which approximately one-half was related to our divested
Consumer Video products.
The
decrease in services gross margin for 2008 primarily resulted from increased
services infrastructure costs, primarily for facilities and information
technology, partially offset by the effect of an overall increase in services
revenues.
Research
and Development
Research
and development expenses include costs associated with the development of new
products and the enhancement of existing products, and consist primarily of
employee salaries and benefits, facilities costs, depreciation, costs for
consulting and temporary employees, and prototype and other development
expenses.
Comparison
of 2009 to 2008
|
Years
Ended December 31, 2009 and 2008
|
|||||||
|
(dollars
in thousands)
|
|||||||
|
2009
Expenses
|
2008
Expenses
|
Change
|
%
Change
|
||||
|
Research
and development
|
$120,989
|
$148,598
|
(27,609)
|
(18.6%)
|
|||
|
As
a percentage of net revenues
|
19.2%
|
17.6%
|
1.6%
|
||||
The
decrease in research and development expenses during 2009 was primarily due to
decreased personnel-related costs of $23.3 million, resulting from reduced
headcount. In addition, a $2.1 million decrease in computer hardware and
supplies expenses was a contributing factor to the decrease. The increase in
research and development expenses as a percentage of revenues in 2009 was the
result of lower 2009 revenues.
Comparison
of 2008 to 2007
|
Years
Ended December 31, 2008 and 2007
|
|||||||
|
(dollars
in thousands)
|
|||||||
|
2008
Expenses
|
2007
Expenses
|
Change
|
%
Change
|
||||
|
Research
and development
|
$148,598
|
$150,707
|
(2,109)
|
(1.4%)
|
|||
|
As
a percentage of net revenues
|
17.6%
|
16.2%
|
1.4%
|
||||
30
The
decrease in research and development expenses during 2008 was primarily due to
lower hardware development and computer equipment costs, partially offset by
higher facility and information technology infrastructure costs. Hardware
development and computer equipment costs decreased $3.4 million, due to our
increased focus on the development of high-end video-editing products during
2007, and the facility and information technology infrastructure costs increased
by $1.4 million. The increase in research and development expenses as a
percentage of revenues in 2008 was the result of lower 2008
revenues.
Marketing
and Selling
Marketing
and selling expenses consist primarily of employee salaries and benefits for
selling, marketing and pre-sales customer support personnel; commissions; travel
expenses; advertising and promotional expenses; and facilities
costs.
Comparison
of 2009 to 2008
|
Years
Ended December 31, 2009 and 2008
|
|||||||
|
(dollars
in thousands)
|
|||||||
|
2009
Expenses
|
2008
Expenses
|
Change
|
%
Change
|
||||
|
Marketing
and selling
|
$173,601
|
$208,735
|
($35,134)
|
(16.8%)
|
|||
|
As
a percentage of net revenues
|
27.6%
|
24.7%
|
2.9%
|
||||
The
decrease in marketing and selling expenses during 2009 was largely due to lower
personnel-related costs; decreased advertising, tradeshow and other promotional
expenses; lower facility and information technology infrastructure costs;
decreased travel and entertainment expenses; and favorable foreign exchange
translations in 2009. Personnel-related costs decreased $16.3 million, primarily
due to decreased headcount; advertising, tradeshow and other promotional
expenses decreased $7.7 million; facility and information technology
infrastructure costs decreased $3.8 million, primarily resulting from the
closure of certain facilities and improved operating efficiencies related to our
corporate transformation initiated in 2008; and travel and entertainment
expenses decreased $2.9 million. Also during 2009, net foreign exchange gains
(specifically, remeasurement gains and losses on net monetary assets denominated
in foreign currencies, offset by non-designated foreign currency hedging gains
and losses), which are included in marketing and selling expenses, were $1.4
million, compared to net foreign exchange losses of ($1.0) million in 2008. The
increase in marketing and selling expense as a percentage of revenues for 2009
was the result of lower 2009 revenues.
Comparison
of 2008 to 2007
|
Years
Ended December 31, 2008 and 2007
|
|||||||
|
(dollars
in thousands)
|
|||||||
|
2008
Expenses
|
2007
Expenses
|
Change
|
%
Change
|
||||
|
Marketing
and selling
|
$208,735
|
$210,456
|
($1,721)
|
(0.8%)
|
|||
|
As
a percentage of net revenues
|
24.7%
|
22.7%
|
2.0%
|
||||
The
decrease in marketing and selling expenses during 2008 was largely due to
lower advertising, tradeshow and other promotional expenses and lower facility
and information technology infrastructure costs, partially offset by increased
bad debt expenses and unfavorable foreign exchange translations in 2008. The
decrease in advertising, tradeshow and other promotional expenses was $3.7
million, largely attributable to decreased spending on trade shows, while the
decrease in facility and information technology infrastructure costs was $2.0
million. The increase in bad debt expense was $2.6 million, primarily due to
increased payment defaults. Also during 2008, net foreign exchange losses
(specifically, remeasurement gains and losses on net monetary assets denominated
in foreign currencies, offset by non-designated foreign currency hedging gains
and losses), which are included in marketing and selling expenses, were ($1.0)
million, compared to net foreign exchange gains of $1.3 million in 2007. The
increase in marketing and selling expense as a percentage of revenues for 2008
was the result of lower 2008 revenues.
31
General
and Administrative
General
and administrative expenses consist primarily of employee salaries and benefits
for administrative, executive, finance and legal personnel; audit, legal and
strategic consulting fees; and insurance, information systems and facilities
costs. Information systems and facilities costs reported within general and
administrative expenses are net of allocations to other expenses
categories.
