AVID TECHNOLOGY, INC.
Avid Technology Park
One Park West
Tewksbury, MA 01876
March 26, 2001
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
Re: Avid Technology, Inc.
File No. 0-21174
Annual Report on Form 10-K
--------------------------
Ladies and Gentlemen:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Avid Technology, Inc. is the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000.
The Company's financial statements filed as part of the Form 10-K do not
reflect a change from the preceding year in any accounting principles or
practices or in the method of applying such principles or practices.
This filing is being effected by direct transmission to the Commission's
EDGAR System.
Very truly yours,
/s/ Carol E. Kazmer
Carol E. Kazmer
General Counsel
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
------------ ------------
Commission File Number 0-21174
AVID TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2977748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Avid Technology Park, One Park West, Tewksbury, MA 01876
(Address of principal executive offices) (Zip Code)
(978) 640-6789
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of The Act:
None
Securities Registered Pursuant to Section 12(g) of The Act:
Common Stock $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES v NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $375,804,442 based on the closing price of the
Common Stock on the NASDAQ National Market on March 19, 2001.
The number of shares outstanding of the registrant's Common Stock as of March
19, 2001, was 25,897,495.
Documents Incorporated by Reference
Document Description 10-K Part
-------------------- ---------
Portions of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held June 6, 2001... III
This Annual Report on Form 10-K contains a number of forward-looking
statements. Any statements contained herein (including without limitation
statements to the effect that Avid or its management "believes", "expects",
"anticipates", "plans" and similar expressions) that are not statements of
historical fact should be considered forward-looking statements. There are a
number of important factors that could cause Avid's actual results to differ
materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth in "Certain Factors That
May Affect Future Results."
PART I
ITEM 1. BUSINESS
OVERVIEW
The Company develops, markets, sells and supports a wide range of software
and systems for digital media production, management and distribution. Digital
media are media elements, whether video, audio or graphics, in which the image,
sound or picture is recorded and stored as digital values, as opposed to analog,
or tape-based, signals. Our product and service offerings enable customers to
"Make, Manage and Move Media".
Make Media. To make media, we offer digital, nonlinear video and film
editing systems to enable customers to edit moving pictures and sound in a
faster, easier, more creative, and more cost-effective manner than by use of
traditional analog tape-based systems. (Nonlinear systems allow editors to
access material randomly rather than requiring them to work sequentially.) To
complement these nonlinear editing systems, we develop and sell a range of image
manipulation products that allow users in the video and film post-production and
broadcast markets to create graphics and special effects for use in feature
films, television shows and advertising, and news programs. The products include
3-D and special effects software products developed by our Softimage subsidiary.
We also offer digital audio systems through our Digidesign division.
Digidesign's audio systems have applications in music, film, television, video,
broadcast, streaming media, and web development, as well as in home and hobbyist
markets. These systems are based upon proprietary Digidesign/Avid audio
hardware, software, and control surfaces, and permit users to record, edit, mix,
process, and master audio in an integrated manner.
Manage Media. We provide complete network, storage, and database solutions
based on our Avid Unity MediaNet technology. This technology enables users to
share and manage media assets throughout a project or throughout an
organization. The ability to effectively manage digital media assets is a
critical component for success for many broadcast and media companies with
multiple product lines. Accordingly, we have designed our products to work
together in the network, storage, and database environment, allowing for the
sharing of data and increasing the effectiveness of our customers' workflow. Our
key technologies help our customers to reduce costs and increase the value of
their media assets by letting them easily and quickly "repurpose" or find new
uses or markets for their assets. We intend to increase our network based
services offerings and develop this area into an incremental revenue
opportunity.
Move Media. We offer products that allow customers to distribute their
final product. We believe that the Internet will become a significant new
content distribution channel and we are continuing to invest in this area. We
develop and sell Internet infrastructure products to support the broadcast of
streaming Internet video, and continue to integrate new capabilities into our
core products designed for the Internet environment, enabling Internet
publishing and Internet video and audio streaming capabilities. In addition, we
now provide technology for playback directly to air for broadcast television
applications.
Our products are used worldwide in production and post-production
facilities, film studios, network, affiliate, independent and cable television
stations, recording studios, advertising agencies, government and educational
institutions, corporate communication departments, and by Internet professionals
and hobbyists. Projects produced using our products--from major motion pictures
and prime-time television to music, video, and marquee recording artists--have
been honored with Oscar(R), Emmy(R), and Grammy(R) awards, as well as a host of
other international awards. (Oscar is a registered trademark and service mark of
the Academy of Motion Picture Arts and Sciences. Emmy is a registered trademark
of ATAS/NATAS. Grammy is a registered trademark of The National Academy of
Recording Arts and Sciences, Inc.)
2
DIGITAL MEDIA CONTENT MARKETS
Digital formats and tools have largely displaced analog processes in many
markets, such as word processing, electronic spreadsheets, desktop publishing,
graphics, and electronic and mechanical design. Because of more challenging
technical and cost hurdles in handling digital forms of film, video, and audio
signals, markets that rely on these media types have begun to migrate to digital
formats and tools only in recent years. As technical advances in digital media
content-creation tools have made this migration possible, users have become able
to create more complex content that can incorporate several elements of digital
media. For example, many video games now include live action video, detailed 3D
graphics, and high quality audio, all created, manipulated, and played back in
digital form. Feature films, such as "Crouching Tiger, Hidden Dragon," "The
Matrix," and "Gladiator," integrate sophisticated computer-generated special
effects into traditional live action shots.
We currently participate in two principal markets transitioning from
well-established analog content-creation processes to digital content-creation
tools. Both of these markets, video and film editing and effects and
professional audio, are beginning to use the Internet to collaborate and
distribute video and audio content.
Our video and film editing and effects market consists of professional
users, over-the-air and cable broadcast companies, and corporate, government,
and educational users. Professional users include independent production or
post-production companies that produce video and film material, such as feature
films, commercials, entertainment and documentary programming, industrial
videos, and music videos. Professional users also include professional character
animators and video game developers. Professional users are also found in
television facilities, film studios, and certain large corporations that perform
digital media production and post-production in-house. A wide variety of
companies originate news programming, including national and international
broadcasters, such as the British Broadcasting Corporation, the Cable News
Network, the American Broadcasting Company, and the National Broadcasting
Company, as well as network affiliates, local independent television stations,
web news providers and local and regional cable operators which produce news
programming. Users in corporations and various other institutional settings use
digital media content tools to distribute information enriched by the addition
of digital media content to their customers and employees.
Our professional audio market consists of professional music recording
studios, project studios, radio broadcasters, and home studios. Music recording
and project studios operate in the same manner as the independent production and
post-production firms described above. This market also includes audio
production and post-production in video and film.
ACQUISITIONS IN THE DIGITAL BROADCAST MARKET
We have made two recent acquisitions, which we believe strengthen our
position in the emerging digital newsroom and broadcast markets. In September
2000, we acquired the assets of Pluto Technologies International Inc., a
provider of video storage and networking solutions for broadcast, news,
post-production, and other markets requiring significant bandwidth capacity.
This acquisition complements our broadcast offerings and enables customers to
more easily adopt nonlinear technology for digital production, storage, and
delivery, particularly in broadcast news environments. Pluto products include
the AirSPACE product line of record and playback digital media servers. These
products permit broadcasters and news entities to manipulate and transmit
digital media directly to air. In January 2001, we acquired the remaining
membership units in AvStar Systems LLC, a joint venture that we had originally
established on a 50-50 basis with Tektronix, Inc. (which subsequently sold its
interest to Grass Valley Group, Inc.) to focus on developing the next generation
of newsroom computer systems products by combining both companies' newsroom
computer systems technology and certain personnel. (Since September 2000, AvStar
has been doing business as iNews, LLC.)
STRATEGY
Our mission is to be the leading provider of rich media creation tools and
services used to make, manage and move digital media. Our strategy consists of
four key elements:
Maintain a Leading Position in Existing Markets
We continue to focus on markets where digital media content creation
already takes place, and we believe we enjoy a leadership position in each of
these primary markets. These include professional video and film editing and
effects, including film and television studios and independent production and
post-production firms, the music and audio production and post-production
markets. We plan to strengthen these positions by enhancing our existing
products; by introducing new products that satisfy a broader range of customer
needs in these markets, through internal development, joint development with
third parties or through acquisitions; and by continuing to provide excellent
customer service, support and training.
3
Play a Major Role in Internet Publishing and Distribution
We believe that the Internet is one of the most important new content
distribution channels for corporate markets up to the highest-end
post-production. In 1999, we released Avid Unity MediaNet, a set of open
networking and central storage technologies that enable real-time simultaneous
sharing of high-bandwidth media. In 2000, we introduced the Trilligent Cluster,
a turnkey streaming media system with the ability to serve many simultaneous,
high-quality video and audio streams at a low cost to users, giving it the
potential to be an important component of the edge server Internet
infrastructure. (Edge servers enable the distribution of large amounts of rich
content - including streaming audio and video, large downloadable files, and
application services - over the Internet.) In 2000, we introduced a
comprehensive editing and publishing solution, Avid Xpress DV, which delivers
rich content-creation capabilities for the emerging Internet broadcast market.
Avid Xpress DV was developed as a turnkey DV-based video editing and publishing
solution for use on the IBM IntelliStation. In early 2001 we released this
product on the Dell platform, and we expect to release it on other hardware
platforms, as well as to release a software-only version later in 2001. Also in
2000, we enabled Internet publishing across our entire film and video editing
product line by including Internet streaming capabilities in our Media Composer
10.0, Symphony 3.0, NewsCutter Effects 2.0, NewsCutter XP 1.0, Avid Xpress 4.0,
and Avid Xpress DV products.
Extend Technology to Analog-Based Market Sectors
We believe that we have established unit and revenue market share
leadership positions in the professional video and film digital editing markets,
the digital audio market, and the markets for broadcast digital news editing. To
strengthen these positions and further increase our overall market share, we are
specifically targeting market sectors that are currently analog-based. As an
example, we believe that expansion opportunity exists in television on-line
editing, which is the final piece of the post-production process that today is
still mainly tape-based. We believe that because digital solutions more
efficiently and cost-effectively address the needs of this editing process than
their analog counterparts, tape will ultimately be replaced by digital
solutions. Market sectors that are primarily analog-based, and which we intend
to pursue, include broadcast news, corporate and industrial video, and audio
mixing, mastering and tracking.
Promote Interoperability of Avid Products and Develop Open and Integrated
Workflow Solutions
We design our products so that they are based on and can work with major
industry-wide standards, including computer platforms, operating systems,
networking protocols, data compression, and digital media handling formats. We
have been a leader in defining and developing the Advanced Authoring Format, or
AAF, a multimedia file format that enables content creators to easily exchange
digital media and information about the media, or metadata, across platforms and
between systems and applications. Derived from Avid's open media file
interchange (OMFI) technology and the work of a EBU/SMPTE Taskforce, a taskforce
comprised of members from the European Broadcasting Union and the Society of
Motion Picture and Television Engineers, the AAF saves time, simplifies project
management, and preserves valuable metadata that can be lost when transferring
media between applications. In February 2000, the AAF Association, a
broadly-based trade association that promotes the development and adoption of
AAF throughout the media industry, was founded by Avid, BBC, CNN, Turner
Entertainment Networks, Discreet Logic, Matrox, LTD, Microsoft, Pinnacle
Systems, Quantel, Sony, US National Imaging & Mapping Agency, and Four Media
Company (4MC, now Liberty Media).
In order to address the needs for collaboration and efficient workflow in
a wide-area network, or WAN, environment, we launched a new website, Avid
Production Network, or AvidProNet, which provides solutions-oriented content,
community, and services that extend and enhance our core product offerings. The
overall vision for this service is to develop Virtual Production Environment
services and products - integrated solutions that allow for content creation and
management of both workflow and assets from the Avid desktop to the WAN/Internet
and then back to the Avid desktop. The first of these services, AvidProNet
Review & Approval, or R&A, was launched in February 2001. R&A is the first
Internet, browser-based application for frame-accurate review and approval of
video and audio content which can be integrated directly into the editing
process. In addition, the website has served as a gathering place of choice for
the community of digital content-creation professionals, as well as a source of
industry information and services. We plan to launch Digidesign Production
Network (DigiProNet) during 2001. DigiProNet will be a full-featured service
center for audio professionals and is intended to complement AvidProNet.
4
PRODUCTS
The following lists our products within the two principal markets in which
they are sold. A description follows of the major products and product families
in each of these categories.
Video and Film Editing and Effects Products
Media Composer for Macintosh and Windows NT Platofrms
Our Media Composer product is a computer-based digital, nonlinear editing
system designed primarily for use by professional film and video editors. The
Media Composer system converts visual and audio source material from tape to a
digital format and stores the converted material on a range of hard disk storage
devices. Once digitized, the stored media can be previewed, edited, and played
back. The Media Composer family of products is used to create high-quality
productions such as television shows and commercials, feature films, music
videos, corporate videos, and other non-broadcast finished videos. The Media
Composer product line includes three models, the Media Composer Off-line, 1000
and 9000, which provide various levels of capability and functionality. The
Media Composer product is our original product offering and still accounts for a
significant portion of our revenues. We believe that the Media Composer product
line holds a greater unit market share than any other digital nonlinear editing
system in professional video editing markets.
Avid Symphony
The Avid Symphony product line offerings are on-line editing and finishing
systems targeted at high-end post-production such as primetime television
programs and nationally broadcast commercials. These products are designed to
finish high-end editorial projects, which are "off-lined", or put into a
narrative story format, on Media Composer and traditionally finished in a linear
suite. The Avid Symphony line uses the Windows NT operating system and delivers
all of the proven Media Composer editing functionality plus higher-end finishing
tools such as advanced scene-to-scene color correction and 24P Universal
Mastering.
Film Composer for Macintosh and Windows NT Platforms
The Film Composer product is a 24 frames-per-second, or fps, editing
system for projects that originate and finish on film. Film footage can be
converted to video signals for editing, but because video runs at different
speeds - 30 fps in the United States, and 25 fps in other countries - a standard
30 or 25 fps video editing system does not yield an accurate 24 fps film cut
list from which to edit a final master of the film. The Film Composer includes
software that determines which frames on the videotape are actual frames from
the film source material and allows the creation of a frame-accurate cut list.
The Film Composer software also includes special features to meet the specific
needs of film editors. We believe Film Composer holds a greater unit market
share than any other digital nonlinear editing system in professional film
editing markets.
Avid|DS
Originally developed by our Softimage subsidiary, the Avid|DS product is a
comprehensive, nonlinear production system for creating, editing, and finishing
effects-intensive short projects, such as commercials and music videos. It
combines a rich set of tools for video and audio editing, compositing, effects
generation, image treatment, and project management, all integrated within a
unified architecture and common user interface, running on the Windows NT
platform. With Avid|DS, digital artists have access to a comprehensive toolset
with the capability of processing uncompressed video, combined with a choice of
third-party hardware platforms. We released an HD version of Avid|DS in early
2001.
Avid Xpress for Macintosh and Windows NT Platforms
The Avid Xpress product is a digital, nonlinear video editing system
designed to meet the needs of media professionals and video/film educators
involved with video and multimedia production for a variety of distribution
mediums including videotape, CD-ROM and the Internet. Avid Xpress has a
streamlined user interface and editing model targeted for this category of user.
As a less expensive product than the Media Composer, Symphony, and Avid|DS
systems, Avid Xpress targets a broader potential customer base.
5
Avid Xpress DV for Windows NT Platforms
The Avid Xpress DV product is a digital, nonlinear video editing system
designed to offer the professional quality and sophistication of an Avid system
at a lower cost. Avid Xpress DV is designed to meet the needs of media
professionals, Internet video developers, and video/film educators involved with
video and multimedia production for a variety of distribution mediums including
videotape, CD-ROM and the Internet. Avid Xpress DV has a streamlined user
interface and editing model, and is targeted for DV-format based production
environments where cost is a major factor. We plan to release a laptop version
of Avid Xpress DV in 2001, which will bring portability to our industry leading
products.
NewsCutter Effects
Our NewsCutter Effects product is a computer-based digital, nonlinear
video editing system designed to meet the demands of television news production.
The NewsCutter Effects system uses the popular DVCPro media compression format
and is built on a Windows NT-based computer platform. NewsCutter Effects enables
broadcast news editors to edit news and news features. The user interface for
NewsCutter Effects has been designed for fast, easy editing to meet the
time-critical demands of daily news deadlines. Based on the same core technology
as the Media Composer system, the NewsCutter Effects system offers a range of
editing and effects features. NewsCutter Effects can operate as a stand-alone
editing system or in a news production workgroup with a playback system.
NewsCutter XP
Our NewsCutter XP product significantly expands the reach of the
NewsCutter product line, and has been designed as a nonlinear editing system
aimed primarily at the novice or non-editor news professional. This
journalist-editor workstation offers editing functionality, effects features,
and customizable computer desktop settings. To provide scalability, there is an
upgrade available from the NewsCutter XP to a full NewsCutter Effects should the
customer's work environment change. We plan to release a laptop version of this
product later in 2001.
Avid AirSPACE, VideoSPACE and HyperSPACE
Originally developed by Pluto Technologies International Inc., which we
acquired in the third quarter of 2000, AirSPACE, VideoSPACE and HyperSPACE
provide us with end-to-end broadcast solutions from ingest to editing, storage
and playback. These products have been among the industry's leaders in HDTV and
SDTV broadcast and post-production server solutions. When combined with
NewsCutter XP and the Avid Unity for News products, the AirSPACE product line is
becoming a preference among servers for news applications.
SOFTIMAGE|XSI
Our SOFTIMAGE|XSI product, which builds on our earlier SOFTIMAGE|3D
product and provides additional capabilities, is Avid's next generation
nonlinear animation system. This complete, versatile toolset is designed for
digital artists in the film, games, interactive, and broadcast industries.
SOFTIMAGE|XSI v.1.5 lays a foundation that allows the modern digital artist to
innovate, create, and collaborate in today's character generation marketplace.
SOFTIMAGE|XSI runs on Intel and AMD certified Windows NT and Windows 2000
platforms as well as IRIX platforms.
SOFTIMAGE|3D
Our SOFTIMAGE|3D product is a content creation tool for 3-D character
animation and special effects in the film, commercial, and games development
markets. SOFTIMAGE|3D features robust, production-proven organic modeling,
legendary character animation tools, and high-quality photorealistic rendering
and is well known for its intuitive, animation-oriented workflow. Tools are
specifically designed for integration into the overall production pipeline,
providing rapid, high-quality results to meet the most demanding deadlines.
SOFTIMAGE|3D runs on Intel and AMD-certified Windows NT, Windows 2000 and IRIX
platforms.
Storage Systems
We offer a family of media storage solutions for use with our systems.
Storage systems are used to add media editing or playback capacity, improve
image quality, support workgroup media sharing, and protect media from loss due
to hardware failure. We purchase disk drives, tape drives, and storage enclosure
sub-systems from third-party manufacturers, integrate them, enhance their
performance, test and certify them for use with our systems, and package them in
various configurations. These storage systems range in capacity from nine
gigabytes to well over five terabytes (5,000 gigabytes).
6
Avid Unity MediaNet
Avid Unity MediaNet is a set of open networking and central storage
technologies based on an advanced media file system that enables realtime,
simultaneous sharing of high-bandwidth media. Avid Unity MediaNet connects
editors, artists, sound designers, and effects specialists throughout a digital
facility to the same network, significantly improving workflow, raising
productivity, and enhancing creativity by eliminating many of the routine,
mechanical tasks associated with managing today's part-linear, part-nonlinear
post-production process. Included in Avid Unity MediaNet are advanced media
transfer utilities and server-assisted shared storage and networking
technologies, providing support for a wide range of applications and platforms.
