UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2 TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 20, 2004
Avid Technology, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-21174 04-2977748
- ------------------------ ------------------------ ------------------------
(State or Other Juris- (Commission (IRS Employer
diction of Incorporation File Number) Identification No.)
Avid Technology Park
One Park West
Tewksbury, MA 01876
- --------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (978) 640-6789
____________________________________________
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
This Form 8-K/A further amends an earlier report on Form 8-K filed by
Avid Technology, Inc. on August 20, 2004, as subsequently amended by a report on
Form 8-K/A filed on September 1, 2004 (the "First Amendment"). This amendment
is being filed solely for the purpose of amending and restating Item 9.01 of the
First Amendment.
Item 9.01. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Midiman, Inc. and Subsidiaries Condensed Consolidated Financial
Statements for the Six Month Periods Ended July 31, 2003 and 2004 (Unaudited)
are filed as Exhibit 99.3 to this Current Report on Form 8-K.
(b) Pro Forma Financial Information.
Avid Technology, Inc. Pro Forma Condensed Combined Statements of
Operations for the Six Month Period Ended June 30, 2004 and Year Ended
December 31, 2003 are filed as Exhibit 99.4 to this Current Report on Form 8-K.
(c) Exhibits.
See Exhibit Index attached hereto.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 21, 2005 AVID TECHNOLOGY, INC.
By: /s/ Paul Milbury
-----------------
Name: Paul Milbury
Title: Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
2.1* Agreement and Plan of Merger, dated August 12, 2004, by
and among Avid Technology, Inc., Maui Paradise
Corporation, Maui LLC and Midiman, Inc.
99.1* Press Release dated August 13, 2004.
99.2* Press Release dated August 20, 2004.
99.3 Midiman, Inc. Financial Statements for the Six Month
Periods Ended July 31, 2003 and 2004 (Unaudited)
99.4 Pro Forma Financial Information (Unaudited)
* Filed Previously
Exhibit 99.3
MIDIMAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited (In Thousands)
January 31, July 31,
2004 2004
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,318 $3,423
Accounts receivable, net of allowance
for sales returns and doubtful accounts
of $231 (July 31, 2004) and
$166 (January 31, 2004) 7,890 9,693
Inventories--net 8,284 12,833
Prepaid expenses and other current assets 1,095 785
Deferred income taxes 630 630
--------- ----------
Total current assets 22,217 27,364
PROPERTY AND EQUIPMENT - Net 1,289 1,523
INTANGIBLE ASSETS - Net 1,749 1,454
GOODWILL 2,339 2,339
OTHER ASSETS 61 157
--------- ----------
TOTAL ASSETS $27,655 $32,837
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $3,072 $5,420
Income taxes payable 1,218 1,610
Accrued expenses and other current
liabilities 2,770 3,391
--------- ----------
Total current liabilities 7,060 10,421
--------- ----------
DEFERRED INCOME TAXES 843 843
--------- ----------
CONVERSION RIGHT AND PUT OBLIGATION 21,470 41,400
--------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SERIES A REDEEMABLE CONVERTIBLE PREFERRED
STOCK 8,113 8,530
--------- ----------
STOCKHOLDERS' DEFICIT:
Common stock 1,459 1,795
Additional paid-in capital 1,325 4,699
Deferred stock-based compensation (898) (3,829)
Accumulated deficit (12,571) (31,787)
Accumulated other comprehensive income 854 765
--------- ----------
Net stockholders' deficit (9,831) (28,357)
--------- ----------
TOTAL $27,655 $32,837
========= ==========
See accompanying notes to consolidated financial statements.
MIDIMAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2004 and 2003
Unaudited (In Thousands)
2003 2004
---- ----
NET SALES $22,694 $34,811
COST OF SALES 12,136 19,095
-------------- -------------
GROSS PROFIT 10,558 15,716
OPERATING EXPENSES:
Research and development 2,006 2,576
General and administrative 2,248 4,561
Selling and marketing 4,550 5,788
Stock-based compensation 15 443
-------------- -------------
Total operating expenses 8,819 13,368
-------------- -------------
OPERATING INCOME 1,739 2,348
OTHER INCOME (EXPENSE)
Other income--net 94 (119)
Loss on derivative (7,700) (19,930)
-------------- -------------
Total other income (expense) (7,606) (20,049)
-------------- -------------
LOSS BEFORE PROVISION FOR INCOME TAXES (5,867) (17,701)
PROVISION FOR INCOME TAXES 751 1,098
-------------- -------------
NET LOSS ($6,618) ($18,799)
============== =============
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)
Six months ended
July 31,
2003 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($6,618) ($18,799)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 133 526
Stock-based compensation 15 443
Loss on derivative 7,700 19,930
Changes in operating assets and liabilities:
Accounts receivable (1,248) (1,831)
Inventories (3,150) (4,600)
Prepaid expenses and other current assets (189) 294
Other assets (104) (93)
Accounts payable 1,237 2,358
Income taxes payable 19 374
Accrued expenses and other current
liabilities 18 660
---------- ----------
Net cash used in operating activities (2,187) (738)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash acquired (3,127)
Purchase of property and equipment (175) (468)
---------- ----------
Net cash used in investing activities (3,302) (468)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (3,400)
Payments on long-term debt (55) (22)
Issuance of preferred stock and warrant--net 9,550
Issuance of common stock 336
---------- ----------
Net cash provided by financing activities 6,095 314
---------- ----------
EFFECT OF EXCHANGE RATES ON CASH BALANCES 1,031 (3)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,637 (895)
CASH AND CASH EQUIVALENTS--Beginning of period 2,359 4,318
---------- ----------
CASH AND CASH EQUIVALENTS--End of period $3,996 $3,423
========== ==========
SUPPLEMENTAL INFORMATION--Cash paid during the period for:
Interest $611 -
========== ==========
Income taxes $ 40 $248
========== ==========
See accompanying notes to consolidated financial statements.
MIDIMAN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
- ------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments necessary to present fairly the
financial position of Midiman, Inc. and subsidiaries ("the Company") as of
January 31, 2004 and July 31, 2004 the results of its operations and its cash
flows for the six-month periods ended July 31, 2003 and 2004.
These statements have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission and do not include all the information
and note disclosures required by accounting principles generally accepted in the
United States of America for complete financial statements but reflect all
adjustments (consisting only of normal recurring accruals) necessary for the
fair presentation of the financial position, results of operations and cash
flows for the periods and dates presented.
The Company's preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reported periods. The most significant
estimates reflected in these financial statements include accounts receivable
and sales allowances, inventory valuation and income tax asset valuation
allowances. Actual results could differ from those estimates.
The results of operations for any interim period are not necessarily
indicative of results to be expected for the full year.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements for the years ended
January 31, 2002, 2003 and 2004 and notes thereto.
2. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and has adopted the
disclosure-only alternative of SFAS No. 123, Accounting for Stock-Based
Compensation. The Company accounts for equity issuance to non-employees in
accordance with SFAS No. 123 and Emerging Issues Task Force 96-18,
Accounting for Equity Instruments that are Issued to Other Than Employees
for Acquiring or in Conjunction with Selling, Goods and Services.
The following table illustrates the effect on net income as if the Company
had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation. Had compensation cost for the Company's
stock-based awards to employees been determined based on the estimated fair
value at the grant dates consistent with the fair value method of
SFAS No. 123 utilizing the Black-Scholes option-pricing model, the Company's net
income would have approximated the pro forma amounts indicated below (in
thousands):
Six months ended
July 31,
2003 2004
Net loss as reported ($6,618) ($18,799)
Plus stock-based employee compensation expense
included in reported net loss-net of tax 8 266
Less stock-based employee compensation expense
determined under fair value based method-net
of tax (20) (285)
---------- ----------
Pro forma net loss ($6,630) ($18,818)
3. INVENTORIES
Inventories consist principally of finished goods and are stated at
the lower of cost (determined by the first-in, first-out method) or market.
The Company maintains allowances for estimated obsolete and excess
inventories based upon projected sales levels.
