Avid 1997 Annual Report Download - page 22

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General and Administrative
General and administrative expenses increased $1.6 million (6.6%) in the year ended December 31, 1997 compared to 1996
and increased by $6.1 million (33.8%) in the year ended December 31, 1996 compared to 1995. This increase in general and
administrative expenses for 1997 compared to 1996 was primarily due to provisions resulting from the Company’s profit
sharing plan. The increase in general and administrative expenses in 1996 compared to 1995 was primarily due to increased
staffing and associated costs necessary to support the Company’s growth as well as increased legal expenses associated with
various litigation matters to which the Company is a party and certain severance and recruiting costs. General and
administrative expenses as a percentage of net revenues were 5.5% in 1997 compared to 5.6% in 1996 and increased from
4.4% in 1995.
Nonrecurring Costs
During the first quarter of 1996, the Company recorded charges for nonrecurring costs consisting of $7.0 million for
restructuring charges related to February 1996 staffing reductions of approximately 70 employees primarily in the U.S., the
Company’s concurrent decision to discontinue certain products and development projects and $13.2 million for product
transition costs in connection with the transition from NuBus to PCI bus technology in certain of its product lines.
Included in the $7.0 million for restructuring charges were approximately $5.0 million of cash payments and $2.0 million
of non-cash charges. During the third quarter of 1996, the Company recorded charges for costs of $8.8 million, associated
primarily with the Company’s decision not to release the Avid Media Spectrum product line. Approximately $7.2 million
of the $8.8 million nonrecurring charge related to non-cash items associated with the write-off of assets. The Company has
completed the related restructuring actions. In the first quarter of 1995, the Company acquired Digidesign, Inc., Parallax
Software Limited, 3 Space Software Limited and Elastic Reality, Inc. In connection with these acquisitions, the Company
recorded merger costs of approximately $5.5 million, of which $3.9 million represented direct transaction expenses and $1.6
million consisted of various restructuring charges.
Other Income and Expense, Net
Interest and other income, net consists of interest income, other income and interest expense. Interest and other income, net
for 1997 which consisted primarily of interest income, increased $4.7 million from 1996 which, in turn, increased $2.0
million from 1995. For the years ended December 31, 1997 and December 31, 1996, interest and other income, net
increased primarily due to higher cash and investment balances. In addition, 1996 other income increased from the 1995
amount due to the spin-out of certain technologies which resulted in equity income, a gain on sale of a product line, and
royalties received during the year.
Provision for (Benefit from) Income Taxes
The Company’s effective tax rate was 31%, 32%, and 36%, respectively, for 1997, 1996 and 1995. The 1997 effective tax
rate of 31.0% is different from the Federal statutory rate of 35.0% due primarily to the Company’s foreign subsidiaries,
which are taxed in the aggregate at a lower rate, and the U.S. Federal Research Tax Credit. The 1996 effective tax rate is
different from the Federal statutory rate of 35.0% primarily due to the impact of the Company’s foreign subsidiaries. The
1995 effective tax rate of 36% is greater than the Federal statutory rate primarily due to non-deductible merger costs. The
1995 provision included taxes of $8.7 million at an effective rate of 32% on $27.5 million of earnings before merger
charges. The 1995 provision also included a tax benefit of $640,000 on merger costs of $5.5 million, of which $1.6
million were tax deductible.
Liquidity and Capital Resources
The Company has funded its operations to date through both private and public sales of equity securities as well as through
cash flows from operations. As of December 31, 1997, the Company’s principal sources of liquidity included cash, cash
equivalents, and marketable securities totaling approximately $187.0 million.
The Company’s operating activities generated cash of $111.2 million in 1997 compared to generating cash of $40.9 million
in 1996. Cash was generated during the twelve months ended December 31, 1997 primarily from net income, as well as
increases in accrued expenses and income taxes payable and reductions in inventory. In 1997, the increase in accrued
expenses was primarily due to provisions for profit sharing while the reduction in inventory resulted from improved stock
turns.