Trilligent Cluster
The Trilligent Cluster is a turnkey streaming media system optimized to
reliably deliver high-bandwidth content over the Internet. Its high performance,
linear scalability, and ease-of-use capabilities allow streaming service
providers, content delivery networks, and content hosts to rapidly distribute
high quality, dynamic content over the Internet. The Trilligent Cluster is a
streaming Internet platform that supports up to 5,000 megabits per second
sustained streaming bandwidth and provides seven terabytes of on-line storage at
its full configuration. This power is equivalent to the live or on-demand
delivery of more than 10,000 unique 500k broadband streams and the on-line
storage of tens of thousands of hours of broadband content. At the core of the
Trilligent Cluster is distributed file server software running in conjunction
with a storage area network. This combination produces extremely high
performance and enables real-time, shared media access by eliminating the need
to replicate disks and manage content between media servers.
Professional Audio Products
Pro Tools
Developed by our Digidesign division, the Pro Tools product is a
multi-track, nonlinear digital audio workstation that runs on Mac OS- and
Windows-based personal computers. Pro Tools provides solutions for the entire
audio production process, including sound synthesis, recording, editing, signal
processing, integrated surround mixing, and mastering. Pro Tools users are in
the consumer, prosumer and professional music, film, television, radio,
multimedia, DVD, and Internet production markets. Digidesign offers Pro Tools in
a variety of configurations, ranging from Digi ToolBox and Digi 001 systems for
home music studios, to high-end Pro Tools|24 MIX and MIXplus systems for
professional music and post production. Pro Tools also supports a rich
development architecture, with more than 100 development partners providing
additional software and hardware solutions for the Digidesign platform.
ProControl
ProControl is Digidesign's high-quality, expandable hardware control
surface for hands-on access to the recording, editing, processing, and surround
mixing capabilities of Pro Tools software. ProControl connects to Pro Tools via
high-speed Ethernet, and allows full control of Pro Tools functions with its
patented faders and dedicated switches, character displays and knobs. With its
modular design, ProControl can be customized to fit any studio, providing from 8
channels to 48 channels of simultaneous control. The upcoming Edit Pack option
will integrate control of advanced editing and surround mixing features, and
make ProControl a comprehensive front end for professional Pro Tools systems. In
early 2001, Digidesign released Control|24, a control surface that combines
hands-on access to Pro Tools software features and high-quality microphone
preamplifiers from Focusrite Audio Engineering, Ltd., a leading manufacturer of
analog processing equipment. Control|24 communicates with Pro Tools via
Ethernet, and provides control of virtually every Pro Tools function. Control|24
is a 24-channel, fixed-size control surface, designed for music production and
broadcast applications.
AVoption and AVoption|XL
The AVoption and AVoption|XL products are hardware options for Pro Tools
systems that allow the user to record, edit and process sound synchronized with
Avid-format, nonlinear digital video. Designed for post production professionals
working in film, TV, and video, these options enable capture, playback, and
basic editing of broadcast-quality picture from projects originating on Avid
Media Composer, Film Composer and Symphony systems. AVoption and AVoption|XL
also include DigiTranslator, a software utility that provides users with a high
level of media and metadata interchange with any Avid-compatible system.
7
SALES AND SERVICE
We market and sell our solutions through a combination of direct and
indirect sales channels, covering a range of industries that Make, Manage and
Move Media in the United States, Europe, Asia and throughout the world.
From our traditional stronghold in the high-end post-production market to
broadcast news, low-cost post-production, and streaming media solutions, we
ensure balanced market and geographic sales coverage. Our products are sold
primarily through a network of more than 450 independent distributors,
value-added resellers and dealers. These channels are supplemented by a team of
Avid sales representatives directly serving select customers and markets.
We also provide both direct and indirect customer support. Our customers
are served directly through regional telephone support centers and major-market
field service representatives, supplemented by strategically located dealers,
value-added resellers and authorized third-party service providers. Customers
may choose from a variety of support offerings, including 24 hour telephone
support, quick-response on-site assistance, hardware replacement and software
upgrades. Customer training is available directly from us or through field-based
authorized third-party Avid training centers.
MANUFACTURING AND SUPPLIERS
Our manufacturing operations consist primarily of the testing of
subassemblies and components purchased from third parties, the duplication of
software, and the configuration, assembly and testing of board sets, software,
related hardware components, and complete systems. We also rely on independent
contractors to manufacture components and subassemblies to our specifications.
Our systems undergo testing and quality assurance at the final assembly stage.
We are dependent on a number of sole source vendors for certain key
hardware components of our products. These components include: (i) video
compression chips manufactured by C-Cube Microsystems; (ii) a small computer
systems interface ("SCSI") accelerator board from ATTO Technology; (iii) a 3D
digital video effects board from Pinnacle Systems; (iv) application specific
integrated circuits ("ASICS") from Chip Express and LSI Logic; (v) digital
signal processing integrated circuits from Motorola; (vi) a fibre channel
adapter card from JNI; (vii) a fibre channel storage array from the Clariion
division of EMC; (viii) a PCI expansion chassis from SBS Technologies, Inc.;
(ix) a fixed programmable gate array from Quicklogic; (x) digital to analog and
analog to digital converter integrated circuits from Cirrus Logic; (xi) a
peripheral component interconnect bridge integrated circuits from Intel Corp.;
and (xii) analog switches and op amps from Analog Devices. (The Company also
manufactures certain circuit boards under license from a subsidiary of Pinnacle
Systems.) For the risks associated with our reliance upon certain vendors,
please see "Certain Factors that May Effect Future Results" below.
We have manufacturing facilities in Tewksbury, Massachusetts; Dublin,
Ireland; Boulder, Colorado; Madison, Wisconsin; and Palo Alto and Menlo Park,
California. The Company has also contracted with third-party manufacturing
facilities for certain component parts.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on the development of
digital media content-creation tools and workgroup solutions that operate on
Windows NT-based, IRIX-based, and Apple computers. This includes the development
and enhancement of best-in-class video, film, 3-D animation, and audio editing
systems to meet the needs of professionals in the television, film, music,
broadcast news production, and industrial post-production markets, and of
end-users in the educational and corporate markets. As these digital tools
proliferate, all-digital production cycles are becoming possible. Our research
and development efforts therefore also include networking and storage
initiatives to deliver standards-based media transfer and media asset management
tools, as well as standalone and network-attached media storage systems for
workgroups. Increasingly, we design our systems to be Internet-enabled with
technology for encoding and streaming media to the Internet. Our research and
development operations are in Tewksbury, Massachusetts; Palo Alto, Santa Clara,
and Santa Monica, California; Boulder, Colorado; Madison, Wisconsin; and
Montreal, Canada.
8
COMPETITION
The markets for our products are highly competitive and subject to rapid
change. Competition is fragmented with a large number of suppliers providing
different types of products to different markets.
In the video and film editing and effects market, we encounter competition
primarily from vendors that offer similar digital production and post-production
editing, effects, and animation products based on standard computer platforms.
Our competitors in the digital production and post-production editing and
effects markets include Discreet Logic (a division of Autodesk, Inc.), Media 100
Inc., Apple Computer, Quantel, Alias/Wavefront (a subsidiary of Silicon
Graphics), Panasonic (a subsidiary of Matsushita), Pinnacle Systems, Inc., and
Sony Corporation. Our animation competitors include Discreet, Alias/Wavefront,
and NewTech. We also compete with vendors that offer editing and effects
products for originators of broadcast news. Our broadcast competitors include
Associated Press, Sony, Panasonic, Grass Valley, and Leitch. In the storage
market, our competitors include EMC, Transoft (HP), Medea, Rorke Data, and Jems
Data. We also compete with vendors that generally have offered analog-based
products, such as Sony and Matsushita. We expect that competition from these
vendors will increase to the extent that such vendors develop and introduce
digital media products.
In the professional audio market, we compete primarily with traditional
analog and digital recording and/or mixing system suppliers including Alesis,
Euphonix, Mackie Designs, and Yamaha as well as other disk-based digital audio
system suppliers including Fairlight, Roland, Steinberg, Studio/Audio/Video
(SADie), and others. In addition, companies such as Creative Technology
currently provide low-cost (under $500) digital audio playback cards targeted
primarily at the personal computer game market. There can be no assurance that
these companies will not also introduce products that are more directly
competitive with our products.
We may also face competition in one or both of these markets in the future
from computer manufacturers, such as Compaq, Apple, Accom, Hewlett-Packard, IBM,
EMC, and Silicon Graphics, as well as from software vendors, such as Oracle and
Sybase. All of these companies have announced their intentions to enter some or
all of our target markets, including, specifically, the broadcast news and
special effects sectors of the video and film editing and effects market. In
addition, certain developers of shrink-wrapped digital media software products,
such as Adobe and Macromedia, either offer or have announced video and audio
editing products which may compete with certain of our products.
The primary competitive factors in all of our market sectors are
price/performance, functionality, product quality, reputation, product line
breadth, access to distribution channels, customer service and support, brand
name awareness, and ease of use.
EMPLOYEES
The Company employed 1,629 people as of December 31, 2000.
ITEM 2. PROPERTIES
The Company's principal administrative, sales and marketing, research and
development, support, and manufacturing facilities are located in three adjacent
buildings in an office park located in Tewksbury, Massachusetts. Our leases on
these buildings expire in June 2010. In September 2000, we arranged to sublease
a portion of this space to an unrelated company. The sublease expires in 2003.
We also lease facilities in Dublin, Ireland, Boulder, Colorado, Madison,
Wisconsin, and Palo Alto and Menlo Park, California for the manufacture and
distribution of our products. We currently lease office space in Palo Alto,
California housing our Digidesign headquarters, including administrative and
research and development activities, and have recently negotiated an 8-year
lease for space in Daly City, California to house these activities commencing in
the third quarter of 2001.
Additionally, we lease a facility in Montreal, Canada, which houses
certain administrative, research and development, and support operations.
In September 1995, our United Kingdom subsidiary entered into a 15-year
lease in London, England. We vacated this property in 1999 as part of our
corporate restructuring actions, and have currently sublet all of this space. We
also maintain sales and marketing support offices in leased facilities in
various other locations throughout the world.
We anticipate that our leased facilities will be adequate for our needs
during 2001.
9
ITEM 3. LEGAL PROCEEDINGS
On June 7, 1995, we filed a patent infringement complaint in the United
States District Court for the District of Massachusetts against Data
Translation, Inc. (now known as Media 100), a Marlboro, Massachusetts-based
company. We are seeking judgment against Data Translation that, among other
things, Data Translation has willfully infringed our patent number 5,045,940,
entitled "Video/Audio Transmission System and Method." We are also seeking an
award of treble damages together with prejudgment interest and costs, our costs
and reasonable attorneys' fees, and an injunction to prohibit further
infringement by Data Translation. The litigation has been dismissed without
prejudice (with leave to refile), pending a decision by the U.S. Patent and
Trademark Office on a reissue patent application based on the issued patent.
On March 11, 1996, we were named as a defendant in a patent infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, the suit was transferred to the United States
District Court for the Southern District of New York. The complaint alleges
infringement by us of U.S. patent number 4,258,385, issued in 1981, and seeks
injunctive relief, treble damages and costs, and attorneys' fees. We believe
that we have meritorious defenses to the complaint and intend to contest it
vigorously. However, an adverse resolution of this litigation could have an
adverse effect on our consolidated financial position or results of operations
in the period in which the litigation is resolved. No costs have been accrued
for this possible loss contingency.
In March 1999, we and Tektronix, Inc. were sued by Glen Holly
Entertainment, Inc., a Tektronix distributor, claiming that Tektronix's
discontinuance of its Lightworks product line was the result of a strategic
alliance by Tektronix and Avid. Glen Holly has raised antitrust and other common
law causes of action against us, and seeks lost future profits, treble damages,
attorneys' fees, and interest. The case is currently in discovery and trial has
been set for June 2001. We view the complaint as without merit and intend to
defend ourselves vigorously. However, an adverse resolution of this litigation
could have an adverse effect on our consolidated financial position or results
of operations in the period in which the litigation is resolved. No costs have
been accrued for this possible loss contingency.
We receive inquiries from time to time with regard to possible patent
infringement claims. These inquiries are generally referred to counsel. If any
infringement is determined to exist, we may seek licenses or settlements. In
addition, as a normal incidence of the nature of our business, various claims,
charges, and litigation have been asserted or commenced against us arising from
or related to contractual or employee relations or product performance. We do
not believe such claims will have a material adverse effect on the financial
position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of the fiscal year ended December 31, 2000.
10
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is (i) the name and age of each present executive officer of the
Company; (ii) the position(s) presently held by each person named; and (iii) the
principal occupation held by each person named for at least the past five years.
EXECUTIVE OFFICER AGE POSITION(S)
David Krall 40 President and Chief Executive Officer
Paul J. Milbury 52 Vice President and Chief
Financial Officer
David R. Froker 45 Vice President and General
Manager, Digidesign
Joseph Bentivegna 40 Vice President and General Manager,
Avid Media Solutions
Charles L. Smith 40 Vice President of Worldwide Sales,
Marketing & Service
Michael J. Rockwell 34 Vice President and General Manager,
Avid Internet Solutions, Chief
Technology Officer
Carol L. Reid 53 Vice President and Corporate Controller
Ethan E. Jacks 47 Vice President of Business Development,
Chief Legal Officer and Corporate
Secretary
- --------------------
DAVID KRALL. Mr. Krall is currently the Company's President (appointed in
October 1999) and Chief Executive Officer (appointed in April 2000). Previously
he served as Avid's Chief Operating Officer from October 1999 to April 2000.
Prior to that, Mr. Krall served in various capacities at Digidesign: Chief
Operating Officer of Digidesign from July 1998 to October 1999, Vice President
of Engineering from June 1996 to July 1998 and Director of Program Management
from May 1995 to June 1996.
PAUL J. MILBURY. Mr. Milbury was appointed Vice President and Chief Financial
Officer in December 2000. Prior to that time, he was Chief Financial Officer of
iBelong.com, Inc. from April 2000 to December 2000, and of JuniorNet Corporation
from October 1998 to April 2000. Mr. Milbury also spent 19 years at Digital
Equipment Corporation (now Compaq Computer Corporation) where in 1995 he became
Vice President and Treasurer.
DAVID R. FROKER. Mr. Froker has been Vice President and General Manager of
Digidesign since January 1997. Prior to serving in his present position, Mr.
Froker served in various capacities at Digidesign: General Manager from May 1996
to January 1997, Vice President Product Marketing from September 1995 to May
1996, and Vice President, Business Development from May 1994 to September 1995.
From November 1987 to July 1993 Mr. Froker held various positions in Product
Marketing and Business Strategy for Amdahl, a maker of mainframe computers and
storage peripherals.
JOSEPH BENTIVEGNA. In June 2000 Mr. Bentivegna was appointed Vice President and
General Manager of Avid Media Solutions. Prior to June 2000 he held several
other positions at Avid including Vice President of Worldwide Operations from
January 1999 to June 2000, Vice President and General Manager of Asia Operations
from September 1998 to January 1999 and Vice President of Worldwide
Manufacturing from June 1996 to September 1998. From November 1991 to June 1996
Mr. Bentivegna held various other positions at Avid. Prior to that he held
various positions in operations for Access Technology, Inc., a developer of
application software.
11
CHARLES L. SMITH. Mr. Smith was appointed Vice President of Worldwide Sales and
Marketing in November 1999. Prior to serving in his present position, Mr. Smith
served in various capacities at Digidesign: Vice President of Sales and
Marketing from October 1996 to November 1999, Vice President of International
Sales from August 1995 to October 1996, and Managing Director Digidesign UK from
May 1993 to August 1995.
MICHAEL J. ROCKWELL. Mr. Rockwell was appointed Vice President and General
Manager of Avid Internet Solutions in June 2000, and Chief Technology Officer of
Avid in February 2000. Prior to that, Mr. Rockwell had served as Chief Architect
for Software Engineering of Digidesign, from January 1997 to November 1999.
Prior positions with Digidesign were Director of Application Development from
March 1995 to January 1997 and Director of Multi-Media Products from April 1994
to March 1995.
CAROL L. REID. Ms. Reid joined Avid in November 1998 as Vice President and
Corporate Controller. Prior to joining the Company, Ms. Reid spent 20 years at
Digital Equipment Corporation (now Compaq Computer Corporation), where she was
Vice President of Internal Audit from January 1998 to November 1998 and
Assistant Treasurer/Director from October 1994 to January 1998.
ETHAN E. JACKS. Since April 2000, Mr. Jacks has served as Vice President of
Business Development and Chief Legal Officer. From April 2000 to December 2000
he also served as Acting Chief Financial Officer. Mr. Jacks joined the Company
in March 1999 as Vice President of Business Development and General Counsel.
Prior to joining Avid, he was a Vice President and General Counsel for Molten
Metal Technology, Inc. from November 1991 to October 1998. Mr. Jacks was also
engaged in the private practice of law for eleven years, including as a partner
at McDermott, Will & Emery.
There are no family relationships among the named officers.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the Nasdaq National Market under the symbol
AVID. The table below shows the high and low sales prices of the common stock
for each calendar quarter of the fiscal years ended December 31, 2000 and 1999.
2000 High Low
---- ------- -------
First Quarter $24.500 $11.438
Second Quarter $20.563 $9.375
Third Quarter $15.438 $10.063
Fourth Quarter $21.000 $13.359
1999 High Low
---- ------- -------
First Quarter $34.250 $17.000
Second Quarter $22.000 $12.500
Third Quarter $18.938 $12.000
Fourth Quarter $15.438 $10.000
The approximate number of holders of record of our common stock at March
19, 2001, was 572. This number does not include shareholders for whom shares
were held in a "nominee" or "street" name.
We have never declared or paid cash dividends on our capital stock and
currently intend to retain all available funds for use in the operation of our
business. We do not anticipate paying any cash dividends in the foreseeable
future.
13
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected condensed consolidated
financial data. Included in our financial statements and selected financial data
are the results of operations of Softimage, which we acquired on August 3, 1998.
This acquisition was accounted for as a purchase and, accordingly, the results
of operations of Softimage are included as of the date of acquisition. The
selected consolidated financial data below should be read in conjunction with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this filing.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
In thousands (except per share data)
For the Year Ended December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------
Net revenues $476,090 $452,555 $482,377 $471,338 $429,009
Cost of revenues 234,424 205,877 190,249 221,553 238,808
---------- ---------- ---------- ---------- ----------
Gross profit 241,666 246,678 292,128 249,785 190,201
---------- ---------- ---------- ---------- ----------
Operating expenses:
Research and development 82,900 88,932 88,787 73,470 69,405
Marketing and selling 119,469 129,889 125,280 120,394 127,006
General and administrative 27,504 28,147 28,549 25,808 24,203
Restructuring and other costs 14,469 28,373 28,950
Amortization of acquisition-related intangible assets 66,872 79,879 34,204
---------- ---------- ---------- ---------- ----------
Total operating expenses 296,745 341,316 305,193 219,672 249,564
---------- ---------- ---------- ---------- ----------
Operating income (loss) (55,079) (94,638) (13,065) 30,113 (59,363)
Other income and expense, net 3,730 3,459 8,636 8,125 3,416
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (51,349) (91,179) (4,429) 38,238 (55,947)
Provision for (benefit from) income taxes 5,000 46,369 (796) 11,854 (17,903)
---------- ---------- ---------- ---------- ----------
Net income (loss) ($56,349) ($137,548) ($3,633) $26,384 ($38,044)
========== ========== ========== ========== ==========
Net income (loss) per common share - basic ($2.28) ($5.75) ($0.15) $1.14 ($1.80)
========== ========== ========== ========== ==========
Net income (loss) per common share - diluted ($2.28) ($5.75) ($0.15) $1.08 ($1.80)
========== ========== ========== ========== ==========
Weighted average common shares outstanding - basic 24,683 23,918 23,644 23,065 21,163
========== ========== ========== ========== ==========
Weighted average common shares outstanding - diluted 24,683 23,918 23,644 24,325 21,163
========== ========== ========== ========== ==========
CONSOLIDATED BALANCE SHEET DATA:
In thousands
As of December 31,
--------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------
Working capital $96,585 $70,344 $118,965 $186,474 $145,320
Total assets 266,482 312,024 486,715 356,805 300,979
Long-term obligations 13,449 14,220 13,261 403 1,186
Total stockholders' equity 137,850 167,923 290,311 241,794 213,415
14
SUPPLEMENTAL PRO FORMA INFORMATION:
The following table presents pro forma operating income (loss), excluding
the impact of restructuring and other costs and amortization of
acquisition-related intangible assets.