Comparison
of 2009 to 2008
|
Years
Ended December 31, 2009 and 2008
|
|||||||
|
(dollars
in thousands)
|
|||||||
|
2009
Expenses
|
2008
Expenses
|
Change
|
%
Change
|
||||
|
General
and administrative
|
$61,087
|
$78,591
|
($17,504)
|
(22.3%)
|
|||
|
As
a percentage of net revenues
|
9.7%
|
9.3%
|
0.4%
|
||||
The
decrease in general and administrative expenditures during 2009 was primarily
due to lower
personnel-related costs of $12.9 million, resulting from reduced headcount, and
decreases in consulting and outside
services costs of $9.3 million. The decrease in consulting costs was
largely the result of the absence of consulting costs related to the strategic
review and transformation of our business, which were present in 2008. These
decreases were partially offset by increases of $4.2 million for mergers and
acquisitions, or M&A, expenses and $2.7 million related to a revenue
recognition investigation, both occurring in 2009. Starting in 2009 due to a
change in accounting rules, we were required to expense diligence and
transaction expenses related to M&A activities as they were incurred. The
increase in general and administrative expense as a percentage of revenues for
2009 was the result of lower 2009 revenues.
Comparison
of 2008 to 2007
|
Years
Ended December 31, 2008 and 2007
|
|||||||
|
(dollars
in thousands)
|
|||||||
|
2008
Expenses
|
2007
Expenses
|
Change
|
%
Change
|
||||
|
General
and administrative
|
$78,591
|
$77,463
|
$1,128
|
1.5%
|
|||
|
As
a percentage of net revenues
|
9.3%
|
8.3%
|
1.0%
|
||||
The
increase in general and administrative expenditures during 2008 was primarily
due to higher
consulting and outside services costs of $1.3 million, largely the result
of consulting costs related to the strategic review and transformation of our
business. The increase in general and administrative expense as a percentage of
revenues for 2008 was the result of our decrease in revenues and, to a lesser
extent, the spending increases noted.
Amortization
of Intangible Assets
Intangible
assets result from acquisitions and include developed technology,
customer-related intangibles, trade names and other identifiable intangible
assets with finite lives. With the exception of developed technology, these
intangible assets are amortized using the straight-line method. Developed
technology is amortized over the greater of (1) the amount calculated using the
ratio of current quarter revenues to the total of current quarter and
anticipated future revenues over the estimated useful life of the developed
technology, and (2) the straight-line method over each developed technology’s
remaining useful life. Amortization of developed technology is recorded within
cost of revenues. Amortization of customer-related intangibles, trade names and
other identifiable intangible assets is recorded within operating
expenses.
32
Comparison
of 2009 to 2008
|
Years
Ended December 31, 2009 and 2008
|
||||||||
|
(dollars
in thousands)
|
||||||||
|
2009
|
2008
|
Change
|
%
Change
|
|||||
|
Amortization
of intangible assets recorded in cost of revenues
|
$ 2,033
|
$ 7,526
|
($5,493)
|
(73.0%)
|
||||
|
Amortization
of intangible assets recorded in operating expenses
|
10,511
|
12,854
|
(2,343)
|
(18.2%)
|
||||
|
Total
amortization of intangible assets
|
$12,544
|
$20,380
|
($7,836)
|
(38.4%)
|
||||
|
As
a percentage of net revenues
|
2.0%
|
2.4%
|
(0.4%)
|
|||||
The decrease in
amortization of intangible assets recorded in cost of revenues was primarily the
result of the completion during 2008 and early 2009 of the amortization of
certain developed technologies related to our past acquisitions of Pinnacle,
Sundance and M-Audio; partially offset by amortization resulting from the
acquisition of MaxT Systems Inc. in the third quarter of 2009. The decrease in
amortization recorded in operating expenses for the same period was primarily
the result of the impairments of intangible assets recorded in
2008.
The
unamortized balance of the identifiable intangible assets related to all
acquisitions was $29.2 million at December 31, 2009. We expect amortization of
these intangible assets to be approximately $9 million in 2010, $7 million in
2011, $4 million in 2012, $3 million in 2013, $2 million in 2014, and $4 million
thereafter. See Note G to our Consolidated Financial Statements in Item 8
regarding identifiable intangible assets related to acquisitions.
Comparison
of 2008 to 2007
|
Years
Ended December 31, 2008 and 2007
|
||||||||
|
(dollars
in thousands)
|
||||||||
|
2008
|
2007
|
Change
|
%
Change
|
|||||
|
Amortization
of intangible assets recorded in cost of revenues
|
$ 7,526
|
$16,895
|
($9,369)
|
(55.5%)
|
||||
|
Amortization
of intangible assets recorded in operating expenses
|
12,854
|
13,726
|
(872)
|
(6.4%)
|
||||
|
Total
amortization of intangible assets
|
$20,380
|
$30,621
|
($10,241)
|
(33.4%)
|
||||
|
As
a percentage of net revenues
|
2.4%
|
3.3%
|
(0.9%)
|
|||||
The
decrease in amortization of intangible assets for 2008 was primarily the result
of the completion during 2008 and 2007 of the amortization of certain developed
technologies related to our acquisitions of Pinnacle, M-Audio and Medea, as well
as lower amortization expenses due to the decrease and resulting write-down of
the fair values of the former Consumer Video reporting unit’s trade name and
customer relationships intangible assets during 2008.
Impairment
of Goodwill and Intangible Assets
We perform our annual
goodwill impairment analysis in the fourth quarter of each year in
accordance with ASC subtopic 350-20 (formerly SFAS No. 142). Our annual
goodwill analysis performed in the fourth quarter of 2009 determined that the
fair values of our Video and Audio reporting units exceeded their carrying
values by 28% and 21%, respectively, indicating there was no goodwill impairment
for either reporting unit at December 31, 2009. The goodwill assigned to our
Video and Audio reporting units totaled $150.3 million and $76.9 million,
respectively, at December 31, 2009.