4. LINE OF CREDIT
Effective May 29, 2002, the Company entered into an agreement with a bank
for a line of credit facility. As of July 31, 2004, maximum borrowings
were $6,000,000, limited to the lesser of (a) $6,000,000, or (b) the sum
of 80% of eligible accounts receivable, plus 40% of eligible inventory (to
a maximum of $2,000,000), plus advances to foreign affiliates (to a
maximum of $500,000). Any borrowings are collateralized by a general first
priority lien against all Company assets, both tangible and intangible,
and the personal guarantee of the Company's majority stockholder. The
personal guarantee was released in May 2004. Interest is payable monthly
at LIBOR, plus 1.75%. All outstanding amounts on the line of credit were
repaid in February 2003 and there have been no borrowings since that date.
This line of credit expired in November 2004.
The facility contains certain restrictions and covenants that require the
Company to maintain certain levels of effective tangible net worth, meet
certain minimum financial ratios (debt to net worth and quick ratio) and
achieve minimum annual profitability. As a result of the loss on
derivative related to the preferred stock (Note 7), the Company violated
certain covenants. As a result, no amounts are currently available for
borrowing under the credit facility.
5. COMMITMENTS AND CONTINGENCIES
Litigation--The Company is subject to litigation in the ordinary course of
business. While the ultimate outcome of such matters is not determinable
at the current time, the Company believes that none of its pending
litigation matters, individually or in aggregate, will have a material
adverse impact on its financial position or results of operations.
Other Contingent Obligations--During its normal course of business, the
Company has made certain indemnities, commitments and guarantees under
which it may be required to make payments in relation to certain
transactions. These include (i) intellectual property indemnities to the
Company's customers and licensees in connection with the use, sales and/or
license of Company products; (ii) indemnities to vendors and service
providers pertaining to claims based on the negligence or willful
misconduct of the Company; (iii) indemnities involving the accuracy of
representations and warranties in certain contracts; (iv) indemnities to
directors and officers of the Company to the maximum extent permitted
under the laws of the State of California; and (v) certain real estate
leases, under which the Company may be required to indemnify property
owners for environmental and other liabilities, and other claims arising
from the Company's use of the applicable premises. The duration of these
indemnities, commitments and guarantees varies and, in certain cases, may
be indefinite. The majority of these indemnities, commitments and
guarantees do not provide for any limitation of the maximum potential for
future payments the Company could be obligated to make. Historically, the
Company has not been obligated to make significant payments for these
obligations, and no liabilities have been recorded for these indemnities,
commitments and guarantees in the accompanying consolidated balance
sheets.
6. COMPREHENSIVE INCOME
Total comprehensive income net of taxes consists of net income and net
changes in foreign currency translation adjustment. The following is a
summary of the Company's comprehensive income (loss), (in thousands):
Six Months Ended
July 31,
-----------------------
2003 2004
--------- ---------
Net (loss) ($6,618) ($18,799)
Net changes in:
Foreign currency translation adjustment 29 (89)
--------- ---------
Total comprehensive (loss) ($6,589) ($18,888)
========= =========
7. PREFERRED STOCK
Series A Redeemable Convertible Preferred Stock ("Series A Stock")--On
February 6, 2003, the Company issued and sold 4,106,824 shares of
convertible preferred stock to an investor group (the "Investors") for gross
proceeds of $13,125,000, of which $3,500,000 was paid directly to the
Company's existing stockholders and $9,550,000 represented proceeds to the
Company, after direct offering costs of $75,000. In exchange for the
$3,500,000 payment, the existing shareholders returned 1,095,000 shares of
common stock to the Company which were converted into an equal number of
Series A preferred shares and issued to the Investors as part of the total
preferred share issuance. This transaction was accounted for similar to a
repurchase and retirement of treasury stock. The Company also issued to the
Investors warrants to purchase an aggregate of 312,901 shares of common
stock at an exercise price of approximately $3.20 per share, which warrants
expire five years from the date of grant. The fair value of the warrants was
estimated at $312,000 using the Black-Scholes model.
