Avid 1998 Annual Report Download

Download and view the complete annual report

Please find the complete 1998 Avid annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 63

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63

1998 Annual Report

Table of contents

  • Page 1
     19 9 8 Annual Report

  • Page 2
    ... targeted four key markets which are today dominated by linear or special processing solutions that are ready to be replaced with new non-linear technology. These are: | Television Finishing | Broadcast News | Corporate/Industrial Video | Audio Production We estimate the total size of these markets...

  • Page 3
    ...Symphony and SOFTIMAGE|DS systems. Digidesign's audio products had a record 1998 and we expect even better performance in 1999. Avid Xpress for Windows NT gives us a strong entry into the corporate market. Finally, we expect that this year's new product introductions, from very cost effective office...

  • Page 4
    ... $471,338 53.0% 1996 $429,009 44.3% 1995 $406,650 51.1% 1994 $233,633 53.7% per share-diluted ($0.15) $1.08 ($1.80) $0.77 $0.99 Ba l a nc e She e t 31, $ in thousands (except per share data and employees) 1998 $111,826 89,754 11,093 118,965 486,715 290,311 11.90 1,929 1997 $186...

  • Page 5
    ... or organization) 04-2977748 (I.R.S. Employer 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...

  • Page 6
    Meeting of Stockholders to be held June 2, 1999... III

  • Page 7
    ...ITEM 1. BUSINESS Avid Technology, Inc. ("Avid" or "the Company") develops, markets, sells and supports a wide range of software and systems for creating and manipulating digital media content. Digital media are media elements, whether video or audio or graphics, in which the image, sound or picture...

  • Page 8
    ...; and by providing excellent customer service, support and training. To this end, in August 1998, Avid acquired the common stock of Softimage as well as certain assets related to its business. Softimage is a leading developer of 3D animation, video production, 2D cel animation (a cel in 2D cel...

  • Page 9
    ...audio source material. Such uncompressed media allow users to work with higher quality digital images and sound. Avid Symphony uses the Windows NT operating system and delivers all of the proven Media Composer editing functionality using two streams of uncompressed video and a graphics channel. Avid...

  • Page 10
    .... SOFTIMAGE|DS runs on the Windows NT platform. Avid Xpress for Macintosh and Windows NT: The Avid Xpress product is a digital, nonlinear video editing system designed to meet the needs of professional media entrepreneurs and video/film educators involved with video and multimedia production for...

  • Page 11
    ...-based personal computers. Pro Tools is developed by Digidesign for the professional music, film, television, radio, multimedia, DVD and web production markets. Pro Tools features include audio recording, editing, signal processing and automated mixing. Pro Tools provides an open architecture...

  • Page 12
    ... of best-in-class video, film, 3D 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 consumer, educational and corporate markets. As these digital tools...

  • Page 13
    ... 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...

  • Page 14
    ... 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...

  • Page 15
    ... Chief Financial Officer and Treasurer Senior Vice President and General Manager of Digidesign Senior Vice President and General Manager of Office and Consumer Products Senior Vice President of Technical Strategies Senior Vice President Senior Vice President of Human Resources and Corporate Services...

  • Page 16
    ... and General Manager of Professional Products. She was Senior Vice President of Engineering from May 1997 to December 1997. She was Vice President of Emerging Business at IBM from October 1995 to May 1997, was the Vice President of Network Software Business Unit at Digital Equipment Corporation from...

  • Page 17
    ...ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's 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 the fiscal years ended December 31...

  • Page 18
    ... operations of Softimage are included as of the date of acquisition. In January 1995, the Company completed a merger with Digidesign that was accounted for as a pooling of interests and, accordingly, all financial data presented was restated to include the combined results of Avid and Digidesign as...

  • Page 19
    ... forma net income per common share, excluding nonrecurring costs and amortization of acquisition-related intangible assets - diluted Weighted average common shares outstanding - diluted used for pro forma calculations $40,123 For the Year ended December 31, 1997 1996 1995 1994 $26,384 ($14,518) $18...

  • Page 20
    ... Results." Avid develops and provides digital film, video and audio editing and special effects software and hardware technologies to create media content for information and entertainment applications. Integrated with the Company' s digital storage and networking solutions, Avid' s products are...