Goodwill is also tested
for impairment when events and circumstances occur that indicate that the
recorded goodwill may be impaired. At March 31, 2009 as a result of a
decline in our stock price since our fourth quarter 2008 goodwill impairment
testing, lower than expected first quarter 2009 revenues, and a reduction in our
forecasted 2009 results, we performed an interim step one goodwill impairment
test. The step one test indicated that no goodwill impairment existed at March
31, 2009.
33
In the
fourth quarter of 2008 due to the significant decline in our stock price,
increased uncertainty of future revenue levels due to unfavorable macroeconomic
conditions and the divestiture of our PCTV product line, our annual goodwill
testing determined that the carrying
values of the
Audio and former Consumer Video reporting
units
exceeded their fair values,
indicating possible goodwill impairments for these reporting units. The fair values of these
reporting units were then allocated among their respective tangible and
intangible assets and liabilities to determine the implied fair value of each
reporting unit’s goodwill. Because the book values of the Audio and
Consumer Video goodwill exceeded their implied fair values by approximately
$64.3 million and $8.0 million, respectively, we recorded these amounts as
impairment losses during the quarter ended December 31, 2008.
In
September 2008, as a result of a decrease in market value for, and the expected
sale of, our PCTV product line, which had historically accounted for a
significant portion of former Consumer Video reporting unit revenues, we
performed an interim impairment test on the goodwill assigned to our Consumer
Video reporting unit. Because the book value of the Consumer Video goodwill
exceeded the implied fair value by $46.6 million, we recorded this amount as an
impairment loss during the quarter ended September 30, 2008.
In
connection with the goodwill impairment loss taken for the Audio and former
Consumer Video reporting units in the fourth quarter of 2008, we also reviewed
the Audio and Consumer Video identifiable intangible assets for possible
impairment in accordance with SFAS No. 144 (now ASC subtopic 360-10). This
analysis included grouping the intangible assets with other operating assets and
liabilities in the Consumer Video reporting unit that would not otherwise be
subject to impairment testing because the grouped assets and liabilities
represent the lowest level for which cash flows are largely independent of the
cash flows of other groups of assets and liabilities within our company. The
result of this analysis determined that the Consumer Video customer
relationships and trade name intangible assets were impaired, and we recorded
impairment losses of $5.6 million and $0.8 million, respectively, to write these
assets down to their then-current fair values. The analysis for the Audio
reporting unit determined that no impairment existed for that reporting unit’s
identifiable intangible assets.
In
connection with the goodwill impairment loss taken for the former Consumer Video
reporting unit in the third quarter of 2008, we also tested the Consumer Video
reporting unit’s identifiable intangible assets for impairment. As a result, we
determined that the trade name intangible asset was impaired, and we recorded an
impairment loss of $4.7 million to write this asset down to its then-current
fair value.
See Note G to our
Consolidated Financial Statements in Item 8 for further information on
the goodwill assigned to each of our reporting segments and details of our
identifiable intangible assets. For further information regarding our policy for
testing goodwill and intangible asset impairment, including the methodologies,
assumptions and estimates applied to our 2009 and 2008 impairment testing,
please see our critical accounting policy for “Goodwill and Intangible Assets”
found previously in this Item 7 under the heading “Critical Accounting Policies
and Estimates.”
Restructuring
Costs, Net
In
October 2008, we initiated a company-wide restructuring plan that included a
reduction in force of approximately 500 positions, including employees related
to our product line divestitures, and the closure of all or parts of some of our
worldwide facilities. The restructuring plan is intended to improve operational
efficiencies and bring our costs in line with expected revenues. In connection
with the plan, during the fourth quarter of 2008, we 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, we recorded a non-cash restructuring
charge of $1.9 million in cost of revenues related to the write-down of
inventory.
34
During
2009, we recorded restructuring charges of $27.7 million, of which $27.9 million
related to this plan and a recovery of ($0.2) million was the result of revised
estimates for amounts recorded under previous restructuring plans. Charges under
the plan included new restructuring charges of $27.1 million and revisions to
previously recorded estimates under the plan of $0.8 million. The new
restructuring charges included $14.8 million related to employee termination
costs, including those for approximately 320 additional employees; $11.5 million
related to the closure of all or part of eleven facilities; and $0.8 million,
recorded in cost of revenues, related to the write-down of PCTV inventory. The
charges resulting from the reduction in force of 320 additional employees were
recorded in the third and fourth quarters and were primarily the result of the
expanded use of our internationally based partners for R&D projects and our
desire to better align our 2010 cost structure with revenue
expectations.
During
the first nine months of 2008, we initiated restructuring plans within our
former Professional Video business unit as well as corporate operations to
eliminate duplicative business functions and improve operational efficiencies.
In connection with these actions, we recorded restructuring charges of $4.2
million related to employee termination costs for approximately 90 employees,
primarily in the research and development, marketing and selling, and general
and administrative teams. Also during 2008, we recorded restructuring charges
totaling $0.2 million for revised estimates of previously initiated
restructuring plans.
During
2007, we implemented restructuring programs within our former Professional Video
and Consumer Video business units, as well as corporate operations, resulting in
restructuring charges of $10.1 million, $1.8 million and $0.3 million,
respectively. In connection with these actions, we recorded charges totaling
$5.2 million related to employee termination costs for approximately 125
employees, primarily from the research and development teams and marketing and
selling teams. Actions under these restructuring programs also included the
closure of all or parts of five facilities, resulting in restructuring charges
totaling $2.6 million, and our exit from the transmission server product line.