In thousands:
For the Year Ended December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
Pro forma operating income (loss),
excluding restructuring and other costs
and amortization of acquisition-related
intangible assets $11,793 ($290) $49,512 $30,113 ($30,413)
======== ======== ======== ======== ========
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, markets, sells and supports a wide range of software
and systems for digital media production, management and distribution. Digital
media are media elements, whether video or audio or graphics, in which the
image, sound or picture is recorded and stored as digital values, as opposed to
analog, or tape-based, signals.
In August 1998, we acquired the business of Softimage Inc. ("Softimage").
The acquisition was recorded as a purchase and, accordingly, the results of
Softimage are included in our financial statements as of the acquisition date.
During the fourth quarter of 1999, we announced and implemented a
restructuring plan to strategically refocus our business and bring operating
expenses in line with net revenues, with the goal of restoring long-term
profitability to the Company. The process included a re-evaluation of our core
competencies, technology plan, and business model, and was completed in tandem
with the development of our fiscal 2000 operating plan. The restructuring plan
resulted in a charge of approximately $9.6 million related to the termination of
209 employees, or 11% of our workforce, and the vacating of certain facilities,
as well as the discontinuation of a limited number of products.
RESULTS OF OPERATIONS
The following table sets forth certain items from our consolidated
statements of operations as a percentage of net revenues for the periods
indicated:
For the Year Ended December 31,
--------------------------------
2000 1999 1998
--------------------------------
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 49.2% 45.5% 39.4%
--------- --------- ---------
Gross profit 50.8% 54.5% 60.6%
--------- --------- ---------
Operating expenses:
Research and development 17.4% 19.7% 18.4%
Marketing and selling 25.1% 28.7% 26.0%
General and administrative 5.8% 6.2% 5.9%
Restructuring and other costs 3.2% 5.9%
Amortization of acquisition-related
intangible assets 14.0% 17.7% 7.1%
--------- --------- ---------
Total operating expenses 62.3% 75.5% 63.3%
--------- --------- ---------
Operating loss (11.5%) (21.0%) (2.7%)
Other income and expense, net 0.8% 0.8% 1.8%
--------- --------- ---------
Loss before income taxes (10.7%) (20.2%) (0.9%)
Provision for (benefit from) income
taxes 1.1% 10.2% (0.2%)
--------- --------- ---------
Net loss (11.8%) (30.4%) (0.7%)
========= ========= =========
Excluding amortization of acquisition-related intangible assets and, in
1999 and 1998, restructuring and other costs, pro forma operating income (loss)
was 2.5%, (0.1%) and 10.3% of net revenues in 2000, 1999 and 1998, respectively.
Net Revenues
Our net revenues have been derived mainly from the sales of computer-based
digital, nonlinear media editing systems and related peripherals, licensing of
related software, and sales of related software maintenance contracts. Net
revenues increased 5.2% from $452.6 million in 1999 to $476.1 in 2000. Net
revenues decreased 6.2% to $452.6 million in 1999 from $482.4 million in 1998.
16
The increase in net revenues during 2000 was attributable primarily to
Digidesign audio products which had a revenue increase of $30.9 million
year-over-year. This increase at Digidesign was primarily attributable to the
Digi 001 product, which was introduced in late 1999, and distribution of
third-party audio-related and Pro Tools compatible products. Other products that
contributed to the overall increase were Media Composer upgrades and a full year
of sales of Avid Unity MediaNet, introduced in mid 1999, Avid Xpress DV,
introduced in early 2000, and Trilligent Cluster, introduced in mid 2000. These
increases were offset by reductions in sales of Media Composer systems, local
storage, Symphony systems, and service revenues. The decrease in net revenues
during 1999 was attributable to several product families, including Media
Composer, Avid Xpress, broadcast products, customer service, graphics and
effects, and local storage products. These declines were partially offset by
increases in sales of Avid Symphony, which was introduced in late 1998, Avid
Unity MediaNet, SOFTIMAGE|DS, SOFTIMAGE|3D and Digidesign products. There was
also a significant decrease in Macintosh-based unit sales in 1999 which was only
partially offset by the introduction of Windows NT-based products.
During 2000, we began shipping several new products and version updates of
existing products, including Avid Xpress DV on IBM IntelliStation for the
Windows NT platform, SOFTIMAGE|XSI, Avid Symphony 3.0, Media Composer 10.0,
Trilligent Cluster, Avid ePublisher, Avid Unity for News, NewsCutter Effects
v2.0, AirSPACE, VideoSPACE and HyperSPACE. During 1999, we introduced two new
products, Avid Unity MediaNet 1.0 and Digi 001. Additionally, in 1999, we
introduced several version updates of existing products, including Media
Composer 9.1 for the Windows NT platform, Media Composer XL 8.1 for the
Macintosh platform, Avid Xpress 3.1 for the Windows NT platform, Avid Xpress 3.1
for the Macintosh platform, Avid NewsCutter 1.5, Avid Symphony 2.1, Avid Unity
MediaNet 1.1, Softimage DS 3.0, Pro Tools 5.0 and Pro Tools 5.0 LE for the
Windows NT platform, SOFTIMAGE|3D 3.8 SP2 and Media Illusion 6.0.
Net revenues derived through indirect channels were approximately 85% for
2000, compared to 89% of net revenue for 1999 and 77% of net revenue for 1998.
International sales (sales to customers outside the United States and
Canada) accounted for 51.1% of our 2000 net revenues, compared to 51.3% for 1999
and 49.3% for 1998. International sales increased by approximately $11.3 million
or 4.9% in 2000 compared to 1999 and decreased by approximately $5.8 million or
2.4% in 1999 compared to 1998. The increase in international sales for 2000
compared to 1999 reflected increases in the Asia Pacific region primarily and,
to a lesser extent, Latin America, partially offset by decreases in Europe. The
slight decrease in international sales for 1999 compared to 1998 reflected
decreases in Europe and Latin America, partially offset by increases in the Asia
Pacific region.
Gross Profit
Cost of revenues consists primarily of costs associated with the
procurement of components; the assembly, test, and distribution of finished
products; warehousing; post-sales customer support costs; and provisions for
inventory obsolescence. The resulting gross profit fluctuates based on factors
such as the mix of products sold, the cost and proportion of third-party
hardware included in the systems sold by the Company, the 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, and sales of aftermarket hardware products. Gross margin
decreased to 50.8% in 2000 compared to 54.5% in 1999, which had decreased from
60.6% in 1998. The decrease during 2000 reflects the impact of currency
fluctuations, primarily a weakening of the euro resulting in lower U.S. dollar
equivalent revenue, a shift to lower-margin products and upgrades, price
discounts and other sales promotion programs, offset by efficiencies in
manufacturing. The decrease during 1999 was primarily due to price reductions in
certain product lines, as well as to discounting and promotions offered. In
addition, there was a shift in mix to lower margin product families and lower
priced models within product families.
Research and Development
Research and development expenses decreased by $6.0 million, or 6.8%, in
2000 compared to 1999 and increased by $145,000, or 0.2%, in 1999 as compared to
1998. The decrease in expenditures in 2000 was primarily the result of
restructuring actions implemented in late 1999. Spending reductions were
realized in personnel and occupancy costs which were offset by investments in
several new initiatives, including Avid Internet Solutions (AIS, a newly created
division offering a turnkey media system optimized to deliver high-bandwith
content over the Internet), AvidProNet (APN) and the broadcast business, as well
as the Digidesign audio business and lower-end products such as Avid Xpress DV.
The increase in expenditures in 1999 was primarily due to a full twelve months
of Softimage costs compared to five months of costs in 1998, as well as the
creation of a new engineering department to develop Avid Unity MediaNet,
partially offset by reductions in other personnel-related expenditures and in
discretionary spending. Research and development expenses decreased as a
percentage of net revenues to 17.4% in 2000 from 19.7% in 1999 primarily due to
our restructuring actions, coupled with an increased revenue base in 2000.
Research and development expenses increased as a percentage of net revenues to
19.7% in 1999 from 18.4% in 1998 primarily due to the lower annual revenue in
1999.
17
Marketing and Selling
Marketing and selling expenses decreased by $10.4 million, or 8.0%, in
2000 compared to 1999 and increased by $4.6 million, or 3.7%, in 1999 compared
to 1998. The decrease in expenditures in 2000 was primarily the result of
restructuring actions implemented in late 1999. Spending reductions were
realized in personnel, occupancy and marketing related costs. These reductions
were slightly offset by investments in several new initiatives, most notably
AIS. The increased expenditures in 1999 were primarily due to a full twelve
months of Softimage costs compared to five months of costs in 1998, as well as
significant increased expenditures in the professional audio business related to
new product launches during the year. These increases were partially offset by
reductions in personnel-related expenditures in our video and film editing and
effects business. Marketing and selling expenses decreased as a percentage of
net revenues to 25.1% in 2000 from 28.7% in 1999 primarily due to the
aforementioned restructuring actions, coupled with an increased revenue base in
2000. Marketing and selling expenses increased as a percentage of net revenues
to 28.7% in 1999 from 26.0% in 1998 primarily due to the lower annual revenue in
1999.
General and Administrative
General and administrative expenses decreased by $0.6 million, or 2.3%, in
2000 compared to 1999 and decreased by approximately $0.4 million, or 1.4%, in
1999 compared to 1998. The decrease in expenses in 2000 primarily represents
reduced personnel related costs related to restructuring actions implemented in
late 1999, consulting fees, legal fees and travel. These reductions were
partially offset by executive severance benefits, profit sharing expense and
retention programs. The decrease in expenses in 1999 was primarily related to
personnel related costs, partially offset by a full twelve months of Softimage
costs in 1999 compared to five months of costs in 1998. General and
administrative expenses decreased as a percentage of net revenues to 5.8% in
2000 from 6.2% in 1999 and from 5.9% in 1998. The percentage decrease in 2000
was related to reduced spending due to the restructuring actions and an
increased revenue base; the increase in percentage of net revenues in 1999 was
primarily due to lower annual revenues.
Restructuring and Other Costs
During the fourth quarter of 1999, we incurred and recorded a $9.6 million
restructuring charge, a charge of $2.0 million related to the sale of our
Italian subsidiary and a charge of $2.9 million related to contractually
obligated employment costs for executive officers who resigned from the company.
During 1998, we incurred other charges of $28.4 million relating to in-process
research and development in connection with the August 1998 acquisition of the
business of Softimage.
In December 1999, we announced and implemented a restructuring plan to
strategically refocus the company and bring operating expenses in line with net
revenues, with the goal of restoring long-term profitability and supporting our
new strategic initiatives. The process included a re-evaluation of our core
competencies, technology plans and business model, and was completed in tandem
with development of our fiscal 2000 operating plan. The major elements of the
restructuring plan included the termination of certain employees and the
vacating of certain facilities. The plan also provided for no further releases
of a limited number of existing product offerings, including stand-alone
Marquee, Avid Cinema, Media Illusion and Matador. In connection with this plan,
we recorded a restructuring charge of $9.6 million. The charge included
approximately $6.6 million for severance and related costs for 209 employees on
a worldwide basis, $2.4 million for facility vacancy costs and approximately
$0.6 million of non-cash charges relating to the disposition of certain fixed
assets that would no longer be used. At the time of the charge, the Company
expected that these restructuring actions would result in an expense reduction
of approximately $18.0 million on an annualized basis. During 2000, we made cash
payments of $4.7 million, of which $4.0 million was related to personnel costs
and $0.7 million was facilities related. During 1999, we made cash payments of
$2.5 million related to these restructuring activities. The remaining accrual
balance at December 31, 2000 was $1.9 million, the majority of which relates to
estimated losses on office space in the United Kingdom which we vacated and
sublet.
In December 1999, we entered into an agreement to sell our Italian
subsidiary to a third party, which established the entity as a distributor of
Avid products. The sale was completed in the first quarter of 2000. We incurred
and recorded a loss of approximately $2.0 million relating to the sale,
including a reserve of $1.0 million for our guarantee of the new entity's line
of credit with a bank which ended January 31, 2001. The sale of the subsidiary
was done to reduce our operating expenses, while maintaining a productive and
profitable presence in the Italian marketplace.
In December 1999, in connection with the resignation of two executive
officers, we incurred and recorded a charge of $2.9 million for termination
benefits as specified in the employment contracts of the officers. To date, cash
payments of approximately $1.6 million have been made and, at December 31, 2000,
the related accrual was approximately $1.3 million. This remaining obligation is
expected to be paid in 2001.
18
In connection with the August 1998 acquisition of the business of
Softimage, we allocated $28.4 million to in-process research and development.
In-process research and development represents development projects in areas
that have not reached technological feasibility and have no alternative future
use. Accordingly, $28.4 million was expensed as of the acquisition date and was
reflected as a special charge to operations in 1998. The amounts allocated to
acquired in-process research and development were based on results of an
independent appraisal. The values of in-process research and development were
determined using a risk-adjusted, discounted cash flow approach.
In-process research and development projects identified at the acquisition
date included next-generation three-dimensional modeling, animation and
rendering software, and new graphic, film and media management capabilities for
effects-intensive, on-line finishing applications for editing. A description of
each project follows:
o Next Generation Three-Dimensional Modeling, Animation and Rendering Software.
The efforts required to develop this project into a commercially viable
product principally relate to completion of the animation and real-time
playback architecture, completion and integration of architectural software
components, validation of the resulting architecture, and finalization of the
initial feature set. As of the acquisition date, we had assessed that the
overall project was 81% complete and calculated a value of $25.7 million for
this in-process research and development. The estimated costs to complete
this project as of the acquisition date were $5.1 million. We actually
incurred approximately $12.9 million on this project through May 2000, at
which time the product, SOFTIMAGE|XSI 1.0, was released. Total development
costs to complete this project were higher than originally anticipated due to
challenges encountered in the development process which caused a significant
delay in the release of the product.
o New Graphics, Film and Media Management Capabilities for Effects-Intensive,
On-line Finishing. The efforts required to develop this project into a
commercially viable product related principally to the rebuilding of the
framework architecture, the rewriting of software code of the compositing
engine to accommodate significant new features, and the rewriting of software
code of the titling component. As of the acquisition date, we had assessed
that the overall project was 6% complete and calculated a value of $2.7
million for this in-process research and development. The estimated costs to
complete this project as of the acquisition date were $3.8 million. The
project was completed in December 1999 at a cost of approximately $7.8
million. Development costs were higher than originally anticipated due to the
addition of features and functionality, which expanded the scope of the
original project.
The value of in-process research and development, specifically, was
determined by estimating the costs to develop the in-process projects into
commercially viable products, estimating the resulting net cash flows from such
projects, discounting the net cash flows back to their present values, and
adjusting that result to reflect each project's stage of completion. The
expected cash flows of the in-process projects were adjusted to reflect the
contribution of completed and core technologies. At the time of acquisition,
total revenues from these in-process projects were forecasted to peak in 2002
and then to decline from 2002 to 2004 as new products were expected to be
introduced by the Company. These revenue forecasts were based on management's
estimate of market size and growth, expected trends in technology, and the
expected timing of new product introductions. A discount rate of 21% was used
for valuing the in-process research and development. The discount rate was
higher than our implied weighted average cost of capital due to the inherent
uncertainties surrounding the successful development of the in-process research
and development and the related risk of realizing cash flows from products that
have not yet reached technological feasibility, among other factors.
Amortization of Acquisition-related Intangible Assets
In connection with the August 1998 acquisition of the business of
Softimage, we allocated $127.8 million to goodwill and $88.2 million to
intangible assets consisting of completed technologies, workforce, and trade
name. Included in the operating results for 2000, 1999 and 1998 is amortization
of these intangible assets and goodwill of $66.5 million, $79.9 million, and
$34.2 million, respectively. (See Note F to the Consolidated Financial
Statements). During 1999, a balance sheet purchase accounting adjustment was
recorded which decreased goodwill by approximately $6.9 million. The balance of
the intangible assets, including goodwill, was $28.5 million at December 31,
2000. The remaining $28.5 million is expected to be amortized through July 2001.
The amounts allocated to identifiable tangible and intangible assets were
based on results of an independent appraisal. The values of completed
technologies were determined using a risk-adjusted, discounted cash flow
19
approach. As of the acquisition date, total revenues from the completed
technologies were forecasted to peak in 1999 and to decline through 2001. The
Company discounted the net cash flows of the completed technologies to their
present value using a discount rate of 16%.
Other Income and Expense, Net
Other income and expense, net, consists of interest income, interest
expense and, in 2000, equity in income of non-consolidated companies. During
2000, other income and expense, net, increased to $3.7 million from $3.5 million
in 1999. The increase was primarily related to an increase in income related to
non-consolidated companies which was partially offset by an increase in interest
expense. Other income and expense, net, of $3.5 million for 1999 decreased
approximately $5.2 million from 1998 due to reduced interest income from reduced
cash and investment balances during the period.
Provision for (Benefit from) Income Taxes
Our effective tax rate was 10%, 51%, and (18%), respectively, for 2000,
1999, and 1998. The tax rate for 2000 includes an addition to the valuation
allowance against all U.S.-related deferred tax assets and the establishment of
a valuation allowance against a majority of the foreign deferred tax assets.
Based on the level of deferred tax assets as of December 31, 2000 and the level
of historical U.S. and foreign taxable income, we have determined that the
uncertainty regarding the realization of these assets is sufficient to warrant
the establishment of a valuation allowance. Excluding the impact of the
valuation allowance, our effective tax rate would have been (37%) for 2000. This
differs from the Federal statutory rate of (35%) due primarily to state taxes,
the U.S. Federal Research Tax Credit and our foreign subsidiaries, which are
taxed at different rates.
The tax rate for 1999 includes the impact of establishing a full valuation
allowance against U.S.-related deferred tax assets. Excluding the impact of the
valuation allowance, our effective tax rate would have been (41%) for 1999. This
differs from the Federal statutory rate of (35%) due primarily to state taxes
and the U.S. Federal Research Tax Credit.
The tax rate for 1998 includes a benefit of $8.2 million related to the
pre-tax charge of $28.4 for in-process technology associated with our
acquisition of Softimage. At that time, a portion of the charge was not
deductible for U.S. Federal tax purposes. Excluding the charge and related tax
benefit, our effective tax rate would have been 31% for 1998. The 1998 effective
tax rate excluding the charge and related tax benefit of 31% is different from
the Federal statutory rate of 35% due primarily to our foreign subsidiaries,
which were taxed in the aggregate at a lower rate, and the U.S. Federal Research
Tax Credit.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date through both private and public
sales of equity securities as well as through cash flows from operations. As of
December 31, 2000, our principal sources of liquidity included cash, cash
equivalents, and marketable securities totaling approximately $83.2 million.
With respect to cash flow, net cash provided by operating activities was
$12.1 million in 2000 compared to $7.6 million in 1999 and $68.2 million in
1998. During 2000, cash generated from operating activities reflects net income
after adjustment for depreciation and amortization and provision for doubtful
accounts, offset by cash uses attributable primarily to an increase in accounts
receivable and inventories. During 1999, net cash provided by operating
activities primarily reflects net income after adjustment for depreciation and
amortization and changes in deferred taxes, as well as decreases in accounts
receivable. This was offset by reductions in income taxes payable and accrued
expenses. During 1998, net cash provided by operating activities primarily
reflects net income after adjustment for depreciation and amortization and the
charge for in-process research and development in connection with the
acquisition of Softimage.
We purchased $7.4 million of property and equipment during 2000, compared
to $22.6 million and $14.1 million in 1999 and 1998, respectively. Purchases in
2000 were primarily of equipment to support research and development activities.
