Avid 2004 Annual Report Download - page 34

20
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,
2004
2003
2002
Net revenues
100.0%
100.0%
100.0%
Cost of revenues
43.3%
44.4%
49.5%
Gross profit
56.7%
55.6%
50.5%
Operating expenses:
Research and development
16.1%
18.1%
19.7%
Marketing and selling
23.0%
23.2%
24.0%
General and administrative
5.1%
4.9%
4.7%
Restructuring and other costs, net
–
0.7%
0.7%
Amortization of intangible assets
0.6%
0.3%
0.3%
Impairment of intangible assets
0.2%
–
–
Total operating expenses
45.0%
47.2%
49.4%
Operating income
11.7%
8.4%
1.1%
Interest and other income (expense), net
0.2%
0.4%
0.0%
Income before income taxes
11.9%
8.8%
1.1%
Provision for (benefit) from income taxes
(0.3%)
0.1%
0.4%
Net income
12.2%
8.7%
0.7%
Net Revenues
Our net revenues are 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. This market has been,
and we expect it to continue to be, highly competitive. A significant portion of these revenues is generated by sales near the
end of each quarter, which can impact our ability to accurately forecast revenues on a quarterly basis. Increasingly,
revenues are also being derived from sales of “solutions” encompassing multiple products and networking capabilities that
enable users to share and manage media throughout a project or organization. Such solution sales may include training and
installation services, as well as workflow management assistance, to be provided by us or a third party. Depending upon the
complexity of the arrangement and the level of our involvement, the revenues resulting from these solution sales may be
deferred for one or more quarters while the services are being performed.
Net revenues increased 24.9%, from $471.9 million in 2003 to $589.6 million, in 2004. Revenues in our Video
business increased $60.3 million or 18.2%, to $391.1 million from $330.9 million, while revenues in our Audio business
grew by $57.4 million or 40.7%, to $198.5 million from $141.1 million. We estimate that approximately 118% or $71.0
million of the growth in the Video segment during 2004 relates to increased sales volume of our products and services,
including a full year of sales of the Avid DNA family of products released during the second and third quarters of 2003.
This increased volume growth was partially offset (18% or $10.7 million) by lower average selling prices of our various
products despite favorable foreign currency exchange rates, especially with respect to the euro. Average selling prices also
include the impact of price changes, discounting, and mix (higher or lower-end) of products sold. Included in our Video
revenues are revenues from services. Service revenues increased $14.6 million or 31.5% to $61.1 million in 2004 from
$46.5 million in 2003. Service revenues consist primarily of maintenance contracts, installations and training. For the
Audio segment, the revenue growth in 2004 is attributed to the increased sales volume of Digidesign’s core products as well
as the acquisition of M-Audio in August of 2004 (which accounted for $26.2 million of the Audio revenue growth).
Net revenues increased 12.7% from $418.7 million in 2002 to $471.9 million in 2003. Revenues in our Video
business increased $48.0 million or 17.0%, to $330.9 million from $282.9 million, while revenues in our Audio business
grew by $5.2 million or 3.8%, to $141.1 million from $135.9 million. We estimate that approximately 73%, or $35.3
million, of the growth in the Video segment during 2003 relates to increased sales volume of our products and services,
including the new Avid DNA family of products released during 2003. The remaining 27%, or $12.7 million, of growth is
attributed to higher average selling prices of our various products, which in 2003 was particularly impacted by favorable
foreign currency exchange rates, especially with respect to the euro. Average selling prices also include the impact of price