As a result of exiting the transmission server product line, we recorded
non-cash charges totaling $4.3 million in cost of revenues for the write-down of
inventory. We also recorded a non-cash restructuring charge of $0.1 million
related to the disposal of fixed assets. The purpose of these restructuring
programs was to eliminate duplicative business functions, improve operational
efficiencies and align key business skill sets with future opportunities. Also
during 2007, we recorded restructuring charges totaling $0.8 million as a result
of our increased estimates for the facilities restructuring costs related to our
Pinnacle and Medea acquisitions, and $0.4 million primarily as a result of our
increased estimate for the restructuring costs associated with the vacated
portion of our Montreal facility that was part of a restructuring that took
place in December 2005.
Gain
on Sales of Assets
In the
fourth quarter of 2008, we sold our Softimage 3D animation product line, which
was part of our former Professional Video segment, and our PCTV product line,
which was part of our former Consumer Video segment. The Softimage 3D animation
product line was sold to Autodesk, Inc., and $26.5 million of the $33.5 million
dollar purchase price was received in the fourth quarter of 2008, with the
remaining balance held in escrow with scheduled distribution dates in 2009 and
2010. During 2008, we recognized a gain of approximately $11.5 million as a
result of this transaction, which does not include the proceeds held in escrow.
During 2009, we recorded a further gain of $3.5 million as a result of the
release of 50% of the funds from the escrow holdings, in accordance with the
terms of the purchase and sale agreement. The remaining escrow holdings of $3.5
million, subject to possible adjustment, are scheduled to be released during the
fourth quarter of 2010.
The PCTV
product line was sold to Hauppauge Digital, Inc. for total proceeds of
approximately $4.7 million, which included $2.2 million in cash and a note
valued at $2.5 million. During 2008, we recognized a gain of approximately $1.8
million as a result of this transaction. PCTV inventory valued at
$7.5 million was classified as held-for-sale in accordance with ASC
section 360-10-45,
Property, Plant and Equipment – Overall – Other Presentation Matters (formerly
SFAS No.
144), and included in “other current assets” in our consolidated balance sheet
at December 31, 2008. Under the terms of the asset purchase agreement, we are
reimbursed for the cost of PCTV inventory sold by the buyer. During 2009, the
buyer’s sell through of inventory classified as held-for-sale was lower than
anticipated, and, as a result, we recorded a loss on the sale of assets
of $3.2 million related to our sale of the PCTV product line. At December 31,
2009, the remaining value of inventory classified as held-for-sale was $0.4
million.
35
Interest
and Other Income (Expense), Net
Interest
and other income (expense), net, generally consists of interest income, interest
expense and equity in income of a non-consolidated company.
Comparison
of 2009 to 2008
|
Years
Ended December 31, 2009 and 2008
|
|||||||
|
(dollars
in thousands)
|
|||||||
|
2009
|
2008
|
Change
|
%
Change
|
||||
|
Interest
and other income (expense), net
|
($123)
|
$2,936
|
($3,059)
|
(104.2%)
|
|||
|
As
a percentage of net revenues
|
(0.0%)
|
0.3%
|
(0.3%)
|
||||
The
change in interest and other income (expense), net, from net income in 2008 to
net expense in 2009, was primarily the result of a significant decrease in
interest income due to lower interest rates paid on cash balances, as well as
lower average cash balances.
Comparison
of 2008 to 2007
|
Years
Ended December 31, 2008 and 2007
|
|||||||
|
(dollars
in thousands)
|
|||||||
|
2008
|
2007
|
Change
|
%
Change
|
||||
|
Interest
and other income (expense), net
|
$2,936
|
$7,637
|
($4,701)
|
(61.6%)
|
|||
|
As
a percentage of net revenues
|
0.3%
|
0.8%
|
(0.5%)
|
||||
The decrease in interest
and other income, net, for 2008 was primarily due to decreased interest
income earned due to decreased rates of return on cash and marketable securities
balances, as well as decreased average cash and marketable securities balances
resulting from our stock repurchases in early 2008.
(Benefit
from) Provision for Income Taxes, Net
Comparison
of 2009 to 2008
|
Years
Ended December 31, 2009 and 2008
|
|||||
|
(dollars
in thousands)
|
|||||
|
2009
|
2008
|
Change
|
|||
|
(Benefit
from) provision for income taxes, net
|
($1,652)
|
$2,663
|
($4,315)
|
||
|
As
a percentage of net revenues
|
(0.3%)
|
0.3%
|
(0.6%)
|
||
Comparison
of 2008 to 2007
|
Years
Ended December 31, 2008 and 2007
|
|||||
|
(dollars
in thousands)
|
|||||
|
2008
|
2007
|
Change
|
|||
|
(Benefit
from) provision for income taxes, net
|
$2,663
|
$2,997
|
($334)
|
||
|
As
a percentage of net revenues
|
0.3%
|
0.3%
|
0.0%
|
||
36
The net
tax benefit of $1.7 million for 2009 reflected a current tax benefit of $0.1
million and a deferred tax benefit of $1.6 million mostly related to the foreign
amortization of non-deductible acquisition-related intangible assets and the
release of a valuation allowance on a portion of the deferred tax assets in our
Canadian entity. The net tax provision of $2.7 million for 2008 reflected a
current tax provision of $6.9 million and a deferred tax benefit of $4.2 million
mostly related to the foreign amortization of non-deductible acquisition-related
intangible assets, as well as the write-down of deferred tax liabilities due to
goodwill and intangible asset impairments. The net tax provision of $3.0 million
for 2007 reflected a current tax provision of $6.3 million and a deferred tax
benefit of $3.3 million mostly related to the foreign amortization of
non-deductible acquisition-related intangible assets and to a release of a
deferred tax liability in our German entity.