Purchases in 1999 were primarily of hardware and software for our information
systems and equipment to support research and development activities. During
2000, we also made a cash investment of $2.1 million in Rocket Network, Inc. and
purchased the assets of two companies, Pluto and TMF, for a total of
approximately $2.0 million in cash and $0.3 million of guaranteed bonuses to be
paid in 2001. We also utilized cash of $78.4 million in our acquisition of
Softimage in 1998. Additionally, we made a payment of $8.0 million in 1999
against a note issued to Microsoft Corporation in connection with the
acquisition of Softimage. The remaining principal balance of the note of
approximately $12.9 million is due and payable in June 2003. (See Note F to the
Notes to Consolidated Financial Statements). In connection with the acquisitions
of Pluto and TMF, we may be required to make certain contingent cash payments
limited in the aggregate to an additional $13.5 million, dependent upon future
revenues and/or gross margin levels of products acquired from these companies
through December 2004.
20
During 2000, we generated cash of approximately $10.1 million, net of
common stock repurchases, from the issuance of common stock related to the
exercise of stock options and our employee stock purchase plan. During 1999, we
used approximately $16.0 million for financing activities reflecting the
acquisition of $19.7 million of treasury stock, which was offset by the issuance
of common stock related to the exercise of stock options and the employee stock
purchase plan. During 1998, we used approximately $51.5 million for financing
activities reflecting primarily treasury stock purchases net of stock option
exercise proceeds.
During 1998, we announced that our board of directors had authorized the
repurchase of up to 3.5 million shares of our common stock. Purchases have been
and will be made in the open market or in privately negotiated transactions. We
have used, and plan to continue to use, any repurchased shares for reissuance
under our employee stock plans. During 1998, we repurchased approximately 2.0
million additional shares of common stock at a cost of $61.8 million. During
1999, we repurchased a total of 1.2 million shares of common stock at a cost of
$19.7 million. As of December 31, 2000, there were approximately 232,000 shares
remaining authorized for repurchase. These shares were repurchased in the open
market in the first quarter of 2001 at a cost of $4.1 million.
We believe existing cash, cash equivalents, marketable securities and
internally generated funds will be sufficient to meet our cash requirements. In
the event we require additional financing, we believe that we will be able to
obtain such financing; however, there can be no assurance that we would be
successful in doing so, or that we could do so on favorable terms.
EUROPEAN MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their sovereign currencies and
the euro. As of that date, the participating countries agreed to adopt the euro
as their common legal currency. However, the legacy currencies remain legal
tender in the participating countries until January 1, 2002. During this
transition period, public and private parties may elect to pay or charge for
goods and services using either the euro or the participating country's legacy
currency.
We began conducting certain business transactions in the euro on January
1, 1999, and changed our functional currency for the effected countries to the
euro on January 1, 2000. The conversion to the euro has not had and is not
expected to have a significant operational impact or a material financial impact
on the results of operations, financial position, or liquidity of our European
businesses.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000 and 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Nos. 138 and 137 ("SFAS 138" and
"SFAS 137"), "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133." SFAS 138 clarifies certain
provisions of SFAS 133, and SFAS 137 defers the implementation of SFAS 133 by
one year. SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for fiscal
quarters beginning after January 1, 2001, and its adoption is not expected to
have a material impact on our financial position or results of operations.
In September 2000, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 140 ("SFAS 140"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a Replacement of FASB Statement No. 125." SFAS 140 revises the
standards of accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, and reiterates many of
the provisions of SFAS 125. SFAS 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. SFAS 140 is effective for recognition and reclassification of collateral
and for disclosures relating to securitization transactions and collateral for
our fiscal year ending December 31, 2001. We do not expect the application of
SFAS 140 to have a material impact on our financial position or results of
operations.
21
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Some of the statements in this Form 10-K relating to our future
performance, constitute forward-looking statements. Such forward-looking
statements are based upon management's current expectations and involve known
and unknown risks. Realization of any of these risks may cause actual results to
differ materially from the results described in the forward-looking statements.
Certain of these risks are as follows:
Our future success will depend in part upon our ability to enhance our existing
products in the digital editing market.
Our core digital video and film editing market predominantly uses Avid
products, particularly Media Composer, which represents a significant portion of
our revenues, and future growth in this market could be limited. Our future
growth will depend upon our ability to introduce new features and functionality
for Media Composer, improve upon its price/performance, respond to competitive
offerings, and adapt to new industry requirements and standards. Any delay or
failure to further develop Media Composer or to introduce other new products in
this market, could harm our business and reduce our operating results.
Broadcast market is large, widely dispersed, and highly competitive, and we may
not be successful in growing our customer base in this market.
We are currently building our presence in the broadcast market and have
augmented our NewsCutter offering with the Unity for News products, launched in
December 2000, and with the server, newsroom, and browser products obtained in
the recent Pluto and iNews acquisitions. As a relatively new player in the
broadcast market, we may encounter difficulties in establishing ourselves and
developing a strong, loyal customer base. Our competitors, such as Associated
Press, Sony, Panasonic, and Grass Valley, may devote greater resources to the
broadcast market than we do, or may be able to leverage their market presence
more effectively. If we are unsuccessful in capturing a share of the market, our
business and revenues could be adversely affected.
Competition in the 3D animation market has increased dramatically since our
acquisition of Softimage.
The animation market has changed significantly from the time when we
acquired our Softimage subsidiary in August 1998. While Softimage once dominated
the higher end of the 3D market (i.e., feature films and other intensive
graphics applications), it now faces new challenges to its products and
services. Competitors' products, including Alias/Wavefront's Maya, Discreet's 3D
Studio Max, and NewTech's Lightwave, have reduced Softimage's market share. In
addition, new product offerings from all of the market players in recent years
have contributed to downward price pressure, which has resulted in increasing
compression of margins. To the extent that these factors continue or worsen, our
business may suffer.
We have a significant share of the professional audio market and therefore
growth in this market could be limited.
Currently, our Digidesign division maintains a significant portion of the
professional audio market. Our future success will depend in part upon our
ability to offer, on a timely and cost-effective basis, new audio products and
enhancements of our existing audio products. The timely development of new or
enhanced products is a complex and uncertain process, and we may experience
design, manufacturing, marketing, and other difficulties that delay or prevent
our development, introduction or marketing of new products or enhancements.
We are expanding our product line, and our future revenues depend on their
success.
We are expanding our product line beyond our core video editing market to
address the digital media production needs of the broadcast news market,
including cable and Internet news, on-line film and video finishing market, and
the emerging market for multimedia production tools, including the Internet and
corporate markets. We have limited experience in serving these markets, and
there can be no assurance that we will be able to develop such products
successfully. To be successful, we will need to introduce new products, gain
customer acceptance, and establish appropriate distribution and support
channels. Any unexpected delays or additional costs that we incur in achieving
these goals could harm our business and reduce our operating results.
22
Our future growth depends in part on the widespread adoption of the Internet by
the digital media market.
Our plans for future growth in the Internet market, including the Avid
Production Network and Trilligent product lines, as well as the Internet news
market, depend on increased use of the Internet for the creation, use,
manipulation, and distribution of media content from corporate markets to
high-end post-production. Such uses of the Internet are currently at an early
stage of development, and the future evolution of the Internet market is not
clear. Our success in this emerging Internet market will depend on the rate at
which the market develops and on our ability to establish our market presence.
If the commercial use of the Internet fails to grow as anticipated or if we are
unable to capture a significant market share, our business and results of
operations could suffer.
Our products are complex and delays or difficulties in introducing new products
could harm our business.
Our future success will depend in part on our ability to offer products
that compete favorably with our competitors' products in terms of reliability,
performance, ease of use, range of features, product enhancements, reputation,
price, and training. Delays or difficulties in product development and
introduction may harm our business. Our products are internally complex and,
despite extensive testing and quality control, may contain errors or defects.
Such errors or defects could cause us to issue corrective releases and could
result in loss of revenues, increased product returns, lack of market
acceptance, and damage to our reputation.
New product announcements by our competitors and by us could have the
effect of reducing customer demand for our existing products. Some of our new
products constitute upgrades of existing products. In the past, we have offered
discounts on the price of such upgrades to existing customers, which, where
appropriate, have been based upon the return of circuit boards and system keys.
To the extent that such circuit boards and system keys are not returned, it can
decrease the revenue generated by such new products. New product introductions
require us to devote time and resources to training our sales channels in
product features and target customers, with the temporary result that the sales
channels have less time to devote to selling our products.
Qualifying and supporting our products on both Windows and MacIntosh Platforms,
as well as other computer systems, is time consuming and expensive.
Our software engineers devote significant time and effort to qualify and
support our products on various computer platforms, including most notably,
Windows NT and MacIntosh. Computer platform modifications and upgrades require
additional time to be spent to ensure that our products will function properly.
To the extent that the current configuration of the qualified and supported
platforms change or that we need to qualify and support new platforms, we may be
required to expend valuable engineering resources and thereby reduce our profit
margins.
Our operating results are dependent on several unpredictable factors.
Our gross profit margin on our products depends on many factors. Such
factors include:
o mix of products sold;
o cost and the proportion of third-party hardware included in such products;
o product distribution channels;
o timing of new product introductions;
o product offers and platform upgrades;
o price discounts and sales promotion programs;
o volume of sales of aftermarket hardware products;
o costs of swapping or fixing products released to the market with defects;
o provisions for inventory obsolescence;
o allocations of manufacturing overhead and customer support costs to cost
of goods;
o sales of third-party computer hardware to distributors;
o competitive pressure on product prices; and
o currency fluctuations.
Negative changes to any of these factors could reduce our gross profit
margin.
23
Our operating costs are tied to projections of future revenues, which may differ
from actual results.
Our operating expense levels are based, in part, on our expectations of
future revenues. Such future revenues are difficult to predict. Further, we are
generally unable to reduce quarterly operating expense levels rapidly in the
event that quarterly revenue levels fail to meet internal expectations.
Therefore, if quarterly revenue levels fail to meet internal expectations upon
which expense levels are based, our results of operations could be lower than we
had anticipated.
The markets for our products are competitive, and we expect competition to
intensify in the future.
The digital video, audio and animation markets are competitive and
characterized by pressure to reduce prices, incorporate new features, and
accelerate the release of new products. Our key competitors are identified above
under "Competition" in Item 1. Many of our current and potential competitors
have substantially greater financial, technical, distribution, support, and
marketing resources than we do. Such competitors may use these resources to
lower their product costs and thus be able to lower prices to levels at which we
could not operate profitably. Further, such competitors may be able to develop
products comparable or superior to ours, or adapt more quickly to new
technologies or evolving customer requirements. If we are unable to compete
effectively in our target markets, our business and results of operations could
suffer.
We depend on a number of sole source suppliers.
We are dependent on a number of specific suppliers for certain key
components of our products. These components include:
o video compression chips manufactured by C-Cube Microsystems;
o a small computer systems interface ("SCSI") accelerator board from ATTO
Technology;
o a 3-D digital video effects board from Pinnacle Systems;
o application specific integrated circuits ("ASICS") from Chip Express and
LSI Logic;
o digital signal processing integrated circuits from Motorola;
o a fibre channeln adapter card from JNI;
o a fibre channel storage array from the Clariion division of EMC;
o a PCI expansion chassis from SBS Technologies, Inc.;
o a fixed programmable gate array from Quicklogic;
o digital to analog and analog to digital converter integrated circuits from
Cirrus Logic;
o a peripheral component interconnect bridge integrated circuits from Intel
Corp.; and
o analog switches and op amps from Analog Devices.
We purchase these sole source components pursuant to purchase orders
placed from time to time. We generally do not carry significant inventories of
these sole source components and have no guaranteed supply arrangements. If any
of these sole source vendors failed to supply or enhance such components, it
could imperil our supply of these components. Similarly, if any such vendor
encountered technical, operating or financial difficulties, it might threaten
our supply of these components. While we believe that alternative sources of
supply for sole source components could be developed, or our products redesigned
to permit the use of alternative components, an interruption in our sources of
supply could damage our business and negatively affect our operating results.
If we fail to maintain strong relationships with our resellers, distributors,
and component suppliers, our ability to successfully deploy our products may be
harmed.
We sell many of our products and services indirectly through resellers and
distributors. These resellers and distributors typically purchase software and
"kits" from us and other turnkey components from other vendors in order to
produce complete systems for resale. Any disruption to our resellers and
distributors, or their third-party suppliers, could reduce our gross profit
margin.
If we become dependent on third-party hardware for our products, our operating
results could be harmed.
Our gross profit margin varies from product to product depending primarily
on the proportion and cost of third-party hardware included in each product.
From time to time, we add functionality and features to our products. If we
effect such additions through the use of more, or more costly, third-party
hardware, and do not increase the price of such products to offset these
increased costs, then our gross profit margin on these products could decrease.
24
Our future growth could be harmed if we lost the services of our key personnel.
Our success depends upon the services of a number of key current
employees. The loss of the services of one or more of these key employees could
harm our business. Our success also depends upon our ability to attract highly
skilled new employees. Competition for such employees is intense in the
industries and geographic areas in which we operate. If we are unable to compete
successfully for such employees, our business could suffer.
Our AvidProNet.com website could subject us to legal claims that could harm our
business.
We have launched the Avid Production Network site (AvidProNet.com) to
provide interactive information and services to new media and post-production
professionals. Our plans for AvidProNet.com include content-hosting, remote
reviewing, and stock footage availability. Because materials may be posted on
and/or downloaded from the AvidProNet.com website and distributed to others, we
may be subject to claims for defamation, negligence, copyright or trademark
infringement, personal injury, or other theories of liability based on the
nature, content, publication and distribution of such materials. In addition,
although we have attempted to limit our exposure by contract, we may also be
subject to claims for indemnification by end users in the event that the
security of the AvidProNet.com website is compromised. As the website is
available on a worldwide basis, the website could potentially be subject to a
wide variety of international laws.
Regulations could be enacted that restrict our Internet initiatives and result
in slowing our future growth.
As a result of the increasing use and popularity of the Internet, federal,
state, and local authorities may adopt new laws and regulations governing the
Internet. These laws and regulations may cover issues such as privacy,
distribution, and content. The enactment of any additional laws or regulations
could impede the growth of the Internet, harm our Internet initiatives, and
place additional financial burdens on our business.
We could incur substantial costs protecting our intellectual property or
defending against a claim of infringement.
Our ability to compete successfully and achieve future revenue growth will
depend, in part, on our ability to protect our proprietary technology and
operate without infringing upon the rights of others. We rely upon a combination
of patent, copyright, and trademark laws, trade secret, confidentiality
procedures, and contractual provisions to protect our proprietary technology.
Despite our efforts to protect our proprietary technology, unauthorized persons,
from time to time, have obtained, copied, and used information that we consider
proprietary. Policing the unauthorized use of our proprietary technology is
costly and time-consuming and may be inadequate to protect us fully.
We occasionally receive communications suggesting that our products may
infringe the intellectual property rights of others. It is our practice to
investigate the factual basis of such communications and negotiate licenses
where appropriate. While it may be necessary or desirable in the future to
obtain licenses relating to one or more products or relating to current or
future technologies, we may be unable to do so on commercially reasonable terms.
If we are unable to protect our proprietary technology or unable to negotiate
licenses for the use of others' intellectual property, our business would be
impaired.
We are currently involved in various legal proceedings, including patent
litigation. An adverse resolution of any such proceedings could harm our
business and reduce our results of operations. See Item 3 - "Legal Proceedings"
above.
If we acquire other companies or businesses, we will be subject to risks that
could hurt our business.
We periodically acquire businesses, form strategic alliances, or make debt
or equity investments. The risks associated with such acquisitions, alliances,
and investments include, among others, the difficulty of assimilating the
operations and personnel of the target companies, the failure to realize
anticipated return on investment, cost savings and synergies, and the diversion
of management's time and attention. Such acquisitions, alliances, and
investments often involve significant transaction-related costs and cause
short-term disruption to normal operations. If we are unable to overcome or
counter these risks, it could undermine our business and lower our operating
results.
25
Our operating results could be harmed by currency fluctuations.
A significant portion of our business is conducted in currencies other
than the U.S. dollar. Accordingly, changes in the value of major foreign
currencies relative to the value of the U.S. dollar could lower future revenues
and operating results.
Strikes by Actors or Writers could harm our revenues.
As reported in the press, the guilds and unions that represent actors and
writers in the film and television industries periodically threaten to strike.
If such a strike were to occur, it could slow down or even stop production at
major film and television studios. If such a strike were to last for a
significant amount of time, the demand for our products could be reduced and our
revenues could decline.
Our stock price may continue to be volatile.
The market price of our common stock has been volatile in the recent past
and could fluctuate substantially in the future based upon a number of factors,
some of which are beyond our control. These factors include:
o changes in our quarterly operating results;
o shortfalls in revenues or earnings compared to securities analysts'
expectations;
o changes in analysts' recommendations or projections;
o fluctuations in investors' perceptions of us or our competitors;
o shifts in the markets for our products;
o development and marketing of products by our competitors; and
o changes in our relationships with suppliers, distributors, resellers,
system integrators, or customers.
Further, the stock market has witnessed unusual volatility with respect to
the price of equity securities of high technology companies generally, and this
volatility has, at times, appeared to be unrelated to any of the factors above.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market Risk
Our primary exposures to market risk are the effect of volatility in
currencies on asset and liability positions of our international subsidiaries
that are denominated in foreign currencies and the effect of fluctuations in
interest rates earned on our cash equivalents and marketable securities.
Foreign Currency Exchange Risk
We derive greater than 50% 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. This circumstance exposes us to risks associated with changes in
foreign currency that can impact revenues, net income (loss) and cash flow. We
enter into foreign currency forward-exchange contracts to hedge the foreign
exchange exposure of certain forecasted receivables, payables and cash balances
of our foreign subsidiaries. Gains and losses associated with currency rate
changes on the contracts are recorded in results of operations, offsetting
gains and losses on the related assets and liabilities. The success of the
hedging program depends on forecasts of transaction activity in the various
currencies. To the extent that these forecasts are over- or understated during
the periods of currency volatility, we could experience unanticipated currency
gains or losses.
At December 31, 2000, we had $34.5 million of forward-exchange contracts
outstanding, denominated in various European and Asian currencies and the
Canadian and Australian dollar, as a hedge against forecasted foreign
currency-denominated receivables, payables and cash balances. Net losses of $0.9
million resulting from forward-exchange contracts were included in the results
of operations in 2000, which more than offset net gains on the related asset and
liabilities of $0.1 million. A hypothetical 10% change in foreign currency rates
would not have a material impact on our results of operations, assuming the
above-mentioned forecast of foreign currency exposure is accurate, because the
impact on the forward contracts as a result of a 10% change would offset the
impact on the asset and liability positions of our foreign subsidiaries.
Interest Rate Risk
At December 31, 2000, we held $41.1 million in cash equivalents and
marketable securities, including short-term government and government agency
obligations. Cash equivalents and 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 comprehensive income (loss). A
hypothetical 10% increase or decrease in interest rates would not have a
material impact on the fair market value of these instruments due to their short
maturity.
