Avid 1998 Annual Report Download - page 48

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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 income (loss) and earnings per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996
Net
Income
(Loss)
Earnings
per share
Basic
Earnings
per share
Dilutive
Net
Income
(Loss)
Earnings
per share
Basic
Earnings
per share
Dilutive
Net
Income
(Loss)
Earnings
per share
Basic
Earnings
per share
Dilutive
As
Reported ($3,633) ($0.15) ($0.15) $26,384 $1.14 $1.08 ($38,044) ($1.80) ($1.80)
Pro Forma ($13,598) ($0.58) ($0.58) $18,855 $0.82 $0.76 ($46,400) ($2.19) ($2.19)
The fair value of regular employee options granted during 1998, 1997 and 1996 is estimated on the date of grant using the
Black-Scholes option-pricing model utilizing the following weighted-average assumptions: (1) risk free interest rate of
5.15%, 6.47%, and 6.05%, for 1998, 1997 and 1996, respectively, based on zero-coupon U.S. government issues, (2)
expected option life from date of vesting of 17 months, (3) expected stock volatility of 61.8% for 1998, 61.2% for 1997,
and 58.31% for 1996, and (4) expected dividend yield of 0.0%.
The fair value of awards under the Employee Stock Purchase plans during 1998, 1997 and 1996 is estimated on the date of
the purchase using the Black-Scholes option-pricing model utilizing the following weighted average assumptions: (1)
expected option life of 6 months, (2) expected volatility of 61.8% for 1998, 61.2% for 1997, and 58.31% for 1996, and (3)
expected dividend yield of 0.0%. The risk-free interest rate used in determining the fair value of the plans was determined
to be the rate on a zero-coupon six month U.S. Government issue on the first day of the offering period for each of the six
plan periods. These interest rates ranged from 4.97% to 6.21% in each year. The amount of compensation expense, net of
income taxes, related to the Employee Stock Purchase plans, included in the pro forma net income (loss) and earnings per
share detailed in the table above, is approximately $1.0 million, $499,000 and $626,000 for 1998, 1997 and 1996,
respectively.
The effects of applying SFAS No. 123 for the purposes of pro forma disclosures may not be indicative of the effects on
reported net income (loss) and net income (loss) per share for future 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 for options with an exercise price at the then fair
market value of $16.50 per share and a first vest date of February 21, 1997. This cancellation and reissuance of stock
options affected approximately 860,000 options.
K. 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, 1998 are as follows (in thousands):
1999 $13,198
2000 11,577
2001 7,758
2002 6,674
2003 5,253
Thereafter 28,463
Total $72,923