Our
effective tax rate, which represents our tax (benefit) provision as a percentage
of profit or loss before tax, was (2%), 1% and 60%, respectively, for 2009, 2008
and 2007. Our (benefit from) provision for income taxes and effective tax rate
both changed from net provisions in 2008 to net benefits in 2009. The changes
were the result of discrete tax benefits of $2.9 million primarily related to
the completion of a foreign tax audit, $2.0 million for cumulative adjustments
of prior year provisions to actual tax return filings and $1.0 million from the
utilization of unused R&D tax credits, all occurring in 2009. The slight
decrease in our provision for income taxes in 2008, compared to 2007, resulted
primarily from a discrete tax benefit of $2.3 million resulting from the
write-down of deferred tax liabilities due to goodwill and intangible asset
impairments and an expected $0.6 million benefit from a provision of the Housing
and Economic Recovery Act of 2008, which allows for the utilization of unused
R&D tax credits. We generally recognize no significant U.S. tax benefit from
acquisition-related amortization. Our federal tax benefit was primarily related
to the discrete tax items mentioned above. Our state tax provision was the
result of minimal state tax payments.
The tax
rate in each year is affected by net changes in the valuation allowance against
our deferred tax assets. Excluding the impact of the valuation allowance, our
effective tax rate would have been (35%), (14%) and (187%), respectively, for
the years 2009, 2008 and 2007. These rates differ from the Federal statutory
rate of 35% primarily due to the mix of income and losses in foreign
jurisdictions, which have tax rates that differ from the statutory rate,
non-deductible impairment of goodwill expenses, and non-deductible
acquisition-related expenses.
We file
in multiple tax jurisdictions and from time to time are subject to audit in
certain tax jurisdictions, but we believe that we are adequately reserved for
these exposures. See
Note H to our Consolidated Financial Statements in Item 8 for further
information on our unrecognized tax benefits
at December 31, 2009 and 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Current
Cash Flows and Commitments
We have
funded our operations in recent years through cash flows from operations as well
as from the proceeds of the issuance of common stock under our employee stock
plans. At December 31, 2009, our principal sources of liquidity included cash,
cash equivalents and marketable securities totaling $108.9 million.
Net cash
of ($13.5) million was used in our operating activities in 2009, compared to
$10.2 million and $94.1 million provided by our operating activities in 2008 and
2007, respectively. In 2009, net cash used in operating activities primarily
reflected our net loss adjusted for depreciation, amortization and stock-based
compensation expense, as well as changes in working capital items, in particular
decreases in accounts receivable and inventories, offset by decreases in
deferred revenues and accrued expenses including restructuring accruals. In
2008, net cash provided by operating activities primarily reflected our net loss
adjusted for depreciation and amortization, goodwill and intangible asset
impairment losses, stock-based compensation expense, and the gain on the sale of
our Softimage 3D animation and PCTV product lines, as well as changes in working
capital items, in particular decreases in accounts receivable and inventories
and an increase in accrued expenses. In 2007, cash provided by operating
activities primarily reflected non-cash adjustments to our net loss for
depreciation and amortization and stock-based compensation
expense, as well as a decrease in inventories and an increase in deferred
revenues.
37
Accounts
receivable decreased by $23.8 million to $79.7 million at December 31, 2009,
from $103.5 million at December 31, 2008, driven by the decrease in net revenues
of 15% in the fourth quarter of 2009, when compared to the same period of 2008,
as well as improved collections reflected by a decrease in days sales
outstanding. These balances are net of allowances for sales returns, bad debts
and customer rebates, all of which we estimate and record based primarily on
historical experience. Days sales outstanding in accounts receivable was 41 days
at December 31, 2009, compared to 45 days at December 31, 2008.
At
December 31, 2009 and 2008, we held inventory in the amounts of $77.2 million
and $95.8 million, respectively. These balances include stockroom, spare parts
and demonstration equipment inventories at various locations and inventory at
customer sites related to shipments for which we have not yet recognized
revenues. The
decrease in inventory of $18.6 million from December 31, 2008 to December 31,
2009 was primarily due to improved efficiencies resulting from the consolidation
of operations in connection with our business transformation. We review
all inventory balances regularly for excess quantities or potential obsolescence
and make appropriate adjustments as needed to write-down the inventories to
reflect their estimated realizable value. We source inventory products and
components pursuant to purchase orders placed from time to time.
Deferred revenues
decreased by $29.5 million to $39.1 million at December 31, 2009, from
$68.6 million at December 31, 2008. This decrease was primarily the result of
the recognition of deferred revenue related to large broadcast deals accepted in
the fourth quarter of 2009 and, to a lesser extent, a reduction in deferrals
related to maintenance contracts resulting from lower
average maintenance contract values and the timing of contract
renewals.
Restructuring
accruals decreased by $1.1 million to $17.0 million at December 31, 2009, from
$18.1 million at December 31, 2008. This decrease was primarily the result of
restructuring-related cash payments of $25.8 million and non-cash write-offs of
$3.1 million, offset by 2009 restructuring charges of $27.7 million. In
connection with restructuring activities during 2009 and prior periods, at
December 31, 2009, we had restructuring accruals of $9.2 million and $7.7
million related to severance and lease obligations, respectively. Our future
cash obligations for leases for which we have vacated the underlying facilities
total approximately $13.4 million. The lease accruals represent the present
value of the excess of our lease commitments on the vacated space over expected
payments to be received on subleases of the relevant facilities. The lease
payments will be made over the remaining terms of the leases, which have varying
expiration dates through 2017, unless we are able to negotiate earlier
terminations. The severance payments will be made during the next twelve months.
All payments related
to restructuring actions are expected to be funded through working capital. See
Note N to our Consolidated Financial Statements in Item 8 for the activity in
the restructuring and other costs accrual for 2009.