The Series A stockholders are entitled to non-cumulative dividends when, as
and if declared by the Board of Directors, prior and in preference to the
payment of any dividends on common stock. Each share of Series A Stock is
convertible, at the option of the holder at any time after issuance, into
one share of common stock. The conversion rate will be automatically
adjusted for stock splits such that all of the Series A Stock will
automatically convert into common stock at the closing of a public offering
of the Company's common stock, with gross proceeds of at least $40,000,000
and a per share public offering price of at least $9.60 per share, or at the
election of the holders of a majority of the Series A Stock. Holders of
Series A Stock are entitled to a liquidation preference of $3.20 per share,
plus any declared and unpaid dividends, prior to any distribution of assets
to holders of common stock. Holders of Series A Stock have full voting
rights on an as-converted basis and are entitled to elect one member of the
Company's Board of Directors. In the event of a change in ownership, the
holders of Series A Stock may require the Company to redeem all of the
Series A shares then outstanding at the liquidation value.
In conjunction with the sale of Series A Stock, the Company entered into a
Shareholders Agreement with the new Investors. The Shareholders Agreement
provides for certain rights of first refusal for existing stockholders if
other stockholders elect to sell or transfer their shares. The Shareholders
Agreement also provides the Series A stockholders with a put arrangement
that gives such holders the right to require the Company to repurchase any
outstanding preferred shares at a price equal to the greater of liquidation
value or the fair market value of the shares on an as-converted basis. The
put may only be exercised beginning in February 2010. The put right expires
if the preferred shares are converted to common shares. As a result of the
put option, the conversion right and put obligation have been accounted for
as a derivative. Accordingly, its fair value was recorded as a liability in
the accompanying consolidated balance sheet with the initial value,
estimated at $5,460,000 using a Trinomial model, recorded as an allocation
of proceeds received from the sale of preferred stock. The carrying value of
the derivative is adjusted to fair value at each reporting date, and changes
in the fair value from the date of issuance have been included in other
income (expense) in the accompanying consolidated statement operations.
8. ISSUANCE OF RESTRICTED STOCK
The Company issued 336,000 shares of common stock to a member of the
senior management team on March 1, 2004. This issuance was made due to the
exercise of previously granted stock options under their original terms and
included 224,000 unvested shares issued as restricted stock. These shares of
restricted stock vest in equal monthly installments through December 31,
2006.
9. BUSINESS ACQUISITION
Acquisitions--On July 31, 2003, the Company completed a stock purchase
acquisition of Evolution Electronics Limited ("Evolution"), a U.K. based
producer of electronic keyboards. This strategic acquisition provides the
Company with a class compliant line of high quality, affordable keyboards
and MIDI controllers with strong brand recognition in the U.K. and Europe.
The purchase price for Evolution was $4,341,053, consisting of cash of
$3,116,964, 261,200 common shares with an estimated fair value of
$1,095,578, and direct acquisition costs of $128,511. In accordance with
SFAS No. 141, Business Combinations, the acquisition was accounted for
under the purchase method of accounting and the purchase price was
allocated to the tangible and intangible assets acquired and liabilities
assumed based on their estimated fair values on the acquisition date, with
the excess being ascribed to goodwill.
The operations of Evolution are included in the Company's consolidated
financial statements from the date of acquisition. The pro forma results
of operations data for the six months ended July 31, 2003 and 2004 are not
presented, as they would not have differed significantly from the amounts
presented in the accompanying consolidated statements of operations.
10. New Accounting Pronouncements
FIN 46R, Consolidation of Variable Interest Entities--an
interpretation of ARB No. 51, was originally issued in January 2003 and
subsequently revised in December 2003. FIN 46, as revised requires a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the entity's
residual returns or both. FIN 46 also requires certain disclosures about
variable interest entities in which a company has a significant interest,
regardless of whether consolidation is required. Application of FIN 46 is
required for potential variable interest entities commonly referred to as
special purpose entities for periods ending after December 15, 2003.
Application of the provisions will be required for all other variable
interest entities by the end of the first reporting period that ends after
March 15, 2004. The Company currently has no variable interest entities,
therefore, the adoption of this interpretation did not have a material
effect on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
SFAS No. 150 requires that an issuer classify a financial instrument that
is within its scope, which may have previously been reported as equity, as
a liability (or an asset in some circumstances). This statement is
effective for financial instruments entered into or modified after May 31,
2003. Also, mandatory redeemable financial instruments are subject to the
provisions of this statement for the first fiscal period beginning after
December 31, 2003. The adoption of SFAS No. 150 did not have a material
impact on the Company's consolidated financial statements.
