Avid 1996 Annual Report Download - page 15

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The text of this document may include forward-looking statements. Actual results may differ materially from those
described herein, depending on such factors as are described herein, including under “Certain Factors That May Affect Future
Results.”
The Company was founded in 1987 to develop and market digital video editing systems for the production and post
production markets. The Company shipped its first product, the Avid/1 Media Composer system, in the fourth quarter of
1989. The Company is currently selling Media Composer system version 6.5. In 1992, the Company began shipping its
AudioVision product to the digital audio editing segment of the post production market, and in 1993 introduced Film
Composer for the film editing market and a line of disk-based capture, editing, and playback products for the broadcast news
industry. In 1994, the Company acquired two businesses, SofTECH Systems, Inc. and the newsroom systems division of
Basys Automation Systems, Inc., to expand its presence in the newsroom computer systems market. In January 1995, the
Company completed its merger with Digidesign, Inc. ("Digidesign"). The Digidesign merger added digital audio production
software and related application lines. Pro Tools, the most significant product line acquired in the merger, is marketed to
audio professionals. The Media Composer and Pro Tools product lines, together with add-on software, storage devices, and
associated maintenance fees, have accounted for a substantial majority of the Company's revenues to date. In March 1995,
the Company acquired Elastic Reality, Inc., a developer of digital image manipulation software, and Parallax Software
Limited and 3 Space Software Limited, together developers of paint and compositing software, all of whose products are
sold primarily to the film and video production and post-production markets. In March 1996 and in May 1996, the
Company began shipments of the Media Composer and Pro Tools product lines, respectively, for use on PCI-based
computers. In June 1996, the Company began selling MCXpress for Macintosh and for Windows NT. The Company
began shipping Version 6.5 for its Media Composer family of systems in December 1996.
Results of Operations
The following table sets forth certain items from the Company's consolidated statements of operations as a percentage of net
revenues for the periods indicated: For the year ended December 31,
1996 1995 1994
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 55.7% 48.9% 46.3%
Gross profit 44.3% 51.1% 53.7%
Operating Expenses:
Research and development 16.2% 13.2% 12.1%
Marketing and selling 29.6% 26.5% 26.2%
General and administrative 5.6% 4.4% 5.4%
Nonrecurring costs 6.7% 1.4%
Total operating expenses 58.1% 45.5% 43.7%
Operating income (loss) (13.8)% 5.6% 10.0%
Other income and expense, net 0.8% 0.3% 0.7%
Income (loss) before income taxes (13.0)% 5.9% 10.7%
Provision for (benefit from) income taxes (4.1)% 2.1% 3.1%
Net income (loss) (8.9)% 3.8% 7.6%
Net Revenues. The Company’s net revenues have been derived mainly from the sales of disk-based digital, nonlinear media
editing systems and related peripherals, licensing of related software, and sales of software maintenance contracts. Net
revenues increased by $22.3 million (5.5%) to $429.0 million in the year ended December 31, 1996 from $406.7 million in
1995. Net revenues for the year ended December 31, 1995 of $406.7 million increased by $173.0 million (74.1%) from
$233.6 million in 1994. The increase in net revenues during 1996 and 1995 was primarily the result of worldwide growth