27
AVID TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2000
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
28
AVID TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
Report of Independent Accountants................................ 30
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998............................... 31
Consolidated Balance Sheets as of December 31, 2000 and 1999..... 32
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998......................... 33
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998............................... 34
Notes to Consolidated Financial Statements....................... 35
Consolidated Financial Statement Schedule for the years ended December 31, 2000,
1999 and 1998 included in Item 14(d):
Schedule II - Supplemental Valuation and Qualifying Accounts F-1
Schedules other than that listed above have been omitted since the required
information is not present, or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Avid Technology, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Avid
Technology, Inc. and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 31, 2001
30
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Year Ended December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Net revenues $476,090 $452,555 $482,377
Cost of revenues 234,424 205,877 190,249
---------- ---------- ----------
Gross profit 241,666 246,678 292,128
---------- ---------- ----------
Operating expenses:
Research and development 82,900 88,932 88,787
Marketing and selling 119,469 129,889 125,280
General and administrative 27,504 28,147 28,549
Restructuring and other costs 14,469 28,373
Amortization of acquisition-related
intangible assets 66,872 79,879 34,204
---------- ---------- ----------
Total operating expenses 296,745 341,316 305,193
---------- ---------- ----------
Operating loss (55,079) (94,638) (13,065)
Interest income 3,634 4,304 8,815
Interest expense (1,275) (686) (350)
Other income (expense), net 1,371 (159) 171
---------- ---------- ----------
Loss before income taxes (51,349) (91,179) (4,429)
Provision for (benefit from) income taxes 5,000 46,369 (796)
---------- ---------- ----------
Net loss ($56,349) ($137,548) ($3,633)
========== ========== ==========
Net loss per common share - basic and
diluted ($2.28) ($5.75) ($0.15)
========== ========== ==========
Weighted average common shares outstanding
- basic and diluted 24,683 23,918 23,644
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
31
AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
-----------------------------
2000 1999
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $64,875 $46,072
Marketable securities 18,331 26,733
Accounts receivable, net of allowances of
$11,384 and $8,954 at December 31, 2000
and 1999, respectively 90,047 76,172
Inventories 21,102 14,969
Deferred tax assets 1,014 2,114
Prepaid expenses 6,102 5,584
Other current assets 4,634 4,795
------------- -------------
Total current assets 206,105 176,439
Property and equipment, net 26,136 32,748
Acquisition-related intangible assets 30,316 95,073
Other assets 3,925 7,764
------------- -------------
Total assets $266,482 $312,024
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $28,775 $23,998
Accrued compensation and benefits 21,072 16,955
Accrued expenses 22,851 36,022
Income taxes payable 12,039 5,073
Other current liabilities 304 3,789
Deferred revenues 24,479 20,258
------------- -------------
Total current liabilities 109,520 106,095
------------- -------------
Long-term debt and other liabilities, less current
portion 13,449 14,220
Purchase consideration 5,663 23,786
Commitments and contingencies (Note I)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000 shares
authorized; no shares issued or outstanding
Common stock, $.01 par value, 50,000 shares
authorized; 26,591 and 26,591 shares issued
and 25,667 and 23,890 shares outstanding
at December 31, 2000 and 1999, respectively 266 266
Additional paid-in capital 359,103 366,569
Accumulated deficit (197,779) (128,083)
Treasury stock, at cost, 924 and 2,701 shares at
December 31, 2000 and 1999, respectively (15,622) (66,489)
Deferred compensation (4,752) (1,853)
Accumulated other comprehensive loss (3,366) (2,487)
------------- -------------
Total stockholders' equity 137,850 167,923
------------- -------------
Total liabilities and stockholders' equity $266,482 $312,024
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
32
AVID TECHNOLOGY, INC.
Consolidated Statements of Stockholders' Equity
(in thousands)
Accumulated
Other
Retained Compre- Total
Shares of Common Additional Earnings hensive Stock-
Common Stock Stock Paid-in (Accumulated Treasury Deferred Income holders'
Issued In Treasury Issued Capital Deficit) Stock Compensation (Loss) Equity
----------------------------------------------------------------------------------------------
Balances at December 31, 1997 24,157 (957) $242 $252,307 $27,286 ($27,548) ($8,034) ($2,459) $241,794
Purchase of treasury stock (1,953) (61,822) (61,822)
Stock issued pursuant to employee
stock plans and related tax benefits 742 3,094 (9,315) 21,346 15,125
Issuance of common stock in
connection with acquisition 2,435 24 65,463 65,487
Issuance of warrants to purchase
common stock in connection
with acquisition 26,196 26,196
Conversion of purchase consideration 2,544 2,544
Restricted stock grants canceled
and compensation expense (1) (29) (1) (315) 4,261 3,945
Comprehensive loss:
Net loss (3,633) (3,633)
Net unrealized losses on
marketable securities 5 5
Translation adjustment 670 670
-------
Other comprehensive income 675
-------
Comprehensive loss (2,958)
----------------------------------------------------------------------------------------------
Balances at December 31, 1998 26,591 (2,197) 265 349,289 14,338 (68,024) (3,773) (1,784) 290,311
Purchase of treasury stock (1,183) (19,718) (19,718)
Stock issued pursuant to employee
stock plans 659 (11,931) (4,873) 21,253 4,449
Issuance of restricted stock 50 1 586 (587)
Conversion of purchase consideration 29,212 29,212
Restricted stock grants canceled
and compensation expense (30) (587) 2,507 1,920
Comprehensive loss:
Net loss (137,548) (137,548)
Net unrealized losses on
marketable securities (32) (32)
Translation adjustment (671) (671)
-------
Other comprehensive income (703)
-------
Comprehensive loss (138,251)
----------------------------------------------------------------------------------------------
Balances at December 31, 1999 26,591 (2,701) 266 366,569 (128,083) (66,489) (1,853) (2,487) 167,923
Purchase of treasury stock (35) (460) (460)
Stock issued pursuant to employee
stock plans 1,503 (22,095) (9,530) 42,153 10,528
Issuance of restricted stock 378 (715) (3,817) 9,174 (4,638) 4
Options issued at below fair market
value 1,338 (1,338)
Conversion of purchase consideration 14,884 14,884
Restricted stock grants canceled
and compensation expense (69) (878) 3,077 2,199
Comprehensive loss:
Net loss (56,349) (56,349)
Net unrealized losses on
marketable securities 1,738 1,738
Translation adjustment (2,617) (2,617)
-------
Other comprehensive income (879)
-------
Comprehensive loss (57,228)
----------------------------------------------------------------------------------------------
Balances at December 31, 2000 26,591 (924) $266 $359,103 ($197,779) ($15,622) ($4,752) ($3,366) $137,850
==============================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
33
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended December 31,
-----------------------------------
2000 1999 1998
--------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($56,349) ($137,548) ($3,633)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 84,264 103,223 55,928
Provision for doubtful accounts 6,170 3,971 2,018
Compensation from stock grants and options 2,199 1,920 3,945
Changes in deferred tax assets and liabilities 14 52,965 (4,412)
(Gain) loss on disposal of equipment 850 (133)
Equity in income of non-consolidated companies (1,020)
Charge for acquired in-process research and
development, net of tax benefit 20,155
Provision for restructuring charge, non-cash
portion 541
Tax benefit of stock option exercises 3,829
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (23,677) 9,074 (2,801)
Inventories (5,712) (4,252) (2,769)
Prepaid expenses and other current assets 1,179 (813) (2,126)
Accounts payable 5,016 (245) 814
Income taxes payable 7,052 (13,608) 2,404
Accrued expenses, compensation and benefits (8,981) (8,054) 716
Deferred revenues 1,955 (431) (5,700)
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,110 7,593 68,235
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (7,401) (22,588) (14,118)
Payments for other long-term assets (380) (3,005) (1,815)
Proceeds from disposal of assets 1,325 1,309
Investments in non-consolidated companies (2,100)
Payments for acquisitions, net of cash acquired (1,990) (78,416)
Payments on note issued in connection with
acquisition (8,000)
Purchases of marketable securities (31,861) (38,927) (166,580)
Proceeds from sales of marketable securities 42,001 61,084 196,317
- -------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,731) (10,111) (63,303)
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (712) (610)
Purchase of common stock for treasury (460) (19,718) (61,822)
Proceeds from issuance of common stock 10,532 4,449 10,901
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 10,072 (15,981) (51,531)
- -------------------------------------------------------------------------------------------
Effects of exchange rate changes on cash and cash
equivalents (1,648) 1,667 1,195
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,803 (16,832) (45,404)
Cash and cash equivalents at beginning of year 46,072 62,904 108,308
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $64,875 $46,072 $62,904
===========================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
34
AVID TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND OPERATIONS
Avid Technology, Inc. ("Avid" or the "Company") develops, markets, sells and
supports a wide range of software and systems for digital media production,
management and distribution. Digital media are media elements, whether video or
audio or graphics, in which the image, sound or picture is recorded and stored
as digital values, as opposed to analog, or tape-based, signals.
As described in Note F, in August 1998, the Company acquired the common stock of
Softimage Inc. ("Softimage") and certain assets related to the business of
Softimage for total consideration of $247.9 million. Softimage is a developer of
three-dimensional ("3D") animation, video production, two-dimensional ("2D") cel
animation and compositing software solutions and technologies. The acquisition
was recorded as a purchase and, accordingly, the results of operations of
Softimage have been included in the Company's financial statements as of the
acquisition date.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Intercompany balances and transactions have been
eliminated. Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
The Company's preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates reflected in these financial statements
include accounts receivable and sales allowances, inventory valuation, the
recoverability of intangible assets including goodwill and income tax valuation
allowances. Actual results could differ from those estimates.
Translation of Foreign Currencies
The functional currency of the Company's foreign subsidiaries is the local
currency, except for the Irish manufacturing branch and Avid Technology Sales
Ltd. in Ireland, whose functional currencies are the U.S. dollar. The assets and
liabilities of the subsidiaries whose functional currencies are other than the
U.S. dollar are translated into U.S. dollars at the current exchange rate in
effect at the balance sheet date. Income and expense items are translated using
the average exchange rate for the period. Cumulative translation adjustments are
included in accumulated other comprehensive income (loss), which is reflected as
a separate component of stockholders' equity. Foreign currency transaction gains
and losses are included in results of operations.
The Company enters into foreign currency forward-exchange contracts, which
typically mature within one month, to hedge the exposure to foreign currency
fluctuations of expected intercompany and third-party receivables and payables
as well as foreign-currency cash balances. Gains and losses realized from the
forward contracts upon maturity are recorded in results of operations,
offsetting transaction gains and losses on the related assets and liabilities.
Prior to contract maturity, the Company records on the balance sheet at each
reporting period the fair value of its forward-exchange contracts and records
any fair value adjustments in results of operations, due to the immateriality of
the adjustments that result from the short period that the contracts are then
outstanding. The cash flows related to the gains and losses of foreign currency
forward-exchange contracts are classified in the statements of cash flows as
part of the cash flows from operations.
The market risk exposure from forward contracts is assessed in light of the
underlying currency exposures and is mitigated by the short term of the
Company's contracts. Credit risk from forward contracts is minimized through the
placement of contracts with multiple financial institutions. Forward contracts
are revalued monthly by comparing contract rates to month-end exchange rates.
(See Note O).
35
Cash and Cash Equivalents
Cash equivalents consist primarily of government and government agency
obligations. The Company considers all debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Marketable Securities
Marketable securities consist of government and government agency obligations
and corporate equity securities. The Company has classified its marketable
securities as "available for sale" and reports them at fair value, with
unrealized gains and losses excluded from earnings and reported as an adjustment
to other comprehensive income (loss), which is reflected as a separate component
of stockholders' equity.
Inventories
Inventories, principally purchased components, are stated at the lower of cost
(determined on a first-in, first-out basis) or market value. Inventory in the
digital media market, including the Company's inventory, is subject to rapid
technological change or obsolescence; therefore, utilization of existing
inventory may differ from the Company's estimates.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful life of the asset. Leasehold
improvements are amortized over the shorter of the useful life of the
improvement or the remaining term of the lease. Expenditures for maintenance and
repairs are expensed as incurred. Upon retirement or other disposition of
assets, the cost and related accumulated depreciation are eliminated from the
accounts and the resulting gain or loss is reflected in results of operations. A
significant portion of the property and equipment is subject to rapid
technological obsolescence; as a result, the depreciation and amortization
periods could ultimately shorten to reflect the change in future technology.
Acquisition-related Intangible Assets
Acquisition-related intangible assets result from the Company's acquisitions of
Softimage, TMF and Pluto Technologies, which were accounted for under the
purchase method, and consist of the values of identifiable intangible assets
including completed technology, work force and trade name, as well as goodwill.
Goodwill is the amount by which the cost of acquired net assets exceeded the
fair values of those net assets on the date of purchase. Acquisition-related
intangible assets are reported at cost, net of accumulated amortization.
Identifiable intangible assets are amortized on a straight-line basis over their
estimated useful lives of two to four years. Goodwill is amortized on a
straight-line basis over three years. The Company periodically evaluates the
existence of intangible asset impairments. Recoverability of these assets is
assessed at each reporting period based on undiscounted expected cash flows,
considering a number of factors including past operating results, budgets and
economic projections, market trends and product development cycles.
Purchase Consideration
In conjunction with the acquisition of Softimage (see Note F), the Company
issued stock options to retained employees. As agreed with the seller, the value
of the note payable to the seller will be increased by $39.71 for each share
underlying options that become forfeited by employees. At the date of
acquisition, the Company recorded these options as purchase consideration on the
balance sheet at a value of $68.2 million. As these options become vested,
additional paid-in capital is increased or, alternatively, as the options are
forfeited, the note payable to the seller is increased, with purchase
consideration being reduced by a corresponding amount in either case.
Revenue Recognition
The Company recognizes revenue from sales of software or products including
proprietary software upon receipt of a signed purchase order or contract and
product shipment to distributors or end users, provided that collection is
reasonably assured and all other revenue recognition criteria of SOP 97-2,
"Software Revenue Recognition," are met. The Company's products do not require
significant production, modification or customization of software. Installation
of the products is generally routine, requires insignificant effort and is
rarely performed by the Company. The Company recognizes revenue from maintenance
contracts ratably and from training or other related services as the services
are performed. Revenue from services was immaterial in relation to product
revenue for all periods presented.
36
As part of most sales transactions, telephone support, enhancements and
unspecified upgrades are provided at no additional charge during the product's
initial warranty period, generally between three and twelve months. The Company
allocates a portion of product revenue to this warranty and recognizes the
revenue ratably over the warranty period. The Company from time to time offers
certain customers free upgrades or future enhancements of specified product
releases. The Company allocates revenue among all elements of the order,
including specified upgrades, based upon the relative fair value of each element
of the arrangement. The Company defers recognition of revenue allocated to the
specified upgrade until delivery has occurred and any remaining contractual
terms relating to the upgrade have been met.
Included in accounts receivable allowances are sales allowances provided for
expected returns, rebates and credits and an allowance for bad debts. Actual
returns have not differed materially from management's estimates and have not
been significant. The Company from time to time offers rebates on purchases of
certain products or rebates based on purchasing volume, which are accounted for
as offsets to revenue upon shipment of related products or expected achievement
of purchasing volumes.
During the fourth quarter of 2000, the Company adopted EITF 00-10, "Accounting
for Shipping and Handling Fees and Costs." EITF 00-10 requires that shipping and
handling costs associated with amounts billed to customers be included in
revenues and cost of revenues and not offset against each other. Upon adoption
of EITF 00-10, shipping and handling costs should be retroactively reclassified
for all periods presented in the statement of operations. Due to the
immateriality of shipping and handling costs in all reported periods, the
Company has not reclassified these amounts within the consolidated statement of
operations for any period prior to adoption.
Research and Development Costs
Research and development costs are expensed as incurred except for costs of
internally developed or externally purchased software that qualify for
capitalization. Capitalized costs are amortized upon general release using the
straight-line method over the expected life of the related products, generally
12 to 24 months. The straight-line method generally results in approximately the
same amount of expense as that calculated using the ratio that current period
gross product revenues bear to total anticipated gross product revenues. The
Company evaluates the net realizable value of capitalized software on an ongoing
basis, relying on a number of business and economic factors.
The Company follows the guidance of EITF 00-02 to account for its web site
development costs. To date, web site development costs eligible for
capitalization have not been material.
Computation of Net Income (Loss) Per Common Share
Net income (loss) per common share is presented for both basic earnings per
share ("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic EPS is
based upon the weighted average number of common shares outstanding during the
period excluding unvested restricted stock held by employees. Diluted EPS is
based upon the weighted average number of common and potential common shares
outstanding during the period. Potential common shares are included in the
Diluted EPS calculation when the effect of their inclusion would be dilutive.
Potential common shares result from the assumed exercise of outstanding stock
options and warrants as well as unvested restricted stock shares, the proceeds
of which are then assumed to have been used to repurchase outstanding common
stock using the treasury stock method.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other
comprehensive income (loss), which includes foreign currency translation
adjustments and unrealized gains and losses on certain investments. For the
purposes of comprehensive income (loss) disclosures, the Company does not record
tax provisions or benefits for the net changes in the foreign currency
translation adjustment, as the Company intends to permanently reinvest
undistributed earnings in its foreign subsidiaries.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
37
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts and with fixed exercise prices at least equal to the fair
market value of the Company's common stock at the date of grant. When the
exercise price of stocks granted to employees is less than the fair market value
of common stock at the date of grant, the Company records that difference
multiplied by the number of shares under option as deferred compensation, which
is then amortized over the vesting period of the options. Additionally, deferred
compensation is recorded for restricted stock granted to employees based on the
fair market value of the Company's stock at date of grant and is amortized over
the period in which the restrictions lapse. The Company has adopted the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," through
disclosure only. All stock-based awards to nonemployees are accounted for at
their fair value in accordance with SFAS No. 123.
Recent Accounting Pronouncements
In June 2000 and 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Nos. 138 and 137 ("SFAS 138" and "SFAS 137"),
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an Amendment of FASB Statement No. 133." SFAS 138 clarifies certain provisions
of SFAS 133, and SFAS 137 defers the implementation of SFAS 133 by one year.
SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for fiscal quarters
beginning on January 1, 2001 for the Company, and its adoption is not expected
to have a material impact on the Company's financial position or results of
operations.
In September 2000, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 140 ("SFAS 140"), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities - a
Replacement of FASB Statement No. 125." SFAS 140 revises the standards of
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, and reiterates many of the
provisions of SFAS 125. SFAS 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. SFAS 140 is effective for recognition and reclassification of collateral
and for disclosures relating to securitization transactions and collateral for
the Company's fiscal year ending December 31, 2001. The Company does not expect
the application of SFAS 140 to have a material impact on the Company's financial
position or results of operations.
C. MARKETABLE SECURITIES
The cost (amortized cost of debt instruments) and fair value of marketable
securities as of December 31, 2000 and 1999 are as follows (in thousands):
Gross
Unrealized Fair
Cost Gains (Losses) Value
-------------- -------------- --------------
2000
Government and government agency obligations $16,605 $13 $16,618
Corporate common stock 1,713 1,713
-------------- -------------- --------------
$16,605 $1,726 $18,331
============== ============== ==============
1999
Federal, state and municipal obligations $26,747 ($14) $26,733
============== ============== ==============
For the years ended December 31, 2000, 1999 and 1998, realized gains and losses
from the sale of each type of security were immaterial. All federal, state and
municipal obligations held at December 31, 2000 and 1999 mature within one year.
Gross realized gains and losses are calculated on a specific identification
basis.
Corporate common stock at December 31, 2000 consists of common stock of a U.S.
public company received in June 2000 in exchange for the Company's minority
ownership interest in Avid Sports LLC. No gain or loss was recorded upon that
transaction.
38
D. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
--------------------------
2000 1999
--------- ---------
Raw materials $14,082 $9,896
Work in process 2,353 1,946
Finished goods 4,667 3,127
--------- ---------
$21,102 $14,969
========= =========
E. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
December 31,
Depreciable ---------------------
Life 2000 1999
------------- -------- --------
Computer and video equipment and software 2 to 5 years $87,478 $92,467
Office equipment 3 years 5,856 5,335
Furniture and fixtures 3 years 8,786 9,176
Leasehold improvements 3 to 10 years 16,600 16,950
-------- --------
118,720 123,928
Less accumulated depreciation and amortization 92,584 91,180
-------- --------
$26,136 $32,748
======== ========
F. ACQUISITIONS AND INVESTMENTS
Softimage
On August 3, 1998, the Company acquired from Microsoft Corporation ("Microsoft")
the common stock of Softimage and certain assets relating to the business of
Softimage. In connection with the acquisition, Avid paid $79.0 million in cash
to Microsoft and issued to Microsoft (i) a subordinated note (the "Note") in the
amount of $5.0 million, due June 2003, (ii) 2,394,813 shares of common stock,
valued at $64.0 million, and (iii) a ten-year warrant to purchase 1,155,235
shares of common stock at an exercise price of $47.65 per share, valued at $26.2
million. In addition, Avid agreed to issue to Softimage employees 40,706 shares
of common stock, valued at $1.5 million, as well as stock options with a nominal
exercise price to purchase up to 1,820,817 shares of common stock, valued at
$68.2 million ("Avid Options"). Avid also incurred fees of $4.0 million in
connection with the transaction. Per terms of the agreements, shares of common
stock issued to Microsoft and shares underlying the warrant may not be traded
until August 3, 2001. Additionally, the principal amount of the Note will be
increased by $39.71 for each share underlying forfeited Avid Options. The value
of the Avid Options has been recorded on the balance sheet as Purchase
Consideration (see Note B).