In December 2003, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition,"
which supersedes SAB No. 101, "Revenue Recognition in Financial
Statements." SAB No. 104's primary purpose is to rescind accounting
guidance contained in SAB No. 101 related to multiple element revenue
arrangements, superseded as a result of the issuance of EITF No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." The
issuance of SAB No. 104 reflects the concepts contained in EITF No. 00-21;
the other revenue recognition concepts contained in SAB No. 101 remain
largely unchanged. The application of SAB No. 104 did not have any impact
on the Company's financial position or results of operations.
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The statements contained in this section may be deemed to be forward-looking
statements within the meaning of Section 21E of the Exchange Act and Section 27A
of the Securities Act. Forward-looking statements are typically identified by
the words "believe," "expect," "anticipate," "intend," "estimate" and similar
expressions. These forward-looking statements are based largely on management's
expectations and are subject to a number of uncertainties. Actual results could
differ materially from these forward-looking statements. Neither Avid nor
Midiman undertake any obligation to update publicly or revise any
forward-looking statements.
On August 20, 2004, Avid completed the acquisition of Midiman, Inc. ("Midiman")
The unaudited pro forma condensed combined financial information gives effect to
this acquisition using the purchase method of accounting. For purposes of the
statements of operations, the pro forma financial information is presented
assuming the acquisition occurred as of January 1, 2003. Avid's fiscal year end
is December 31 and Midiman's is January 31. Therefore, the pro forma statements
of operations herein combine Avid's statement of operations for the year ended
December 31, 2003 with Midiman's statement of operations for the year ended
January 31, 2004, and Avid's statement of operations for the six-month period
ended June 30, 2004 with Midiman's statement of operations for the six-month
period ended July 31, 2004. A pro forma balance sheet is not presented because
the acquisition has been reflected in our most recent balance sheet filed with
the Securities and Exchange Commission.
Under the purchase method of accounting, the purchase price is allocated to the
net tangible and intangible assets of an acquired entity based on their fair
values as of the consummation of the acquisition. The determination of these
fair values includes Avid management's consideration of a valuation of Midiman's
intangible assets prepared by an independent valuation specialist. The
allocation included in this pro forma financial information was based on the
balance sheet of Midiman as of the acquisition date, August 20, 2004.
As consideration for the acquisition, Avid paid $79.7 million in cash and issued
1,974,234 shares of common stock valued at approximately $84.3 million in
exchange for all of the outstanding shares of Midiman. Additionally, Avid
granted to Midiman employees stock options to purchase up to approximately
345,000 shares of Avid common stock at a weighted average exercise price of
$9.21, in exchange for outstanding Midiman options. The market price used to
value the Avid shares issued as partial consideration for Midiman and the Avid
options issued in exchange for outstanding Midiman options was based on the 5
day average closing price of the stock during the period beginning two days
before and ending two days after the date that the terms of the acquisition were
agreed to and announced publicly. The following represents the purchase price
for accounting purposes for the acquisition of Midiman (dollar amounts are in
thousands, except for per share amounts):
Avid average market price per share $42.724
---------------
Avid common shares issued in exchange
for equivalent shares of oustanding
common stock of Midiman 1,974,234
---------------
In thousands:
Portion of offer price for equivalent
common shares settled in Avid common
shares $84,347
Cash consideration paid 79,693
Fair value of Avid stock options
exchanged for outstanding Midiman stock
options 12,131
Estimated transaction costs of Avid 3,300
---------------
Total base purchase price $179,471
===============
The fair value of Avid stock options exchanged for outstanding Midiman options
was estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions and results:
Expected dividend yield 0.0 %
Risk-free interest rate 3.0 %
Expected volatility 59.0 %
Expected life (in years) 2.2
Weighted average fair value of option $35.14
The purchase price has been allocated to the acquired tangible and
intangible assets and liabilities based on their estimated fair values as of
August 20, 2004. Independent valuation specialists assisted management of Avid
in determining the fair values of the intangible assets (in thousand):
Cash and cash equivalents $110
Accounts receivable 7,288
Inventories 13,420
Other current assets 903
Property and equipment 1,520
Intangible assets:
Customer relationships 28,000
Trade name 4,700
Non-compete covenant 1,200
Developed technology 4,500
Goodwill 122,022
Current liabilities (9,692)
Deferred compensation 5,500
--------------
$179,471
==============
As part of the purchase agreement, Avid may be required to make additional
payments to the former stockholders and option holders of Midiman of up to
$45 million, contingent upon the operating results of the business acquired.