Net cash
flow used in investing activities was ($20.0) million and ($1.2) million in 2009
and 2008, respectively, compared to $35.6 million provided by investing
activities in 2007. We hold our excess cash in
short-term marketable securities and convert them to cash as needed. The net
cash flow used in investing activities for 2009 primarily reflected purchases of
property and equipment and a $10 million facility-related escrow deposit into a
long-term asset account, partially offset by net proceeds of $8.6 million
resulting from the timing of the sale and purchase of marketable securities and
the release of escrow holdings totaling $3.5 million related to the 2008 sale of
our Softimage 3D animation product line. The remaining escrow holdings of $3.5
million, subject to possible adjustment, are scheduled to be released during the
fourth quarter of 2010. The $10 million
facility-related escrow deposit was related to our recently signed leases for
facilities in Burlington, Massachusetts. The net cash flow used in investing
activities for 2008 primarily reflected purchases of property and equipment and
net purchases of $10.1 million resulting from the timing of the sale and
purchase of marketable securities, partially offset by proceeds, net of
transaction costs, of $26.3 million from the sale of our Softimage 3D animation
and PCTV product lines. The net cash flow
provided by investing activities for 2007 primarily reflected net proceeds of
$63.6 million resulting from the timing of the sale and purchase of
marketable securities, partially offset by purchases of property and
equipment. We purchased
$18.7 million of property and equipment during 2009, compared to $15.4 million
during 2008 and $26.1 million in 2007. Purchases of property and equipment in
all years consisted primarily of computer hardware and software to support
R&D activities and our information systems. Our cash requirements for
capital spending in 2010 are expected to total approximately $32 million. This
amount could increase in the event we enter into strategic business acquisitions
or for other reasons. On January 5, 2010, we acquired all the outstanding shares
of Blue Order Solutions AG for approximately $16 million.
38
Net cash flow provided by
financing activities was $0.1 million in 2009, compared to ($92.4) million and
($15.3) million used in financing activities in 2008 and 2007, respectively.
The cash provided by financing activities in 2009 reflected proceeds of
$0.6 million from the issuance of stock related
to the exercise of stock options and purchases under our employee stock
purchase plan, partially offset by $0.5 million used to repurchase stock options
during the second quarter of 2009. The cash used in financing activities in 2008
was the result of $93.2 million used for our stock repurchase program, slightly
offset by proceeds of $1.1 million from the exercise of stock options and
purchases under our employee stock purchase plan.The cash used in financing
activities in 2007 reflected a $26.6 million repurchase of our common stock,
partially offset by proceeds of $11.1 million from the issuance of stock related
to the exercise of stock options and our employee stock purchase plan.
A stock
repurchase program was approved by our board of directors in April 2007, which
authorized the repurchase of up to $100 million of our common stock through
transactions on the open market, in block trades or otherwise. In February 2008,
our board of directors approved a $100 million increase in authorized funds for
the repurchase of our common stock under this program. During 2007, we
repurchased 809,236 shares of our common stock under the program for a total
purchase price, including commissions, of $26.6 million. During 2008, we
repurchased an additional 4,254,397 shares of our common stock for a total
purchase price, including commissions, of $93.2 million, leaving $80.3 million
authorized for future repurchases. No shares of our common stock were
repurchased under this program in 2009. The stock repurchase program is being
funded through working capital and has no expiration date.
Our cash
requirements vary depending on factors such as our growth, capital expenditures,
acquisitions of businesses or technologies and obligations under restructuring
programs. We believe that our existing cash, cash equivalents, marketable
securities and funds generated from operations will be sufficient to meet our
operating cash requirements for at least the next twelve months. In the event
that we require additional financing, we believe that we will be able to obtain
such financing; however, there can be no assurance that we would be successful
in doing so or that we could do so on favorable terms.
Fair
Value Measurements
We value
our cash and investment instruments using quoted market prices, broker or dealer
quotations, or alternative pricing sources with reasonable levels of price
transparency. See Note B to our Condensed Consolidated Financial Statements
included in Item 8 of this annual report for disclosure of the fair values
and the inputs used to determine the fair values of our financial assets and
financial liabilities.
CONTRACTUAL
AND COMMERCIAL OBLIGATIONS
The
following table sets forth future payments that we were obligated to make at
December 31, 2009 under existing lease agreements and commitments to purchase
inventory (in thousands):
|
Total
|
Less
than
1
Year
|
1
– 3 Years
|
3
– 5 Years
|
After
5
Years
|
|||||||
|
Operating
leases
|
$124,798
|
$21,303
|
$35,525
|
$28,341
|
$39,629
|
||||||
|
Unconditional
purchase obligations
|
49,522
|
49,522
|
—
|
—
|
—
|
||||||
|
$174,320
|
$70,825
|
$35,525
|
$28,341
|
$39,629
|
Other
contractual arrangements or unrecognized tax positions that may result in cash
payments consisted of the following at December 31, 2009 (in
thousands):
|
Total(a)
|
Less
than
1
Year
|
1
– 3 Years
|
3
– 5 Years
|
After
5
Years
|
|||||||
|
Transactions
with recourse
|
$2,493
|
$2,493
|
—
|
—
|
—
|
||||||
|
Unrecognized
tax positions and related interest
|
2,300
|
—
|
—
|
—
|
—
|
||||||
|
Stand-by
letters of credit
|
3,316
|
—
|
—
|
—
|
$3,316
|
||||||
|
$8,109
|
$2,493
|
—
|
—
|
$3,316
|
|
|
(a)
|
At
December 31, 2009, liability related to unrecognized tax positions and
related interest was $2.3 million, and we were unable to reasonably
estimate the timing of the liability in individual years due to
uncertainties in the timing of the effective settlement of the
positions.
|
39
Through
third parties, we offer lease financing options to our customers. During the
terms of these financing arrangements, which are generally for three years, we
may remain liable for a portion of the unpaid principal balance in the event of
a default on the lease by the end user, but our liability is limited in the
aggregate based on a percentage of initial amounts funded or, in certain cases,
amounts of unpaid balances. At December 31, 2009, our maximum exposure under
these programs was $2.5 million.