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the results of operations of Softimage and the fair market value of
the acquired assets and assumed liabilities have been included in the financial
statements of the Company as of the acquisition date. The purchase price was
allocated to the acquired assets and assumed liabilities as follows (in
thousands):
Working capital, net $2,448
Property and equipment 3,958
Completed technologies 76,205
In-process research and development 28,373
Work force 7,790
Trade name 4,252
Deferred tax liability (2,945)
Goodwill 127,779
------------
$247,860
============
39
The amounts allocated to identifiable tangible and intangible assets, including
acquired in-process research and development, were based on results of an
independent appraisal. Goodwill represents the amount by which the cost of
acquired net assets exceeded the fair values of those net assets on the date of
purchase. Acquired in-process research and development represented development
projects in areas that had not reached technological feasibility and had no
alternative future use. Accordingly, the amount of $28.4 million was charged to
operations at the date of the acquisition, net of the related tax benefit of
$8.2 million.
The values of completed technologies and in-process research and development
were determined using a risk-adjusted, discounted cash flow approach. The value
of in-process research and development, specifically, was determined by
estimating the costs to develop the in-process projects into commercially viable
products, estimating the resulting net cash flows from such projects,
discounting the net cash flows back to their present values, and adjusting that
result to reflect each project's stage of completion.
In-process research and development projects identified at the acquisition date
included next-generation three-dimensional modeling, animation and rendering
software and new graphic, film and media management capabilities for
effects-intensive, on-line finishing applications for editing. The nature of the
efforts to develop the purchased in-process technology into commercially viable
products principally relate to (i) completion of the animation and real-time
playback architecture, completion and integration of architectural software
components, validation of the resulting architecture, and finalization of the
feature set; and (ii) the rebuilding of the framework architecture, the
rewriting of software code of the compositing engine to accommodate significant
new features, and the rewriting of software code of the titling component.
The Company recorded deferred tax assets of $6.9 million related to tax credits
and carryforwards of Softimage Inc. An additional $2.6 million of deferred tax
assets were not recorded at the acquisition date due to the uncertainty of their
realization. If any benefit of these unrecorded tax credits and carryforwards is
realized in the future, the non-current assets recorded upon the acquisition
will be reduced at that time by a corresponding amount, before any benefit is
recognized in the statement of operations.
In 1999, the Company recorded reductions of $6.9 million to the goodwill and the
deferred tax liability recorded upon the acquisition, due to a change in the tax
treatment of certain acquired intangible assets.
Accumulated amortization associated with identifiable intangible assets was
approximately $80.8 million and $54.0 million at December 31, 2000 and 1999,
respectively. The accumulated amortization associated with goodwill was
approximately $97.8 million and $58.1 million at December 31, 2000 and 1999,
respectively.
At the date of acquisition, the Company recorded the value of the Avid options
issued to retained employees as purchase consideration on the balance sheet. As
agreed with the seller, the value of the note payable to the seller is being
increased by $39.71 for each share underlying options that become forfeited by
employees. As these options become vested, additional paid-in capital is
increased or, alternatively, as the options are forfeited, the note payable to
the seller is increased, with purchase consideration being reduced by a
corresponding amount in either case. The following table shows the activity of
purchase consideration (in thousands):
Purchase consideration at time of acquisition $68,177
Forfeited options increasing value of the Note (5,172)
Vested options increasing additional paid-in capital (2,544)
---------
Purchase consideration at December 31, 1998 60,461
Forfeited options increasing value of the Note (7,463)
Vested options increasing additional paid-in capital (29,212)
---------
Purchase consideration at December 31, 1999 23,786
Forfeited options increasing value of the Note (3,239)
Vested options increasing additional paid-in capital (14,884)
---------
Purchase consideration at December 31, 2000 $5,663
=========
40
The following table presents unaudited pro forma information as if Avid and
Softimage had been combined as of the beginning of the periods presented. The
pro forma data are presented for illustrative purposes only and are not
necessarily indicative of the combined financial position or results of
operations of future periods or the results that actually would have resulted
had Avid and Softimage been a combined company during the specified periods. The
pro forma results include the effects of the purchase price allocation from
amortization of acquisition-related intangible assets and exclude the charge for
the purchased in-process technology and related tax benefit.
Pro Forma Unaudited
(in thousands, except per share amounts)
For the Year Ended December 31,
----------------------------------------
1998
----------------
Net revenue $505,382
================
Net income (loss) ($22,329)
================
Net income (loss) per common share - basic ($0.89)
================
Net income (loss) per common share - diluted ($0.89)
================
Weighted average common shares outstanding - basic 25,071
================
Weighted average common sharesoutstanding - diluted 25,071
================
iNews, LLC.
In January 1999, Avid and Tektronix, Inc. established a 50/50 owned and funded
newsroom computer system joint venture, AvStar Systems LLC ("AvStar"). The joint
venture was dedicated to providing the next generation of newsroom computer
systems products by combining both companies' newsroom computer systems
technology and certain personnel. In September 1999, Tektronix transferred its
interest in AvStar to a third party, Grass Valley Group, Inc. The Company's
investment in the joint venture was being accounted for under the equity method
of accounting. The Company's initial contribution to the joint venture was
approximately $2.0 million, consisting of $1.5 million of cash and $0.5 million
of fixed assets and inventory. During the fourth quarter of 1999, AvStar
distributed $1.5 million to each joint venture partner, which was recorded by
Avid as a return on investment during 1999. The pro rata share of earnings of
the joint venture recorded by the Company during 2000 and 1999 was approximately
$0.9 million and $0, respectively. Since September 2000, AvStar has been doing
business as iNews, LLC.
In January 2001, the Company acquired Grass Valley Group's 50% interest in iNews
for approximately $6.0 million. This acquisition will be accounted for under the
purchase method of accounting. Thereafter, the operating results of iNews will
be fully consolidated by the Company.
The Motion Factory and Pluto Technologies
During the second and third quarters of 2000, the Company acquired selected
assets and liabilities of two companies, The Motion Factory, Inc. ("TMF") and
Pluto Technologies International Inc. ("Pluto"), for cash payments totaling
approximately $2.0 million and guaranteed future bonus payments of $0.3 million.
TMF specializes in applications for the creation, delivery and playback of
interactive, rich 3-D media for character-driven games and the web. Pluto is a
provider of video storage and networking solutions for broadcast news,
post-production and other bandwith-intensive markets. The business combinations
were accounted for using the purchase method of accounting. Accordingly, the
fair market values of the acquired assets and assumed liabilities have been
included in the Company's financial statements as of the acquisition dates, and
the results of operations of TMF and Pluto have been included in the Company's
financial statements thereafter. The purchase prices, aggregating $2.3 million,
were allocated to net tangible assets of $0.1 million, completed technologies of
$1.2 million and acquired workforce of $1.0 million. These identifiable
intangible assets are being amortized on a straight-line basis through 2004,
resulting in accumulated amortization of $0.3 million at December 31, 2000. As
41
part of the purchase agreements, the Company may be required to make certain
contingent cash payments, limited in the aggregate up to an additional $13.5
million, dependent upon future revenues and/or gross margin levels of products
acquired from TMF and Pluto through December 2004. There were no contingent
payments owed or paid as of December 31, 2000. Any contingent payments will be
recorded as additional purchase price, allocated to identifiable intangible
assets or goodwill, as appropriate, and amortized over the remaining
amortization period of the intangible asset or goodwill. The Company's pro forma
statements of operations prior to the acquisitions would not differ materially
from reported results.
Rocket Network
During the first quarter of 2000, the Company acquired for $2.1 million a
non-controlling interest in the unregistered capital stock of Rocket Network,
Inc., a provider of Internet recording studios which allows audio professionals
to meet and collaborate on the Internet. This investment was accounted for under
the cost method. Additionally, in connection with a technology development
services agreement with Rocket Network, the Company received warrants to acquire
additional shares, of which 50% were exercisable at date of grant and 50% are
exercisable upon the achievement of certain joint development milestones. The
warrants were deemed by Avid to have an immaterial value as of date of grant and
as of December 31, 2000, and were not recorded. If the warrants are exercised,
the Company's ownership interest in Rocket Network will be less than twenty
percent.
G. INCOME TAXES
Loss before income taxes and the components of the income tax provision
(benefit) for the years ended December 31, 2000, 1999 and 1998 are as follows
(in thousands):
2000 1999 1998
--------- --------- ---------
Profit (loss) before income taxes:
United States ($54,810) ($106,930) ($27,497)
Foreign 3,461 15,751 23,068
--------- ---------- ---------
Total loss before income taxes ($51,349) ($91,179) ($4,429)
========= ========== =========
Provisions for (benefit from) income taxes:
Current tax expense:
Federal ($6,183) $7,770
Foreign $4,912 2,817 4,665
State 148 55 155
--------- ---------- ---------
Total current tax expense (benefit) 5,060 (3,311) 12,590
Deferred tax (benefit) expense:
Federal 42,822 (13,878)
Foreign (60) 2,211 2,401
State 4,647 (1,909)
--------- ---------- ---------
Total deferred tax (benefit) expense (60) 49,680 (13,386)
--------- ---------- ---------
Total income tax provision (benefit) $5,000 $46,369 ($796)
========= ========== =========
Net cash payments or (refunds) for income taxes in 2000, 1999 and 1998 were
approximately ($1.3) million, $6.4 million and $6.6 million, respectively.
The cumulative amount of undistributed earnings of subsidiaries, which is
intended to be permanently reinvested and for which U.S. income taxes have not
been provided, totaled approximately $33.4 million at December 31, 2000.
42
Net deferred tax assets are comprised of the following (in thousands):
December 31,
-----------------------
2000 1999
---------- ----------
Allowances for accounts receivable $2,054 $1,947
Difference in accounting for:
Revenue 3,844 4,836
Costs and expenses 11,710 12,713
Inventories 2,139 1,820
Intangible assets 62,180 43,770
Foreign related items 1,721 552
Tax credit and net operating loss carryforwards 34,239 26,965
Other (1,486) (1,414)
---------- ----------
Net deferred tax assets before valuation allowance 116,401 91,189
Valuation allowance (115,962) (90,637)
---------- ----------
Net deferred tax assets after valuation allowance $439 $552
========== ==========
Deferred tax assets reflect the net tax effects of the tax credits, operating
loss carryforwards and temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. The ultimate realization of the deferred tax assets is
dependent upon the generation of sufficient future taxable income.
For U.S. Federal income tax purposes at December 31, 2000, the Company has tax
credit carryforwards of approximately $15.3 million, which will expire between
2004 and 2020, and net operating loss carryforward of approximately $49.9
million, which will expire between 2012 and 2020. Based on the level of the
deferred tax assets as of December 31, 2000 and the level of historical U.S.
taxable income, management has determined that the uncertainty regarding the
realization of these assets is sufficient to warrant the establishment of a full
valuation allowance. Accordingly, a valuation allowance of approximately $113.2
million has been established through the provision for income taxes against the
U.S.-related deferred tax assets. In the event that the related tax benefit is
realized, such benefit will reduce future provision for income taxes. In
addition, a valuation allowance of $1.5 million has been established for U.S.
tax return carryforwards resulting from stock option compensation deductions.
The tax benefit associated with the stock option compensation deductions will be
credited to equity when realized.
For foreign income tax purposes at December 31, 2000, the Company has a net
operating loss carryforward of approximately $9.1 million, which can be
carryforward indefinitely. Due to the similar uncertainty regarding the
realization of this asset, the Company has established through the provision for
income taxes a valuation allowance of approximately $1.3 million which relates
to this entire carryforward amount and a portion of other foreign deferred tax
assets.
A reconciliation of the Company's income tax provision (benefit) to the
statutory federal tax rate follows:
2000 1999 1998
--------- --------- ---------
Statutory rate (35%) (35%) 35%
Nondeductible acquisition costs 12
Tax credits (4) (3) (8)
Foreign operations 5 (8)
State taxes, net of federal benefit (3) (3) (2)
Foreign sales corporation (2)
Other 4
--------- --------- ---------
Effective tax rate before special charge and
valuation allowance (37) (41) 31
Rate difference due to charge for in-process
research and development (49)
Change in valuation allowance 47 99
Reduction in required tax liabilities (7)
--------- --------- ---------
Effective tax rate 10% 51% (18%)
========= ========= =========
43
For the year ended December 31, 1998, the effective tax rate before special
charge is based on a profit before tax amount that excludes the $28.4 million
charge for in-process research and development, of which $6.7 million was not
deductible for tax purposes. The Company's actual effective tax rate of (18%)
for the year reflects a tax benefit equal to 29% of this one-time charge.
Consolidated results of operations include results of manufacturing operations
in Ireland. Income from the sale of products manufactured or developed in
Ireland is subject to a 10% Irish tax rate through the year 2010. There was no
Irish tax benefit in 2000 and 1999 due to a loss recorded for the Irish
manufacturing operations. The favorable Irish tax rate resulted in tax benefits
of approximately $1.5 million in 1998. The 1998 basic and diluted per share tax
benefit was $0.06.
H. LONG-TERM DEBT AND OTHER LIABILITIES
Long-term debt and other liabilities consist of the following (in thousands):
December 31,
----------------------
2000 1999
-------- --------
Subordinated note $12,874 $9,635
Long-term deferred compensation (see Note L) 3,023
Long-term deferred tax liabilities (see Note G) 575 1,562
-------- --------
$13,449 $14,220
======== ========
Subordinated Note
In connection with the acquisition of Softimage (see Note F), Avid issued a $5.0
million subordinated note (the "Note") to Microsoft Corporation. The principal
amount of the Note, including any adjustments relative to Avid stock options
forfeited by Softimage employees, plus all unpaid accrued interest is due on
June 15, 2003. The Note bears interest at 9.5% per year, payable quarterly.
Through December 31, 2000, the Note has been increased by approximately $15.9
million for forfeited Avid stock options. During 1999, the Company made a
principal payment of $8.0 million. The Company also made cash interest payments
of $1.1 million, $0.6 million and $0.1 million during 2000, 1999 and 1998,
respectively.
Bank Overdraft Facilities
Two of the Company's international subsidiaries have unsecured overdraft
facilities that permit aggregate borrowings of Irish punt 150,000 and German
mark 400,000. No borrowings were outstanding under these facilities as of
December 31, 2000 or 1999.
I. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office space and certain equipment under non-cancelable
operating leases. The future minimum lease commitments under these
non-cancelable leases at December 31, 2000 are as follows (in thousands):
2001 $14,632
2002 14,033
2003 11,822
2004 11,036
2005 10,674
Thereafter 40,239
--------
Total $102,436
========
The total of future minimum rentals to be received by the Company under
non-cancelable subleases related to the above leases is $15.3 million. Such
amounts are not reflected in the schedule of minimum lease payments above.
44
The Company's two leases for corporate office space in Tewksbury, Massachusetts,
expiring June 2010, contain renewal options to extend the respective terms of
each lease for an additional 60 months. The Company's lease for the Dublin,
Ireland facility has a termination option in April 2002, which if elected
requires the Company to pay certain penalties of approximately $338,000. The
Company also has other various leases which include termination options that if
exercised would result in penalties totaling $160,000. The future minimum lease
commitments above include the Company's obligations through the original lease
terms and do not include these penalties.
The accompanying consolidated results of operations reflect rent expense on a
straight-line basis over the term of the leases. Total rent expense under
operating leases was approximately $11.2 million, $12.3 million and $12.4
million for the years ended December 31, 2000, 1999 and 1998, respectively.
Purchase Commitments
As of December 31, 2000, the Company has entered into non-cancelable purchase
commitments for certain components used in its normal operations. The purchase
commitments covered by these agreements are generally for one year and aggregate
approximately $5.8 million.
The Company currently purchases certain key components used in its products from
sole source suppliers. These components are purchased through purchase orders
placed from time to time. The Company generally does not carry significant
inventories of these sole source components and has no guaranteed supply
arrangements for them. These purchasing arrangements can result in delays in
obtaining products from time to time. While the Company believes that
alternative sources of supply for its sole source components could be developed,
its business and results of operations could be adversely affected if it were to
encounter an extended interruption in its source of supply.
Transactions with Recourse
The Company, through a third party, provides lease financing options to its
customers, including distributors. Under the terms of these leases, which are
generally three years, the Company remains liable for any unpaid principal
balance upon default by the end-user, but such liability is limited in the
aggregate based on a percentage of initial amounts funded or, in certain cases,
amounts of unpaid balances. At December 31, 2000, 1999 and 1998, the third
party's uncollected balance of lease receivables with recourse was approximately
$92.9 million, $98.2 million and $86.1 million, respectively; at those same
dates, Avid's maximum recourse totaled approximately $23.2 million, $22.7
million and $22.3 million, respectively. The Company records revenue from these
transactions upon the shipment of products and maintains a reserve for estimated
losses under this recourse lease program based on historic default rates. To
date, the Company has not experienced significant losses under this financing
lease program.
The Company also has an arrangement whereby it receives cash from the transfer
of certain receivables to a third party. The Company is liable to the third
party for any amounts not paid by the customer. The Company records a liability
for the amount received, and such liability and the related receivables are
relieved upon payment by the customer to the third party. As of December 31,
2000 and 1999, a liability of $0.3 million and $3.6 million, respectively, was
recorded for receivables transferred which had not been paid as of those dates.
Contingencies
On June 7, 1995, the Company filed a patent infringement complaint in the United
States District Court for the District of Massachusetts against Data
Translation, Inc. (now known as Media 100), a Marlboro, Massachusetts-based
company. Avid is seeking judgment against Data Translation that, among other
things, Data Translation has willfully infringed Avid's patent number 5,045,940,
entitled "Video/Audio Transmission System and Method." Avid is also seeking an
award of treble damages together with prejudgment interest and costs, Avid's
costs and reasonable attorneys' fees and an injunction to prohibit further
infringement by Data Translation. The litigation has been dismissed without
prejudice (with leave to refile) pending a decision by the U.S. Patent and
Trademark Office on a reissue patent application based on the issued patent.
On March 11, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, the suit was transferred to the United States
District Court for the Southern District of New York on motion by the Company.
The complaint alleges infringement by Avid of U.S. patent number 4,258,385,
issued in 1981, and seeks injunctive relief, treble damages and costs, and
attorneys' fees. The Company believes that it has meritorious defenses to the
complaint and intends to contest it vigorously. However, an adverse resolution
of this litigation could have a material adverse effect on the Company's
consolidated financial position or results of operations in the period in which
the litigation is resolved. No costs have been accrued for this possible loss
contingency.
45
In March 1999, the Company and Tektronix, Inc., were sued by Glen Holly
Entertainment, Inc., a Tektronix distributor, claiming that Tektronix's
discontinuance of the Tektronix Lightworks product line was the result of a
strategic alliance by Tektronix and Avid. Glen Holly has raised antitrust and
other common law causes of action against the Company, and seeks lost future
profits, treble damages, attorneys' fees, and interest. The case is currently in
discovery and trial has been set for June 2001. The Company views the complaint
as without merit and intends to defend itself vigorously. However, an adverse
resolution of this litigation could have an adverse effect on the Company's
consolidated financial position or results of operations in the period in which
the litigation is resolved. No costs have been accrued for this possible loss
contingency.
The Company also receives inquiries from time to time with regard to additional
possible patent infringement claims. These inquiries are generally referred to
counsel and are in various stages of discussion. If any infringement is
determined to exist, the Company may seek licenses or settlements. In addition,
from time to time as a normal incidence of the nature of the Company's business,
various claims, charges, and litigation have been asserted or commenced against
the Company arising from or related to contractual or employee relations,
intellectual property rights or product performance. Management does not believe
these claims will have a material adverse effect on the financial position or
results of operations of the Company.