These payments, if required, will be made through issuance of additional Avid
shares and options, and will be recorded as additional purchase price allocated
to goodwill, with a small portion (that related to options) recorded as
compensation expense.
Intangible assets are being amortized on a straight-line basis which is
management's best approximation of the pattern in which the economic benefits of
the intangible assets will be consumed.
In accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, goodwill resulting from the transaction is not
amortized, but will be subject to an impairment test at least annually (more
frequently if certain indicators are present). In the event that the goodwill
becomes impaired, Avid will incur an impairment charge for the amount of
impairment during the period in which the determination is made.
The unaudited pro forma condensed combined financial information should be read
in conjunction with the historical consolidated financial statements and
accompanying notes of Midiman included in this document, and of Avid included in
Avid's Annual Report on Form 10-K for the year ended December 31, 2003 and
Avid's Quarterly Report on Form 10-Q for the period ended June 30, 2004. The
unaudited pro forma condensed combined financial information is not intended to
represent or be indicative of the consolidated results of operations or
financial condition of Avid that would have been reported had the acquisition of
Midiman been completed as of the date presented, and should not be taken as
representative of the future consolidated results of operations or financial
condition of Avid. For example, going forward, Avid may incur integration
related expenses not reflected in the pro forma financial information.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2004
(in thousands, except per share data)
UNAUDITED
Historical
----------------------
Avid Midiman Pro Forma Pro Forma
Adjustments Combined
----------- ---------- ----------- -----------
Net revenues $267,260 $34,811 $302,071
Cost of revenues 115,098 19,095 $534 (1) 134,995
(294)(2)
562 (4)
----------- ---------- ---------- -----------
Gross profit 152,162 15,716 (802) 167,076
----------- ---------- ---------- -----------
Operating expenses:
Research and development 45,216 2,576 154 (9) 47,946
Marketing and selling 63,510 5,788 236 (9) 69,125
(534)(1)
125 (1)
General and administrative 12,070 4,561 529 (9) 17,121
(39)(2)
Stock-based compensation 443 (443)(3)
Amortization of intangible
assets 988 1,858 (4) 2,846
----------- ---------- ---------- -----------
Total operating expenses 121,784 13,368 1,886 137,038
----------- ---------- ---------- -----------
Operating income 30,378 2,348 (2,688) 30,038
Interest and other income
(expense), net 35 (119) 125 (1) (513)
(554)(5)
Loss on derivative (19,930) 19,930 (6)
----------- ---------- ---------- -----------
Income (loss) before income taxes 30,413 (17,701) 16,813 29,525
----------- ---------- ---------- -----------
Provision for income taxes 200 1,098 (1,028)(7) 270
----------- ---------- ---------- -----------
Net income (loss) $30,213 ($18,799) $17,841 $29,255
=========== ========== ========== ===========
Net income per common share -
basic $0.96 $0.88
=========== ==========
Net income per common share -
diluted $0.89 $0.81
=========== ==========
Weighted average common shares
outstanding - basic 31,413 1,974(8) 33,387
=========== ========== ===========
Weighted average common shares
outstanding - diluted 33,912 2,253(8) 36,165
=========== ========== ===========
See accompanying notes to unaudited pro forma condensed combined financial
information.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 2003
(in thousands, except per share data)
UNAUDITED
Historical
---------------------
Avid Midiman Pro Forma Pro Forma
Adjustments Combined
---------- ---------- ---------- ---------
Net revenues $471,912 $51,547 $523,459
Cost of revenues 209,373 27,992 $812 (1) 239,117
(185)(2)
1,125 (4)
---------- ---------- ---------- ---------
Gross profit 262,539 23,555 (1,752) 284,342
---------- ---------- ---------- ---------
Operating expenses:
Research and development 85,552 4,468 568 (9) 90,588
Marketing and selling 109,704 9,670 894 (9) 119,141
(812)(1)
(315)(1)
General and administrative 23,208 5,490 2,119 (9) 30,730