  • Page 21
    ... of growth in unit sales of MCXpress products for Macintosh and NT platforms, storage systems, and digital audio products. During 1998, the Company introduced numerous new products, including Symphony, Media Composer 9000, SOFTIMAGE|DS 2.1, Avid Express for Windows NT, Pro Tools|24 Mix, and Marquee...

  • Page 22
    ... required to develop this project into a commercially viable product principally relate 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...

  • Page 23
    ... 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 the Company' s implied weighted average cost of capital due to the inherent...

  • Page 24
    ... 1.6 million shares of Avid common stock in March 1997. Other planned uses of cash include the efforts to develop the purchased in-process research and development related to the Softimage acquisition into commercially viable products. As of December 31, 1998, the estimated costs to be incurred to...

  • Page 25
    ..., and financial expertise in order to achieve Year 2000 readiness. In 1998, the Company established the worldwide program to address its software and hardware product and customer concerns, its internal business systems, including technology infrastructure and embedded technology systems, and the...

  • Page 26
    ...developed a plan which includes testing and evaluating system capabilities, determining euro and legacy currency pricing strategies and analyzing the effects on the Company' s currency exposure and hedging practices. The Company' s plan will determine whether the Company will be able to process euro...

  • Page 27
    ... has expanded its product line to address the digital media production needs of the television broadcast news market, online film and video finishing market and the emerging market for multimedia production tools, including the corporate and home user market. The Company has limited experience...

  • Page 28
    ... Technology; a 3D digital video effects board from Pinnacle Systems; application specific integrated circuits ("ASICS") from Chip Express and LSI Logic; digital signal processing integrated circuits from Motorola; a fibre channel adapter card from JNI; a fibre channel storage array from Data General...

  • Page 29
    ...litigation; an adverse resolution of any such proceedings could have a material adverse effect on the Company' s business and results of operations. See Item 3. Legal Proceedings and Note K to Consolidated Financial Statements. ITEM 7A. Not applicable. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT...

  • Page 30
    AVID TECHNOLOGY, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1998 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION 25

  • Page 31
    AVID TECHNOLOGY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8: Report of Independent Accountants...Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 ...Consolidated ...

  • Page 32
    ... in accordance with generally accepted auditing standards, 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...

  • Page 33
    AVID TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) For the Year Ended December 31, 1998 1997 1996 Net revenues Cost of revenues Gross profit Operating expenses: Research and development Marketing and selling General and administrative Nonrecurring ...

  • Page 34
    ... assets Property and equipment, net Long-term deferred tax assets Acquisition-related intangible assets Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Current portion of long-term debt Accrued compensation and benefits Accrued expenses Income...

  • Page 35
    ...and related tax benefits Sale of common stock under Employee Stock Purchase Plan Issuance of restricted stock Restricted stock grants canceled and compensation expense Comprehensive income (loss): Net income Other comprehensive income (loss): Net unrealized gains on marketable securities Translation...

  • Page 36
    ...activities: Charge for acquired in-process research and development, net of tax benefit Depreciation and amortization Compensation from stock grants and options Provision for doubtful accounts Changes in deferred tax assets Tax benefit of stock option exercises Provision for product transition costs...

  • Page 37
    ...Technology, Inc. ("Avid" or "the Company") develops, markets, sells and supports a wide range of software and systems for creating and manipulating digital media content. Digital media are media elements, whether video or audio or graphics, in which the image, sound or picture is recorded and stored...

  • Page 38
    ... 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...

  • Page 39
    ... revenue allocated to the telephone support is recognized at time of product shipment, with the costs of providing the support being accrued. Warranty Expense The Company provides a warranty reserve at the time of sale for the estimated cost to repair or replace defective hardware products. Research...

  • Page 40
    ...one year. D. INVENTORIES Inventories consist of the following (in thousands): December 31, 1998 $6,193 2,081 2,819 $11,093 Raw materials Work in process Finished goods 1997 $5,488 674 3,680 $9,842 E. CAPITALIZED SOFTWARE DEVELOPMENT COSTS Capitalized purchased and internally developed software...

  • Page 41
    ...(in thousands): Depreciable Life 2 to 5 years 3 to 5 years 3 to 5 years 3 to 10 years December 31, 1998 1997 $85,365 $75,042 4,874 4,652 7,138 6,820 15,287 13,105 112,664 99,619 77,266 60,702 $35,398 $38,917 Computer and video equipment Office equipment Furniture and fixtures Leasehold improvements...