The Company has entered into employment agreements with certain officers of the
Company that provide for severance pay and benefits, including accelerated
vesting of options. Under the terms of the agreements, these officers receive
100% of such severance benefits if they are involuntarily terminated. Such
agreements are effective for two years and are automatically extended for
successive one-year periods after the second anniversary, unless 30 days advance
written notice is given by either party. The Company has also entered into
change in control employment agreements with certain officers of the Company. As
defined in the agreements, a change in control includes, but is not limited to:
a third person or entity becoming the beneficial owner of 30% or more of the
Company's common stock, the shareholders approving any plan or proposal for the
liquidation or dissolution of the Company, or within a twenty-four month period
a majority of the members of the Company's Board of Directors ceasing to
continue as members of the board unless their successors are each approved by at
least two-thirds of the Company's directors. If at any time within two years of
the change in control, the officer's employment is terminated by the Company for
any reason other than cause or by the officer for good reason, as such terms are
defined in the agreement, then the employee is entitled to receive certain
severance payments plus an amount equal to compensation earned under the
management incentive compensation plan during the previous two years as well as
accelerated vesting of options.
J. CAPITAL STOCK
Preferred Stock
The Company has authorized up to one million shares of preferred stock, $.01 par
value per share for issuance. Each series of preferred stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges, and liquidation
preferences, as shall be determined by the Board of Directors.
Shareholder Rights Plan
In February 1996, the Board of Directors approved a Shareholder Rights Plan. The
rights were distributed in March 1996 as a dividend at the rate of one right for
each share of Common Stock outstanding. No value was assigned to these rights.
The rights may be exercised to purchase shares of a new series of $.01 par
value, junior participating preferred stock or to purchase a number of shares of
the Company's common stock which equals the exercise price of the right, $115,
divided by one-half of the then-current market price, upon occurrence of certain
events, including the purchase of 20% or more of the Company's common stock by a
person or group of affiliated or associated persons. The rights expire on
February 28, 2006 and may be redeemed by the Company for $.01 each at any time
prior to the tenth day following a change in control and in certain other
circumstances.
Common Stock
In 2000, 1999 and 1997, the Company granted shares of restricted common stock to
certain employees under Company stock option and award plans. The grants totaled
260,000 shares, 50,000 shares, and 347,200 shares, respectively. Unvested
restricted shares may not be sold, transferred or assigned and are subject to
forfeiture in the event that an employee ceases to be employed by the Company.
The shares under the 1997 award vest (and restrictions lapse) annually in 20%
increments, and accelerated vesting may occur if certain stock price performance
46
goals established by the Board of Directors are met. On May 1, 1998, an
additional 20% of the restricted stock became vested due to the attainment of
specific stock performance goals. The shares under the 1999 and 2000 awards vest
40% on the first anniversary and 60% on the second anniversary of the awards.
The Company initially recorded in 1997, 1999 and 2000, as a separate component
of stockholders' equity, deferred compensation of approximately $9.1 million,
$0.6 million, and $3.2 million, respectively, with respect to this restricted
stock. During 2000, the Company also completed a Stock Option Exchange Program
whereby employees could request that certain outstanding stock options be
exchanged for shares of restricted common stock according to specified exchange
ratios. The Company granted 118,115 shares of restricted common stock in
exchange for stock options to purchase 431,836 shares of common stock with
exercise prices ranging from $9.44 to $45.25. The new awards vest (and
restrictions lapse) annually over three years from date of grant. The Company
initially recorded, as a separate component of stockholders' equity, deferred
compensation of approximately $1.4 million with respect to this restricted
stock. The deferred compensation amounts for all restricted stock awards
represent the fair value of the Company's common stock at the date of the award
less par value and are recorded as compensation expense ratably as the shares
vest. For the years ended December 31, 2000, 1999, and 1998, approximately $2.2
million, $1.4 million, and $3.2 million, respectively, was recorded as
compensation expense under all of these plans.
During 1998, the Company announced that the Board of Directors had authorized
the repurchase of up to 3.5 million shares of the Company's common stock.
Purchases have been and will be made in the open market or in privately
negotiated transactions. The Company has used and plans to continue to use any
repurchased shares for its employee stock plans. During 1998, the Company
repurchased approximately 2.0 million shares of common stock at a cost of $61.8
million. During 1999, the Company repurchased a total of 1.2 million shares of
common stock at a cost of $19.7 million. As of December 31, 2000, there were
approximately 232,000 shares remaining authorized for repurchase. These
remaining shares were repurchased in the open market during the first quarter of
2001 at a cost of $4.1 million.
Warrants
In connection with the acquisition of Softimage Inc. (see Note F), the Company
issued to Microsoft a ten-year warrant to purchase 1,155,235 shares of the
Company's common stock, valued at $26.2 million. The warrants became exercisable
on August 3, 2000, at a price of $47.65 per share, and expire on August 3, 2008.
K. STOCK PLANS
Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan, as amended through February 23,
2000, authorizes the issuance of a maximum of 1,200,000 shares of common stock
in semi-annual offerings to employees at a price equal to the lower of 85% of
the closing price on the applicable offering commencement date or 85% of the
closing price on the applicable offering termination date.
Stock Option and Award Plans
The Company has several stock-based compensation plans under which employees,
officers, directors and consultants may be granted stock awards or options to
purchase the Company's common stock generally at the fair market value on the
date of grant. Certain plans allow for options to be granted at below fair
market value under certain circumstances. Options become exercisable over
various periods, typically two to four years for employees and immediately to
four years for officers and directors. The options have a maximum term of ten
years. As of December 31, 2000, a maximum of 13,670,000 shares of common stock
have been authorized for issuance under the Company's stock-based compensation
plans, of which 3,364,838 remain available for future grants. Included in the
total shares authorized are 816,021 shares issued as restricted stock.
47
Information with respect to options granted under all stock option plans is as
follows:
2000 1999 1998
------------------------- ------------------------- -------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
----------- ----------- ----------- ----------- ----------- -----------
Options outstanding at January 1, 8,253,557 $15.95 7,401,490 $16.63 3,573,527 $16.09
Granted, at fair value 2,743,191 $14.09 2,551,790 $14.64 3,208,674 $26.19
Granted, below fair value 145,000 $7.54 1,820,817 $ 0.01
Exercised (1,312,985) $6.31 (481,003) $12.53 (650,420) $13.74
Canceled (2,772,530) $20.48 (1,218,720) $18.34 (551,108) $16.52
----------- ----------- -----------
Options outstanding at December 31, 7,056,233 $15.01 8,253,557 $15.95 7,401,490 $16.63
=========== =========== ===========
Options exercisable at December 31, 3,445,350 $15.74 3,388,955 $16.80 1,658,724 $15.94
=========== =========== ===========
Options available for future grant at
December 31, 3,364,838 1,529,362 1,660,022
=========== =========== ===========
The following table summarizes information about stock options outstanding at
December 31, 2000:
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------- -----------------------
Weighted-
Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------ ----------- ---------------- ---------------- ----------- ----------------
$0.01 to $11.19 973,893 7.26 $5.39 629,147 $5.49
$11.31 to $11.50 1,690,157 8.98 $11.39 800,296 $11.38
$11.56 to $14.50 1,435,485 9.01 $13.43 256,791 $13.33
$14.75 to $19.63 1,467,551 7.24 $16.98 827,665 $17.52
$19.75 to $45.25 1,489,147 7.44 $24.98 931,451 $25.48
----------- -----------
$0.01 to $45.25 7,056,233 8.06 $15.01 3,445,350 $15.74
=========== ===========
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for the awards under these
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's net loss and loss per share would have been adjusted to the pro forma
amounts indicated below:
2000 1999 1998
----------------------- ------------------------ -----------------------
Loss Loss Loss
Net Loss per share Net Loss per share Net Loss per share
---------- ---------- ----------- ---------- ---------- ----------
As Reported ($56,349) ($2.28) ($137,548) ($5.75) ($3,633) ($0.15)
========== ========== =========== ========== ========== ==========
Pro Forma ($68,372) ($2.77) ($154,898) ($6.48) ($13,598) ($0.58)
========== ========== =========== ========== ========== ==========
During 1998, the Company issued stock options to purchase approximately 1.8
million shares of common stock with a nominal exercise price in connection with
the acquisition of Softimage (see Note F). As a result of this nominal exercise
price, the Company excluded the effects of the options issued from the
calculation of pro forma net loss for SFAS No. 123 disclosures of compensation
expense. The Softimage purchase price included the excess of the fair value of
the Company's stock on the grant date over the exercise prices.
48
Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions and results:
Stock Options Stock Purchase Plan
------------------------- -------------------------
2000 1999 1998 2000 1999 1998
------------------------- -------------------------
Expected dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Risk-free interest rate 6.0% 6.0% 5.2% 6.0% 6.0% 5.2%
Expected volatility 74.0% 61.8% 61.8% 74.0% 61.8% 61.8%
Expected-life (in months) 15 15 17 6 6 6
Weighted-average fair value
of options granted $7.35 $5.61 $13.29 $4.63 $5.91 $10.38
L. EMPLOYEE BENEFIT AND PROFIT SHARING PLANS
Employee Benefit Plans
The Company has an employee benefit plan under section 401(k) of the Internal
Revenue Code covering substantially all U.S. employees. The 401(k) plan allows
employees to make contributions up to a specified percentage of their
compensation. The Company may, upon resolution by the Board of Directors, make
discretionary contributions to the plan. In 1998, the Company contributed 33% of
up to the first 6% of an employee's salary contributed to the plan by the
employee. Effective January 1, 1999, the Company's contribution was increased to
50% of up to the first 6% of an employee's salary contributed to the plan by the
employee. The Company's contributions to this plan totaled $1.6 million, $2.2
million and $1.3 million in 2000, 1999 and 1998, respectively.
In addition, the Company has various retirement and post-employment plans
covering certain international employees. Certain of the plans require the
Company to match employee contributions up to a specified percentage as defined
by the plans. The Company made related contributions of approximately $1.5
million, $1.3 million and $1.0 million in 2000, 1999 and 1998, respectively.
Profit Sharing and Executive Compensation Plans
The Company has profit sharing plans that cover substantially all employees of
the Company and its participating subsidiaries, other than those employees
covered by other incentive plans. The plans provide that the Company contribute
a varying percentage of salary based on the Company's achievement of performance
goals set by management and the Board of Directors for each fiscal year.
1998 Nonqualified Deferred Compensation Plan
In December 1997, the Board of Directors approved the 1998 Nonqualified Deferred
Compensation Plan (the "1998 Deferred Plan"). The 1998 Deferred Plan, effective
January 1, 1998, covers selected senior management and highly compensated
employees, as approved by the Company's Compensation Committee. The plan
provides for a trust to which participants can contribute varying percentages or
amounts of eligible compensation for deferred payment. Payouts are made upon the
earlier of the election of the employee or termination of employment with the
Company. The benefit payable under the 1998 Deferred Plan represents an unfunded
and unsecured contractual obligation of the Company to pay the value of the
deferred compensation in the future, adjusted to reflect the trust's investment
performance. The assets of the trust, as well as the corresponding obligations,
were approximately $1.5 million and $3.0 million as of December 31, 2000 and
1999, respectively, and were recorded in other current assets and accrued
compensation and benefits at December 31, 2000.
M. RESTRUCTURING AND OTHER COSTS
In the fourth quarter of 1999, the Company announced and implemented a
restructuring plan to strategically refocus the Company and bring operating
expenses in line with net revenues with the goal of restoring long-term
profitability to the Company. The major elements of the restructuring plan
included the termination of certain employees and the vacating of certain
facilities. The plan also provided for no further releases of a limited number
49
of existing product offerings, including stand-alone Marquee, Avid Cinema, Media
Illusion and Matador. In connection with this plan, the Company recorded a
restructuring charge of $9.6 million. The charge included approximately $6.6
million for severance and related costs for 209 employees on a worldwide basis,
$2.4 million for facility vacancy costs and approximately $600,000 of non-cash
charges relating to the disposition of certain fixed assets. All employees had
been informed of their termination and related benefits by December 31, 1999.
The following table sets forth the activity in the restructuring accrual in 1999
and 2000 (in thousands):
Employee Facilities Fixed
Related Related Assets Total
-----------------------------------------
Restructuring charge in 1999 $6,623 $2,443 $541 $9,607
Cash payments made in 1999 (2,202) (289) (2,491)
-----------------------------------------
Accrual balance at December 31, 1999 4,421 2,154 541 7,116
Cash payments made in 2000 (3,987) (761) (4,748)
Non-cash disposals (515) (515)
Revisions of estimated liabilities (35) 61 (26) -
-----------------------------------------
Accrual balance at December 31, 2000 $399 $1,454 $0 $1,853
=========================================
The Company expects that the majority of the remaining $0.4 million
employee-related accrual balance will be expended over the next 6 months and
will be funded from working capital. The facilities-related accrual represents
estimated losses on subleases of space vacated as part of the restructuring
action. The lease extends through 2010 unless the Company is able to negotiate
an earlier termination.
In December 1999, the Company entered into an agreement to sell its Italian
subsidiary to a third party, which established the entity as a distributor of
Avid products. The sale was completed in the first quarter of 2000. The Company
incurred and recorded a loss of approximately $2.0 million relating to the sale,
including a reserve of $1.0 million for the Company's guarantee of the new
entity's line of credit with a bank which ended January 31, 2001.
In 1999, in connection with the resignation of two executive officers, the
Company incurred and recorded a charge of $2.9 million for the termination
benefits as specified in the employment contracts of the officers. During 2000
and 1999, cash payments of approximately $1.4 million and $0.2 million were made
and, at December 31, 2000, the related accrual was $1.3 million.
As described in Note F, in connection with the 1998 acquisition of Softimage,
the Company recorded a charge of approximately $28.4 million in 1998 for the
acquired in-process research and development. The related tax benefit of $8.2
million was reflected in the 1998 tax provision (benefit).
N. SEGMENT INFORMATION
The Company's organizational structure is based on strategic business units that
offer various products to the principle markets in which the Company's products
are sold. These business units equate to two reportable segments: Video and Film
Editing and Effects and Professional Audio.
The Video and Film Editing and Effects segment produces nonlinear video and film
editing systems to improve the productivity of video and film editors and
broadcasters by enabling them to edit moving pictures and sound in a faster,
easier, more creative, and more cost-effective manner than by use of traditional
analog tape-based systems. The products in this operating segment are designed
to provide capabilities for editing and finishing feature films, television
shows, broadcast news programs, commercials, music videos, and corporate and
home videos. The Professional Audio segment produces digital audio systems for
the professional audio market. This operating segment includes products
developed to provide audio recording, editing, signal processing, and automated
mixing.
The accounting policies of each of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on profit and loss from operations before income taxes,
interest income, interest expenses and other income, further excluding the
effects of nonrecurring charges and amortization of intangible assets associated
with acquisitions. Common costs not directly attributable to a particular
segment are allocated among segments based on management's best estimates,
including an allocation of depreciation expense without a corresponding
allocation of the related assets. The segments are reported net of eliminations
resulting from intersegment sales and transfers. The Company does not report
segment assets as part of the assessment of segment performance, as such,
segment asset information is not available.
50
The following is a summary of the Company's operations by reportable segment (in
thousands):
For the Year Ended December 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
Video and Film Editing and Effects:
Net revenues $353,647 $361,012 $412,374
========= ========= =========
Depreciation $16,219 $20,017 $20,290
========= ========= =========
Operating income (loss) ($11,671) ($20,061) $37,818
========= ========= =========
Professional Audio:
Net revenues $122,443 $91,543 $70,003
========= ========= =========
Depreciation $1,174 $1,005 $1,373
========= ========= =========
Operating income (loss) $23,464 $19,771 $11,694
========= ========= =========
Combined Segments:
Net revenues $476,090 $452,555 $482,377
========= ========= =========
Depreciation $17,393 $21,022 $21,663
========= ========= =========
Operating income (loss) $11,793 ($290) $49,512
========= ========= =========
The following table reconciles income (loss) for reportable segments to total
consolidated amounts for the years ended December 31, 2000, 1999 and 1998 (in
thousands):
2000 1999 1998
--------- --------- ---------
Total operating income (loss) for reportable segments $11,793 ($290) $49,512
Unallocated amounts:
Restructuring and other costs (14,469) (28,373)
Amortization of acquisition-related intangible assets (66,872) (79,879) (34,204)
--------- --------- ---------
Consolidated operating loss ($55,079) ($94,638) ($13,065)
========= ========= =========
The 2000 unallocated amount represents the amortization of acquired intangible
assets, including goodwill, as described in Note F. The 1999 unallocated amounts
represent the charges for the 1999 restructuring actions, the loss on the sale
of the Company's Italian subsidiary and other personnel related severance costs
as well as the amortization of acquired intangible assets, including goodwill,
as described in Notes F and M. The 1998 unallocated amounts represent the charge
for in-process research and development and the amortization of acquired
intangible assets, including goodwill, associated with the acquisition of
Softimage as described in Note F.
The following table summarizes the Company's revenues and long-lived assets,
excluding intangible assets and deferred tax assets, by country (in thousands):
For the Year Ended December 31,
-------------------------------
2000 1999 1998
--------- --------- ---------
Revenues
North America (U.S. and Canada) $232,664 $220,405 $244,476
Germany 38,347 46,454 43,825
United Kingdom 39,981 38,420 47,511
Other foreign countries 165,098 147,276 146,565
--------- --------- ---------
Total revenues $476,090 $452,555 $482,377
========= ========= =========
51
December 31,
-------------------------------
2000 1999 1998
--------- --------- ---------
Long-lived assets
North America (U.S. and Canada) $28,026 $37,714 $35,309
United Kingdom 773 1,248 1,867
Other foreign countries 1,262 1,550 2,370
--------- --------- ---------
Total long-lived assets $30,061 $40,512 $39,546
========= ========= =========
Foreign revenue is based on the country in which the sales originate.
O. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist of temporary cash investments and trade receivables. The
Company places its excess cash in marketable investment grade securities. There
are no significant concentrations in any one issuer of debt securities. The
Company places its cash, cash equivalents and investments with financial
institutions with high credit standing. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer bases, and their dispersion across different
regions. The Company also maintains reserves for potential credit losses and
such losses have been within management's expectations.
Forward-Exchange Contracts
As of December 31, 2000 and 1999, the Company had approximately $34.5 million
and $31.7 million, respectively, of foreign currency forward-exchange contracts
outstanding, denominated in various European, Asian and Canadian currencies, as
a hedge against its intercompany and third-party receivables and payables
exposures. The following table summarizes the Company's net currency positions
and approximate U.S. dollar equivalents (in thousands) at December 31, 2000; the
Company is in a sell position with respect to the euro, Canadian dollar and
Japanese yen, and in a buy position with respect to the British pound and the
Australian dollar:
Approximate
Local Currency U.S. Dollar
Amount Equivalent
------------------ ------------------
euro 20,000 $18,664
Canadian dollar 3,000 1,984
Japanese yen 190,000 1,673
British pound 7,000 10,498
Australian dollar 3,000 1,669
--------
$34,488
========
The forward-exchange contracts generally have maturities of one month. Net
realized and unrealized gains (losses) of approximately ($0.9) million, $3.0
million and ($1.1) million resulting from forward-exchange contracts were
included in results of operations for the years ended December 31, 2000, 1999
and 1998, respectively.
P. NET LOSS PER COMMON SHARE
Diluted net loss per share for the years ended December 31, 2000, 1999 and 1998
excludes the effect of options and warrants to purchase 1,415,966, 2,031,990 and
2,534,833 weighted shares of common stock outstanding as of the respective
year-ends. Inclusion of these options and warrants would be anti-dilutive for
each of reported periods.
52
Q. SUPPLEMENTAL CASH FLOW INFORMATION
The following table reflects supplemental cash flow investing activities related
to the Softimage, TMF and Pluto acquisitions.
Year Ended Year Ended
December 31, 2000 December 31, 1998
----------------- ------------------
Fair value of:
Assets acquired and goodwill $2,802 $257,233
Liabilities assumed (812) (13,374)
Debt, common stock, stock options
and warrant issued (164,859)
----------------- ------------------
Cash paid 1,990 79,000
Less: cash acquired - (584)
----------------- ------------------
Net cash paid for acquisition $1,990 $78,416
================= ==================
R. QUARTERLY RESULTS (UNAUDITED)
The following information has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all normal recurring
adjustments necessary for a fair presentation of such information.
