FINANCIAL INFORMATION

The accompanying condensed consolidated financial statements include the accounts of Avid Technology, Inc. and its wholly owned subsidiaries (collectively, “Avid” or the “Company”). These financial statements are unaudited. However, in the opinion of management, the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for their fair statement. Interim results are not necessarily indicative of results expected for any other interim period or a full year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of operations, financial position and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated balance sheet as of December 31, 2011 was derived from the Company's audited consolidated financial statements and revised for errors as described below, but does not include all disclosures required by U.S. GAAP. The Company filed audited consolidated financial statements for, and as of, the year ended December 31, 2011 in its 2011 Annual Report on Form 10-K, which included all information and footnotes necessary for such presentation. The financial statements contained in this Form 10-Q should be read in conjunction with the audited consolidated financial statements in the Form 10-K.

The Company's preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. The most significant estimates reflected in these financial statements include revenue recognition, stock-based compensation, accounts receivable and sales allowances, inventory valuation, goodwill and intangible asset valuations, fair value measurements and income tax asset valuation allowances. Actual results could differ from the Company's estimates.

The Company evaluated subsequent events through the date of issuance of these financial statements and, except as disclosed in the “Revised Prior Period Amounts” section below and Note 15, no other recognized or unrecognized subsequent events required recognition or disclosure in these financial statements.

Revised Prior Period Amounts

While preparing its financial statements for the three months ended March 31, 2012, the Company identified and corrected certain errors related to the accounting for an intercompany note made between two of its international subsidiaries that occurred in the fourth quarter of 2007. The Company determined that it should have accrued withholding taxes of approximately $3.8 million at the time of the loan, and as a result, the Company had understated the provision for income taxes in 2007 and income taxes payable reported on its balance sheets for each period subsequent to the transaction. Additionally, as the tax was not withheld and paid to the taxing authority, the Company is subject to interest and penalties on the unpaid balance, commencing in the three months ended March 31, 2009 and for subsequent periods. Interest and penalties totaled approximately $1.1 million ($0.7 million interest and $0.4 million penalties) and $1.0 million ($0.6 million interest and $0.4 million penalties) at March 31, 2012 and December 31, 2011, respectively. The Company expects to recover the $3.8 million of withholding taxes in a subsequent period as the amount is refundable, if and when, the intercompany note is repaid. In addition, upon repayment of the intercompany note, the Company would request a refund from the taxing authority for any penalties paid under a voluntary compliance approach, although there can be no assurance that a refund of the penalties will be obtained.

In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and “SAB 108”), the Company evaluated these errors and, based on an analysis of quantitative and qualitative factors, determined that they were immaterial to each of the prior reporting periods affected and, therefore, amendment of previously filed reports with the Securities and Exchange Commission was not required. However, if the adjustments to correct the cumulative effect of the aforementioned errors and other previously unrecorded immaterial errors had been recorded in the three months ended March 31, 2012, the Company believes the impact would have been significant and would impact comparisons to prior periods. Therefore, as required by SAB 108, the Company has revised in this filing previously reported financial information for each quarter of 2011 and for the years ended December 31, 2011 and 2010. In addition to correcting these withholding tax errors, the Company recorded other adjustments to prior period amounts to correct other previously unrecorded immaterial errors. Also, in accordance with SAB 108, the Company will include this revised financial information when it files subsequent reports on Form 10-Q and Form 10-K or files a registration statement under the Securities Act of 1933.

The Condensed Consolidated Statements of Operations for the years ended December 31, 2011 and 2010 and the three months ended March 31, 2011, June 30, 2011, September 30, 2011 and December 31, 2011 have been revised herein to reflect the effect of the withholding tax errors described above and the other immaterial errors. Revised Condensed Consolidated Statements of Operations for those periods have been presented herein.

The Condensed Consolidated Balance Sheets at December 31, 2011 and 2010 have been revised to reflect the cumulative effect of the errors described above and other immaterial errors. These revisions to the Condensed Consolidated Balance Sheet resulted in increases in accumulated deficit of $7.9 million, $8.2 million, and $6.3 million, respectively, at December 31, 2011, 2010 and 2009. Revised Condensed Consolidated Balance Sheets for December 31, 2011 and 2010 have been presented herein.

The adjustments to the Condensed Consolidated Statement of Cash Flows for each period resulted in immaterial changes to the amounts previously reported for net cash provided by (used in) operating activities, investing activities and financing activities in these periods.

Condensed Consolidated Balance Sheets

At December 31, 2011 and 2010

(in thousands except per share date, unaudited)



	December 31, 2011						December 31, 2010
	As Reported			As Revised			As Reported			As Revised
ASSETS
Current assets:
Cash and cash equivalents	$	32,855		$	32,855		$	42,782		$	42,782
Accounts receivable	104,305			104,305			101,171			102,631
Inventories	111,833			111,397			108,357			106,785
Deferred tax assets, net	1,480			1,480			1,068			757
Prepaid expenses	7,652			7,652			7,688			7,688
Other current assets	14,509			14,405			15,701			15,701
Total current assets	272,634			272,094			276,767			276,344
Property and equipment, net	53,487			53,487			62,519			62,519
Intangible assets, net	18,524			18,524			29,750			29,750
Goodwill	246,398			246,592			246,997			246,997
Other assets	11,568			11,568			10,538			10,538
Total assets	$	602,611		$	602,265		$	626,571		$	626,148