We have
three letters of credit at a bank that are used as security deposits in
connection with our recently leased Burlington, Massachusetts office space. In
the event of default on the underlying leases, the landlords would, at December
31, 2009, be eligible to draw against the letters of credit to a maximum of
approximately $2.6 million in the aggregate. The letters of credit are subject
to aggregate reductions of approximately $0.4 million at the end of each of the
second, third and fifth years, provided the Company is not in default of the
underlying leases and meets certain financial performance conditions. In no case
will the letters of credit amounts be reduced to below $1.3 million in the
aggregate throughout the lease periods, all of which extend to May 2020. At
December 31, 2009, the Company was not in default of any of the underlying
leases.
We also
have a stand-by letter of credit at a bank that is used as a security deposit in
connection with our Daly City, California office space lease. In the event of a
default on this lease, the landlord would be eligible to draw against this
letter of credit to a maximum, at December 31, 2009, of $750 thousand. The
letter of credit will remain in effect at this amount throughout the remaining
lease period, which runs through September 2014. At December 31, 2009, we were
not in default of this lease.
We
operate our business globally and, consequently, our results from operations are
exposed to movements in foreign currency exchange rates. We enter into forward
exchange contracts, which generally have one-month maturities, to reduce
exposures associated with the foreign exchange risks of certain forecasted
third-party and intercompany receivables, payables and cash balances. At
December 31, 2009, we had foreign currency forward contracts outstanding with an
aggregate notional value of $46.2 million, denominated in the euro, British
pound, Japanese yen and Canadian dollar, as a hedge against forecasted foreign
currency denominated receivables, payables and cash balances.
OFF-BALANCE
SHEET ARRANGEMENTS
Other
than operating leases, we do not engage in off-balance sheet financing
arrangements or have any variable-interest entities. At December 31, 2009, we
did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii)
of SEC Regulation S-K.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue
Arrangements, an amendment to ASC topic 605, Revenue Recognition, and
Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That
Include Software Elements, an amendment to ASC subtopic 985-605, Software – Revenue
Recognition (the “Updates”). See our critical accounting policy for
“Revenue Recognition and Allowances for Product Returns and Exchanges” found
previously in this Item 7 under the heading “Critical Accounting Policies and
Estimates” for a further discussion of this guidance.
In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (now codified within ASC topic 810, Consolidation). This guidance
requires an enterprise to perform an analysis to determine whether the
enterprise’s variable interest or interests give it a controlling financial
interest in a variable interest entity. This analysis identifies the primary
beneficiary of a variable interest entity as one with the power to direct the
activities of a variable interest entity that most significantly impact the
entity’s economic performance and the obligation to absorb losses of the entity
that could potentially be significant to the variable interest. The guidance is
effective as of the beginning of the annual reporting period commencing after
November 15, 2009, or January 1, 2010 for us, with early adoption
prohibited. Adoption is not expected to have a significant impact on our
financial position or results of operations.
40
Foreign
Currency Exchange Risk
We have
significant international operations and, therefore, our revenues, earnings,
cash flows and financial position are exposed to foreign currency risk from
foreign currency denominated receivables, payables, sales transactions and net
investments in foreign operations.
We derive
more than half of our revenues from customers outside the United States. This
business is, for the most part, transacted through international subsidiaries
and generally in the currency of the end-user customers. Therefore, we are
exposed to the risks that changes in foreign currency could adversely impact our
revenues, net income and cash flow. To hedge against the foreign exchange
exposure of certain forecasted receivables, payables and cash balances, we enter
into short-term foreign currency forward contracts. There are two objectives of
our foreign currency forward-contract program: (1) to offset any foreign
exchange currency risk associated with cash receipts expected to be received
from our customers over the next 30-day period and (2) to offset the impact of
foreign currency exchange on our 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. We record gains and losses
associated with currency rate changes on these contracts in results of
operations, offsetting gains and losses on the related assets and liabilities.
The success of this hedging program depends on forecasts of transaction activity
in the various currencies and contract rates versus financial statement rates.
To the extent these forecasts are overstated or understated during periods of
currency volatility, we could experience unanticipated currency gains or
losses.
At
December 31, 2009, we had foreign currency forward contracts outstanding with an
aggregate notional value of $46.2 million, denominated in the euro, British
pound, Japanese yen and Canadian dollar, as a hedge against actual and
forecasted foreign currency denominated receivables, payables and cash balances.
The mark-to-market effect associated with foreign currency forward contracts was
a net unrealized gain of $0.6 million at December 31, 2009. For the year ended
December 31, 2009, net gains of $1.2 million resulting from forward contracts
and $0.2 million of net transaction and remeasurement gains on the related
assets and liabilities were included in our results of operations.
As it
relates to our use of foreign currency forward contracts, a hypothetical 10%
change in foreign currency rates would not have a material impact on our
financial position, assuming the above-mentioned forecast of foreign currency
exposure is accurate, because the impact on the forward contracts as a result of
a 10% change would at least partially offset the impact on the asset and
liability positions of our foreign subsidiaries.