  • Page 42
    ..., the Note has been increased by approximately $5.2 million for forfeited Avid stock options. The Company made cash interest payments of $77,000 during 1998. H. INCOME TAXES Income (loss) before income taxes and the components of the income tax provision (benefit) for the years ended December 31...

  • Page 43
    .... 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...

  • Page 44
    ...(see Note O), 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 are exercisable after August 3, 2000, at a price of $47.65 per share, and expire after August 3, 2008. J. EMPLOYEE BENEFIT PLANS PROFIT...

  • Page 45
    ... the 670,884 shares, equivalent to the number of options outstanding, taking into effect the exchange ratio of 0.79 shares of Avid common stock for each share of Digidesign common stock. Under the plan, options may be granted to employees, directors, consultants, and advisors to the company...

  • Page 46
    ... terms of the options granted under this plan are essentially the same as for those granted under the 1989 Plan. The options generally vest over a four-year period. 1998 Avid-Softimage Stock Option Plan The 1998 Avid-Softimage Stock Option Plan was approved by the Board of Directors as part of the...

  • Page 47
    ...approximately 1.8 million shares of common stock with a nominal exercise price in connection with the acquisition of Softimage (see Note O). As a result of this nominal exercise price, the Company excluded the effects of the options issued from the calculation of 1998 pro forma net loss from SFAS No...

  • Page 48
    ...years, as the pro forma disclosures include the effects of only those awards granted after January 1, 1995. On February 12, 1996, the Board of Directors authorized that all options under the 1994 Stock Option Plan at an exercise price greater than or equal to $28.48 would be eligible to be exchanged...

  • Page 49
    ... 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...

  • Page 50
    ... 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 or product performance. Management does not believe these claims will have a material adverse effect on the financial position...

  • Page 51
    ... 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...

  • Page 52
    ...associated with the Company' s decision not to release the Avid Media Spectrum product line as described in Note N as well as approximately $5.6 million associated with the write-off of spare parts no longer required to support the business. The following table summarizes the Company' s revenues and...

  • Page 53
    ... 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...

  • Page 54
    ... 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...

  • Page 55
    ...as of December 31, 1997 were excluded from the year-to-date calculation of diluted net income per share because the exercise prices of those options exceeded the average market price of common stock during the periods. See Note R for supplemental pro forma calculations of net income (unaudited). 50

  • Page 56
    ... in net loss per basic and diluted share of $5.08. 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...

  • Page 57
    ... in cost of revenues of approximately $5.6 million associated with the write-off of spare parts no longer required to support the business. S. SUPPLEMENTAL CASH FLOW INFORMATION The following table reflects supplemental cash flow investing activities related to the Softimage acquisition. Year Ended...

  • Page 58
    Not applicable. 53

  • Page 59
    ... Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements FINANCIAL STATEMENT SCHEDULE The following consolidated financial statement schedule is included in Item 14(d): Schedule II Supplemental Valuation and Qualifying Accounts...

  • Page 60
    ...(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/ William J. Miller William J. Miller Chairman of the Board and Chief Executive Officer (Principal...

  • Page 61
    ... Symphony SOFTIMAGE|DS 2.1 Media Composer 7.0 Broadcast News NewsCutter DV AvidNews Audio ProControl Pro Tools|24 Mix Pro Tools|24 NT Corporate/Industrial Avid Xpress for Windows NT Avid Xpress 2.0 for Macintosh MCXpress for Windows NT 1.6 Graphics & Effects Media Illusion 5.0 Marquee Office...

  • Page 62
    ... i nqui ri e s | William E.Foster Chairman of the Board Stratus Computer, Inc. Inquiries relating to the Company, its activities or its securities should be addressed to: Rick W. Gaisser Director of Investor Relations Avid Technology, Inc. Avid Technology Park One Park West Tewksbury, MA 01876 tel...

  • Page 63
    ... and General Manager of Office and Consumer Products Ethan E. Jacks Vice President of Business Development and General Counsel Avid Technology, Inc. Avid Technology Park One Park West Tewksbury, MA 01876 tel 978 640 6789 www.avid.com | Avid Technology Europe Limited Pinewood Studios Pinewood Road...