(87)(2)
Restructuring and other costs, net 3,194 - 3,194
Stock-based compensation - 345 (345)(3) -
Amortization of intangible assets 1,316 3,717 (4) 5,033
---------- ---------- ---------- ---------
Total operating expenses 222,974 19,973 5,739 248,686
---------- ---------- ---------- ---------
Operating income 39,565 3,582 (7,491) 35,656
Interest and other income, net 1,874 356 (315)(1) 807
(1,108)(5)
Loss on derivative (16,010) 16,010 (6) 0
---------- ---------- ---------- ---------
Income (loss) before income taxes 41,439 (12,072) 7,096 36,463
Provision for income taxes 550 1,611 (1,617)(7) 544
---------- ---------- ---------- ---------
Net income (loss) $40,889 ($13,683) $8,713 $35,919
========== ========== ========== =========
Net income per common share - basic $1.40 $1.15
========== =========
Net income per common share - diluted $1.25 $1.03
========== =========
Weighted average common shares
outstanding - basic 29,192 1,974 (8) 31,166
========== ========== =========
Weighted average common shares
outstanding - diluted 32,653 2,235 (8) 34,888
========== ========== =========
See accompanying notes to unaudited pro forma condensed combined financial
information.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
On August 20, 2004, Avid completed the acquisition of Midiman. For purposes of
the statements of operations, the pro forma financial information is presented
assuming the acquisition occurred as of January 1, 2003. Avid's fiscal year end
is December 31 and Midiman's is January 31. Therefore, the pro forma statements
of operations herein combine Avid's statement of operations for the year ended
December 31, 2003 with Midiman's statement of operations for the year ended
January 31, 2004, and Avid's statement of operations for the six-month period
ended June 30, 2004 with Midiman's statement of operations for the six-month
period ended July 31, 2004. A pro forma balance sheet is not presented because
the acquisition has been reflected in our most recent balance sheet filed with
the Securities and Exchange Commission.
(1) Represents reclassifications to conform Midiman's accounting and reporting
policies to Avid's accounting and reporting policies.
(2) Represents the reversal of intangible amortization expense resulting from
acquisitions consummated previously by Midiman.
(3) Represents the reversal of stock compensation expense relating to stock
options issued by Midiman.
(4) Represents the amortization of intangible assets established as part of the
purchase price allocation in connection with the acquisition of Midiman.
Intangible assets are amortized on a straight-line basis which is management's
best approximation of the pattern in which the economic benefits of the
intangible assets are consumed over the following number of years:
Customer relationships 12 years
Trade name 6 years
Non-competition agreements 2 years
Technology-based assets 4 years
(5) Represents the reduction in investment income resulting from the reduced
cash balance after payments to effect the acquisition of Midiman.
(6) Represents the reversal of a loss associated with a put arrangement on
preferred shares of Midiman, since the equity structure of Midiman has been
replaced by the acquisition.
(7) Adjusts the effective tax rate to that expected for the combined company.
(8) The unaudited pro forma condensed combined financial information gives
effect to the issuance of Avid stock, based upon an exchange ratio of 0.22202 of
a share of Avid stock for each share of Midiman common stock, including
Midiman's preferred stock on an as-if converted basis and a common stock warrant
on an as-if exercised basis. The average market price per share of Avid common
stock of $42.72 was based on the 5 day average closing price of the stock during
the period beginning two days before and ending two days after the date that the
terms of the acquisition were agreed to and announced.
(9) Represents the amortization of deferred stock compensation expense for
unvested stock options exchanged in the acquisition of Midiman by Avid. The
deferred compensation is being amortized over the remaining vesting period of
the assumed options. The amortization expense has been recorded in the expense
category associated with the departmental classification of the grantee.