Interest
Rate Risk
At
December 31, 2009, we held $108.9 million in cash, cash equivalents and
marketable securities, including short-term certificates of deposit, commercial
paper, asset-backed securities, discount notes, and corporate, municipal, agency
and foreign bonds. Marketable securities are classified as “available for sale”
and are recorded on the balance sheet at market value, with any unrealized gain
or loss recorded in other comprehensive income (loss). A hypothetical 10%
increase or decrease in interest rates would not have a material impact on the
fair market value of these instruments due to their short
maturities.
41
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY FINANCIAL
INFORMATION
|
AVID
TECHNOLOGY, INC.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
|
Page
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
|
|
|
43
|
|
|
44
|
|
|
46
|
|
|
47
|
|
|
48
|
|
|
49
|
|
|
50
|
|
|
CONSOLIDATED
FINANCIAL STATEMENT SCHEDULE INCLUDED IN ITEM 15(d):
|
|
|
F-1
|
|
|
Schedules
other than those 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 is included
in the consolidated financial statements or the notes
thereto.
|
|
42
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated
under the Securities Exchange Act of 1934, as amended, as a process designed by,
or under the supervision of, the Company’s principal executive and principal
financial officers and effected by the Company’s board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009. In making this
assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.
Based on
this assessment, management has concluded that as of December 31, 2009 the
Company’s internal control over financial reporting is effective based on the
criteria set forth by the COSO.
Ernst
& Young LLP, the independent registered public accounting firm that audited
the Company’s financial statements included in this annual report on Form 10-K,
has issued an attestation report on the Company’s internal controls over
financial reporting as of December 31, 2009. Please see page 44.
43
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of Avid Technology, Inc.
We have
audited Avid Technology, Inc.’s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Avid Technology, Inc.’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Avid Technology, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the
COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Avid
Technology, Inc. as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2009 of Avid Technology, Inc. and
our report dated March 16, 2010 expressed an unqualified opinion
thereon.
/s/ Ernst
& Young LLP
Boston,
Massachusetts
March 16,
2010
44
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of Avid Technology, Inc.
We have
audited the accompanying consolidated balance sheets of Avid Technology, Inc. as
of December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2009. Our audit also included the
financial statement schedule listed in the index in Item 15(a)
2. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit 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.
at December 31, 2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
As
discussed in Note G to the consolidated financial statements, Avid Technology,
Inc. changed its method of accounting for business combinations with the
adoption of the guidance originally issued in FASB Statement No. 141(R), Business Combinations
(codified in FASB ASC Topic 805, Business Combinations)
effective January 1, 2009.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Avid Technology, Inc.’s internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 16, 2010
expressed an unqualified opinion thereon.
/s/ Ernst
& Young LLP
Boston,
Massachusetts
March 16,
2010
45
AVID
TECHNOLOGY, INC.
(in
thousands, except per share data)
|
For
the Year Ended December 31,
|
||||||||||||||
|
2009
|
2008
|
2007
|
||||||||||||
|
Net
revenues:
|
||||||||||||||
|
Products
|
$
|
509,215
|
$
|
714,232
|
$
|
806,103
|
||||||||
|
Services
|
119,755
|
130,669
|
123,467
|
|||||||||||
|
Total
net revenues
|
628,970
|
844,901
|
929,570
|
|||||||||||
|
Cost
of revenues:
|
||||||||||||||
|
Products
|
243,362
|
369,186
|
390,725
|
|||||||||||
|
Services
|
59,754
|
73,888
|
68,529
|
|||||||||||
|
Amortization
of intangible assets
|
2,033
|
7,526
|
16,895
|
|||||||||||
|
Restructuring
costs
|
799
|
1,876
|
4,278
|
|||||||||||
|
Total
cost of revenues
|
305,948
|
452,476
|
480,427
|
|||||||||||
|
Gross
profit
|
323,022
|
392,425
|
449,143
|
|||||||||||
|
Operating
expenses:
|
||||||||||||||
|
Research
and development
|
120,989
|
148,598
|
150,707
|
|||||||||||
|
Marketing
and selling
|
173,601
|
208,735
|
210,456
|
|||||||||||
|
General
and administrative
|
61,087
|
78,591
|
77,463
|
|||||||||||
|
Amortization
of intangible assets
|
10,511
|
12,854
|
13,726
|
|||||||||||
|
Impairment
of goodwill and intangible assets
|
—
|
129,972
|
—
|
|||||||||||
|
Restructuring
costs, net
|
26,873
|
25,412
|
9,410
|
|||||||||||
|
Gain
on sales of assets
|
(155
|
)
|
(13,287
|
)
|
—
|
|||||||||
|
Total
operating expenses
|
392,906
|
590,875
|
461,762
|
|||||||||||
|
Operating
loss
|
(69,884
|
)
|
(198,450
|
)
|
(12,619
|
)
|
||||||||
|
Interest
income
|
848
|
3,435
|
8,256
|
|||||||||||
|
Interest
expense
|
(906
|
)
|
(570
|
)
|
(603
|
)
|
||||||||
|
Other
income (expense), net
|
(65
|
)
|
71
|
(16
|
)
|
|||||||||
|
Loss
before income taxes
|
(70,007
|
)
|
(195,514
|
)
|
(4,982
|
)
|
||||||||
|
(Benefit
from) provision for income taxes, net
|
(1,652
|
)
|
2,663
|
2,997
|
||||||||||
|
Net
loss
|
$
|
(68,355
|
)
|
$
|
(198,177
|
)
|
$
|
(7,979
|
)
|
|||||
|
Net
loss per common share – basic and diluted
|
$
|
(1.83
|
)
|
$
|
(5.28
|
)
|
$
|
(0.19
|
)
|
|||||
|
Weighted-average
common shares outstanding – basic and diluted
|
37,293
|
37,556
|
40,974
|
|||||||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
46
AVID
TECHNOLOGY, INC.