In thousands, except per share data:
Quarters Ended
----------------------------------------------------------------------------------
2000 1999
--------------------------------------- -----------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
--------------------------------------- -----------------------------------------
Net revenues $126,144 $121,292 $119,959 $108,696 $111,640 $113,279 $116,353 $111,283
Cost of revenues 62,929 60,303 57,934 53,258 55,872 55,310 50,275 44,420
--------------------------------------- -----------------------------------------
Gross profit 63,215 60,989 62,025 55,438 55,768 57,969 66,078 66,863
--------------------------------------- -----------------------------------------
Operating expenses:
Research & development 21,740 20,890 20,825 19,445 21,417 20,623 22,644 24,248
Marketing & selling 29,560 29,989 31,382 28,539 30,237 33,564 33,525 32,563
General & administrative 6,421 6,070 8,101 6,912 7,538 6,598 7,270 6,741
Restructuring and other costs 14,469
Amortization of acquisition-related
intangible assets 12,418 14,862 19,792 19,800 19,792 19,789 19,787 20,511
--------------------------------------- -----------------------------------------
Total operating expenses 70,139 71,811 80,100 74,696 93,453 80,574 83,226 84,063
--------------------------------------- -----------------------------------------
Operating loss (6,924) (10,822) (18,075) (19,258) (37,685) (22,605) (17,148) (17,200)
Other income, net 604 849 1,233 1,044 857 739 1,263 600
--------------------------------------- -----------------------------------------
Loss before income taxes (6,320) (9,973) (16,842) (18,214) (36,828) (21,866) (15,885) (16,600)
Provision for (benefit from)
income taxes 1,250 1,250 1,250 1,250 68,110 (8,746) (7,849) (5,146)
--------------------------------------- -----------------------------------------
Net loss ($7,570) ($11,223) ($18,092) ($19,464) ($104,938) ($13,120) ($8,036) ($11,454)
======================================= =========================================
Net loss per
share - basic and diluted ($0.30) ($0.45) ($0.74) ($0.81) ($4.42) ($0.56) ($0.34) ($0.47)
======================================= =========================================
Weighted average common
shares outstanding - basic
and diluted 25,018 24,794 24,578 24,065 23,731 23,614 23,946 24,391
======================================= =========================================
High common stock price $21.000 $15.438 $20.563 $24.500 $15.438 $18.938 $22.000 $34.250
Low common stock price $13.359 $10.063 $9.375 $11.438 $10.000 $12.000 $12.500 $17.000
The Company's quarterly operating results fluctuate as a result of a number of
factors including, without limitation, the timing of new product introductions,
marketing expenditures, promotional programs, and periodic discounting due to
competitive factors. The Company's operating results may fluctuate in the future
as a result of these and other factors, including the Company's success in
developing and introducing new products, its products and customer mix and the
level of competition which it experiences. The Company operates with a
relatively small backlog. Quarterly sales and operating results therefore
generally depend on the volume and timing of orders received during the quarter.
The Company's expense levels are based in part on its forecasts of future
revenues. If revenues are below expectations, the Company's operating results
53
may be adversely affected. Accordingly, there can be no assurance that the
Company will be profitable in any particular quarter.
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
55
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "EXECUTIVE
OFFICERS OF THE COMPANY" in Part I hereof, and the remainder is contained in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
June 6, 2001 (the "2001 Proxy Statement") under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 2001 Proxy Statement
under the captions "Election of Directors - Directors' Compensation" and
"Executive Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 2001 Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements are included in Item 8:
- Report of Independent Accountants
- Consolidated Statements of Operations for the years ended December 31, 2000,
1999, and 1998
- Consolidated Balance Sheets as of December 31, 2000 and 1999
- Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998
- Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998
- Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule is included in Item
14(d):
Schedule II - Supplemental Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted since the required
information is not present, or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
56
(a) 3. LISTING OF EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Stock and Asset Purchase Agreement among Microsoft Corporation,
Softimage Inc. and Avid Technology, Inc. dated as of June 15, 1998
together with all material exhibits thereto (incorporated by
reference to the Registrant's Quarterly Report a Form 10-Q as filed
with the Commission on August 12, 1998, File No. 0-21174).
3.1 Certificate of Amendment of the Third Amended and Restated
Certificate of Incorporation of the Registrant (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on May 15, 1995, File No. 0-21174).
3.2 Third Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant's
Registration Statement on Form S-8 as filed with the Commission on
June 9, 1993, File No. 33-64126).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to the Registrant's Registration Statement on Form S-1 as
declared effective by the Commission on March 11, 1993, File No.
33-57796).
3.4 Certificate of Designations establishing Series A Junior
Participating Preferred Stock (the "Certificate of Designations")
(incorporated by reference to the Registrant's Current Report on
Form 8-K as filed with the Commission on March 8, 1996).
3.5 Certificate of Correction to the Certificate of Designations
(incorporated by reference to the Registrant's Current Report on
Form 8-K as filed with the Commission on March 8, 1996).
4.1 Specimen Certificate representing the Registrant's Common Stock
(incorporated by reference to the Registrant's Registration
Statement on Form S-1 as declared effective by the Commission on
March 11, 1993, File No. 33-57796).
4.2 Rights Agreement, dated as of February 29, 1996, between the
Registrant and The First National Bank of Boston, as Rights Agent
(incorporated by reference to the Registrant's Current Report on
Form 8-K as filed with the Commission on March 8, 1996, File No.
0-21174).
4.3 Common Stock Purchase Warrant dated August 3, 1998 by and between
Avid Technology, Inc. and Microsoft Corporation (incorporated by
reference to the Registrant's Quarterly Report a Form 10-Q as filed
with the Commission on November 13, 1998, File No. 0-21174).
10.1 Lease dated September 29, 1995 between Allied Dunbar Insurance PLC
and Avid Technology Limited (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on November 14, 1995, File No. 0-21174).
10.2 Lease dated August 30, 1995 between Syntex (U.S.A.) Inc. and Avid
Technology, Inc. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on
November 14, 1995, File No. 0-21174).
10.3 Lease between MGI Andover Street, Inc. and Avid Technology, Inc.
dated March 21, 1995 (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on May
15, 1995, File No. 0-21174).
10.4 Amended and Restated lease dated as of June 7, 1996 between MGI One
Park West, Inc. and Avid Technology, Inc. (incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on August 14, 1996, File No. 0-21174).
57
10.15 Form of Distribution Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
10.16 Form of Purchase and License Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
10.17 Form of Software Only License Agreement(incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.18 1989 Stock Option Plan(incorporated by reference to the Registrant's
Registration Statement on Form S-1 as declared effective by the
Commission on March 11, 1993, File No. 33-57796).
#10.19 1993 Stock Incentive Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.20 1993 Director Stock Option Plan, as amended (incorporated by
reference to the Registrant's Proxy Statement as filed with the
Commission on April 27, 1995, File No. 0-21174).
#10.21 1993 Executive Compensation Agreement incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.22 1993 Employee Stock Purchase Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on June 9, 1993, File No. 33-64130).
#10.23 1994 Stock Option Plan, as amended (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on October 27, 1995, File No. 33-98692).
#10.24 Digidesign, Inc. 1991 Stock Option Plan(incorporated by reference to
Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on May 15, 1995, File No. 0-21174).
#10.25 1995 Executive Variable Compensation Program (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on May 15, 1995, File No. 0-21174).
#10.26 1998 Executive and Senior Management Variable Compensation Plan
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.27 1997 Stock Option Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 27, 1998, File No. 0-21174).
#10.28 1996 Employee Stock Purchase Plan, as amended (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed
with the Commission on March 27, 1998, File No. 0-21174).
#10.29 1998 Non-Qualified Deferred Compensation Plan (incorporated by
reference to the Registrant's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, File No. 33-42569).
#10.30 1998 Profit Sharing Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 27, 1998, File No. 0-21174).
#10.31 Employment Agreement between the Company and William J. Miller
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.32 Change-in-Control Agreement between the Company and William J.
Miller (incorporated by reference to the Registrant's Annual Report
on Form 10-K as filed with the Commission on March 27, 1998, File
No. 0-21174).
58
#10.33 Employment Agreement between the Company and William L. Flaherty
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.34 Change-in-Control Agreement between the Company and William L.
Flaherty (incorporated by reference to the Registrant's Annual
Report on Form 10-K as filed with the Commission on March 27, 1998,
File No. 0-21174).
#10.35 Employment agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q as filed with the Commission on November 14, 1996, File
No. 0-21174).
#10.36 1999 Profit Sharing Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 30, 1999, File No. 0-21174).
#10.37 1999 Executive and Senior Management Variable Compensation Plan
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
10.38 Registration Rights Agreement dated August 3, 1998 by and between
Avid Technology, Inc. and Microsoft Corporation (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on November 13, 1998, File No. 0-21174).
10.39 Form of Electronic Software License Agreement (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed
with the Commission on March 30, 1999, File No. 0-21174).
#10.40 Form of Employment Agreements between the Company and certain
Executive Officers (incorporated by reference to the Registrant's
Annual Report on Form 10-K as filed with the Commission on March 30,
1999, File No. 0-21174).
#10.41 Form of Change-in-Control Agreement between the Company and certain
Executive Officers (incorporated by reference to the Registrant's
Annual Report on Form 10-K as filed with the Commission on March 30,
1999, File No. 0-21174).
#10.42 Employment Agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
#10.43 Change-in-Control Agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
#10.44 1999 Stock Option Plan(incorporated by reference to the Registrant's
Registration Statement on Form S-8 as filed with the Commission on
January 6, 2000, 1999, File No. 33-94167).
*21 Subsidiaries of the Registrant.
*23.1 Consent of PricewaterhouseCoopers LLP.
- ------------------
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.
59
(b) REPORTS ON FORM 8-K
For the fiscal quarter ended December 31, 2000, the Company filed no Current
Reports on Form 8-K.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AVID TECHNOLOGY, INC.
(Registrant)
By: /s/ David Krall By: /s/ Paul J. Milbury By: /s/ Carol L. Reid
---------------- ------------------------- ----------------------
David Krall Paul J. Milbury Carol L. Reid
President and Chief Financial Officer Vice President and
Chief Executive (Principal Financial Officer) Corporate Controller
Officer (Principal Accounting
(Principal Officer)
Executive Officer)
Date: March 26, 2001 Date: March 26, 2001 Date: March 26, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Charles T. Brumback Director March 23, 2001
-------------------------
Charles T. Brumback
/s/ Peter C. Gotcher Director March 23, 2001
-------------------------
Peter C. Gotcher
/s/ Robert M. Halperin Director March 23, 2001
-------------------------
Robert M. Halperin
/s/ Nancy Hawthorne Director March 26, 2001
-------------------------
Nancy Hawthorne
/s/ Roger J. Heinen, Jr. Director March 23, 2001
-------------------------
Roger J. Heinen, Jr.
/s/ William J. Warner Director March 26, 2001
-------------------------
William J. Warner
61
AVID TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2000
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULE
62
AVID TECHNOLOGY, INC.
SCHEDULE II - SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2000, 1999 and 1998
(in thousands)
Additions
---------------------------
Description Balance at Charged to Charged to Balance at
beginning of costs and other end of
period expenses accounts Deductions period
- ------------------------- ------------ ------------ ------------ ------------ ------------
Allowance for doubtful accounts
December 31, 2000 $7,397 $4,350 ($1,941) (a) $9,806
December 31, 1999 5,868 3,230 1,220 (2,921) (a) 7,397
December 31, 1998 7,098 2,104 (117) (3,217) (a) 5,868
Sales returns and allowances
December 31, 2000 $1,557 $6,465 (b) ($6,444) (c) $1,578
December 31, 1999 1,303 2,414 (b) (2,160) (c) 1,557
December 31, 1998 430 2,433 (b) (1,560) (c) 1,303
Allowance for transactions with recourse
December 31, 2000 $3,923 $1,744 $2,079 (b) ($2,720) (c) $5,026
December 31, 1999 3,449 747 1,368 (b) (1,641) (c) 3,923
December 31, 1998 2,237 1,440 322 (b) (550) (c) 3,449
Deferred tax asset valuation allowance
December 31, 2000 $90,637 $24,177 $1,148 $115,962
December 31, 1999 90,244 393 90,637
(a) Amount represents write-offs, net of recoveries.
(b) Provisions for sales returns, volume rebates, and a portion of the provision
for transactions with recourse are charged directly against revenue.
(c) Amount represents volume rebates, promotions and credits for warranty.
F-1
Index to Exhibits
Exhibit No. Description
- --------------------------------------------------------------------------------
2.1 Stock and Asset Purchase Agreement among Microsoft Corporation,
Softimage Inc. and Avid Technology, Inc. dated as of June 15, 1998
together with all material exhibits thereto (incorporated by
reference to the Registrant's Quarterly Report a Form 10-Q as filed
with the Commission on August 12, 1998, File No. 0-21174).
3.1 Certificate of Amendment of the Third Amended and Restated
Certificate of Incorporation of the Registrant (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on May 15, 1995, File No. 0-21174).
3.2 Third Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant's
Registration Statement on Form S-8 as filed with the Commission on
June 9, 1993, File No. 33-64126).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to the Registrant's Registration Statement on Form S-1 as
declared effective by the Commission on March 11, 1993, File No.
33-57796).
3.4 Certificate of Designations establishing Series A Junior
Participating Preferred Stock (the "Certificate of Designations")
(incorporated by reference to the Registrant's Current Report on
Form 8-K as filed with the Commission on March 8, 1996).
3.5 Certificate of Correction to the Certificate of Designations
(incorporated by reference to the Registrant's Current Report on
Form 8-K as filed with the Commission on March 8, 1996).
4.1 Specimen Certificate representing the Registrant's Common Stock
(incorporated by reference to the Registrant's Registration
Statement on Form S-1 as declared effective by the Commission on
March 11, 1993, File No. 33-57796).
4.3 Rights Agreement, dated as of February 29, 1996, between the
Registrant and The First National Bank of Boston, as Rights Agent
(incorporated by reference to the Registrant's Current Report on
Form 8-K as filed with the Commission on March 8, 1996, File No.
0-21174).
4.3 Common Stock Purchase Warrant dated August 3, 1998 by and between
Avid Technology, Inc. and Microsoft Corporation (incorporated by
reference to the Registrant's Quarterly Report a Form 10-Q as filed
with the Commission on November 13, 1998, File No. 0-21174).
10.1 Lease dated September 29, 1995 between Allied Dunbar Insurance PLC
and Avid Technology Limited (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on November 14, 1995, File No. 0-21174).
10.2 Lease dated August 30, 1995 between Syntex (U.S.A.) Inc. and Avid
Technology, Inc. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on
November 14, 1995, File No. 0-21174).
10.3 Lease between MGI Andover Street, Inc. and Avid Technology, Inc.
dated March 21, 1995 (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on May
15, 1995, File No. 0-21174).
10.4 Amended and Restated lease dated as of June 7, 1996 between MGI One
Park West, Inc. and Avid Technology, Inc. (incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on August 14, 1996, File No. 0-21174).
10.15 Form of Distribution Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
10.16 Form of Purchase and License Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
10.17 Form of Software Only License Agreement(incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.18 1989 Stock Option Plan(incorporated by reference to the Registrant's
Registration Statement on Form S-1 as declared effective by the
Commission on March 11, 1993, File No. 33-57796).
#10.19 1993 Stock Incentive Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.20 1993 Director Stock Option Plan, as amended (incorporated by
reference to the Registrant's Proxy Statement as filed with the
Commission on April 27, 1995, File No. 0-21174).
#10.21 1993 Executive Compensation Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.22 1993 Employee Stock Purchase Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on June 9, 1993, File No. 33-64130).
#10.23 1994 Stock Option Plan, as amended (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on October 27, 1995, File No. 33-98692).
#10.24 Digidesign, Inc. 1991 Stock Option Plan (incorporated by reference
to Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on May 15, 1995, File No. 0-21174).
#10.25 1995 Executive Variable Compensation Program (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on May 15, 1995, File No. 0-21174).
#10.26 1998 Executive and Senior Management Variable Compensation Plan
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.27 1997 Stock Option Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
#10.28 1996 Employee Stock Purchase Plan, as amended (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed
with the Commission on March 27, 1998, File No. 0-21174).
#10.29 1998 Non-Qualified Deferred Compensation Plan (incorporated by
reference to the Registrant's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, File No. 33-42569).
#10.30 1998 Profit Sharing Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 27, 1998, File No. 0-21174).
#10.31 Employment Agreement between the Company and William J. Miller
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.32 Change-in-Control Agreement between the Company and William J.
Miller (incorporated by reference to the Registrant's Annual Report
on Form 10-K as filed with the Commission on March 27, 1998, File
No. 0-21174).
#10.33 Employment Agreement between the Company and William L. Flaherty
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 27, 1998, File No.
0-21174).
#10.34 Change-in-Control Agreement between the Company and William L.
Flaherty (incorporated by reference to the Registrant's Annual
Report on Form 10-K as filed with the Commission on March 27, 1998,
File No. 0-21174).
#10.35 Employment agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q as filed with the Commission on November 14, 1996, File
No. 0-21174).
#10.36 1999 Profit Sharing Plan (incorporated by reference to the
Registrant's Annual Report on Form 10-K as filed with the Commission
on March 30, 1999, File No. 0-21174).
#10.37 1999 Executive and Senior Management Variable Compensation Plan
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
10.38 Registration Rights Agreement dated August 3, 1998 by and between
Avid Technology, Inc. and Microsoft Corporation (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on November 13, 1998, File No. 0-21174).
10.39 Form of Electronic Software License Agreement (incorporated by
reference to the Registrant's Annual Report on Form 10-K as filed
with the Commission on March 30, 1999, File No. 0-21174).
#10.40 Form of Employment Agreements between the Company and certain
Executive Officers (incorporated by reference to the Registrant's
Annual Report on Form 10-K as filed with the Commission on March 30,
1999, File No. 0-21174).
#10.41 Form of Change-in-Control Agreement between the Company and certain
Executive Officers (incorporated by reference to the Registrant's
Annual Report on Form 10-K as filed with the Commission on March 30,
1999, File No. 0-21174).
#10.42 Employment Agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
#10.43 Change-in-Control Agreement between the Company and Clifford Jenks
(incorporated by reference to the Registrant's Annual Report on Form
10-K as filed with the Commission on March 30, 1999, File No.
0-21174).
#10.44 1999 Stock Option Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on January 6, 2000, 1999, File No. 33-94167).
*21 Subsidiaries of the Registrant.
*23.1 Consent of PricewaterhouseCoopers LLP.
- ------------------
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.
SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 2000
------------------------------------------------------
AVID INTERNET MEDIA GROUP, INC. (Delaware)
AVID TECHNOLOGY WORLDWIDE, INC. (Delaware)
AVID TECHNOLOGY SECURITIES CORPORATION (Massachusetts)
AVID TECHNOLOGY FSC LIMITED (Barbados)
AVID TECHNOLOGY EUROPE LIMITED (England)
AVID TECHNOLOGY IBERIA LTD (England)
AVID TECHNOLOGY S.A.R.L. (France)
AVID TECHNOLOGY G.m.b.H. (Germany)
AVID TECHNOLOGY SALES LIMITED (Ireland)
DIGIDESIGN ITALY S.R.L. (Italy)
AVID TECHNOLOGY HOLDING B.V. (Netherlands)
AVID TECHNOLOGY INTERNATIONAL B.V. (Netherlands)
AVID JAPAN K.K. (Japan)
AVID TECHNOLOGY (S.E. ASIA) PTE LTD (Singapore)
AVID TECHNOLOGY (AUSTRALIA) PTY LTD (Australia)
AVID NORTH ASIA LIMITED (Hong Kong)
SOFTIMAGE CO. (Canada)
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 and Form S-8 of Avid Technology, Inc. of our report dated
January 31, 2001 relating to the financial statements and financial statement
schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 23, 2001