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	42,533		$	42,533		$	47,340		$	47,104
Accrued compensation and benefits	31,350			31,750			38,686			38,118
Accrued expenses and other current liabilities	34,174			35,109			40,986			42,059
Income taxes payable	3,898			8,951			4,640			9,823
Deferred revenues	45,768			45,768			43,634			44,173
Total current liabilities	157,723			164,111			175,286			181,277
Long-term liabilities	27,885			27,885			24,675			24,675
Total liabilities	185,608			191,996			199,961			205,952
Stockholders’ equity:
Common stock	423			423			423			423
Additional paid-in capital	1,018,604			1,019,200			1,005,198			1,006,029
Accumulated deficit	(524,530		)	(532,478		)	(495,254		)	(503,485		)
Treasury stock at cost, net of reissuances	(82,301		)	(82,301		)	(91,025		)	(91,025		)
Accumulated other comprehensive income	4,807			5,425			7,268			8,254
Total stockholders’ equity	417,003			410,269			426,610			420,196
Total liabilities and stockholders’ equity	$	602,611		$	602,265		$	626,571		$	626,148

Condensed Consolidated Statements of Operations

For the Year Ended December 31, 2011 and 2010

(in thousands except per share date, unaudited)



	Twelve Months Ended						Twelve Months Ended
	December 31, 2011						December 31, 2010
	As Reported			As Revised			As Reported			As Revised
Net revenues:
Products	$	546,371		$	545,470		$	559,907		$	561,123
Services	131,565			131,565			118,615			118,615
Total net revenues	677,936			677,035			678,522			679,738

Cost of revenues: (a)
Products	255,735			254,522			267,985			269,978
Services	62,482			62,482			56,490			56,490
Amortization of intangible assets	2,693			2,693			3,299			3,299
Total cost of revenues	320,910			319,697			327,774			329,767
Gross profit	357,026			357,338			350,748			349,971

Operating expenses:
Research and development	118,108			118,108			120,229			120,445
Marketing and selling	183,865			184,288			177,178			177,111
General and administrative	57,851			56,496			64,345			65,424
Amortization of intangible assets	8,528			8,528			9,743			9,743
Restructuring costs (recoveries), net	8,858			10,163			20,450			18,877
Loss on sale of assets	597			597			(5,029		)	(5,029		)
Total operating expenses	377,807			378,180			386,916			386,571

Operating loss	(20,781		)	(20,842		)	(36,168		)	(36,600		)

Interest income	144			144			173			173
Interest expense	(2,053		)	(1,930		)	(864		)	(987		)
Other income (expense), net	(159		)	(159		)	301			301
Loss before income taxes	(22,849		)	(22,787		)	(36,558		)	(37,113		)
Provision for income taxes, net	942			721			396			1,796
Net loss	$	(23,791	)	$	(23,508	)	$	(36,954	)	$	(38,909	)

Net loss per common share – basic and diluted	$	(0.62	)	$	(0.61	)	$	(0.98	)	$	(1.03	)

Weighted-average common shares outstanding – basic and diluted	38,435			38,435			37,895			37,895

Condensed Consolidated Statements of Operations

For the Three Months Ended March 31, 2011, June 30, 2011, September 30, 2011 and December 31, 2011

(in thousands except per share date, unaudited)



	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended
	March 31, 2011						June 30, 2011						September 30, 2011						December 31, 2011
	As Reported			As Revised			As Reported			As Revised			As Reported			As Revised			As Reported			As Revised
Net revenues:
Products	$	137,335		$	136,765		$	129,190		$	129,629		$	131,875		$	131,608		$	147,971		$	147,468
Services	28,988			28,988			32,154			32,154			33,090			33,090			37,333			37,333
Total net revenues	166,323			165,753			161,344			161,783			164,965			164,698			185,304			184,801

Cost of revenues:
Products (a)	64,651			63,867			62,964			64,024			60,048			60,063			66,221			66,568
Services (a)	14,387			14,054			15,312			14,706			16,497			15,585			18,137			18,137
Amortization of intangible assets	666			666			685			685			685			685			657			657
Total cost of revenues	79,704			78,587			78,961			79,415			77,230			76,333			85,015			85,362
Gross profit	86,619			87,166			82,383			82,368			87,735			88,365			100,289			99,439

Operating expenses:
Research and development	29,973			29,973			30,453			30,453			28,960			28,960			28,722			28,722
Marketing and selling	44,810			45,050			46,052			45,867			45,411			45,395			47,592			47,976
General and administrative	15,298			15,000			14,920			14,219			13,240			13,518			14,393			13,759
Amortization of intangible assets	2,145			2,145			2,161			2,161			2,159			2,159			2,063			2,063
Restructuring costs (recoveries), net	(2,216		)	(1,476		)	(163		)	162			2,707			2,707			8,530			8,770
Loss on sale of assets	—			—			597			597			—			—			—			—
Total operating expenses	90,010			90,692			94,020			93,459			92,477			92,739			101,300			101,290

Operating loss	(3,391		)	(3,526		)	(11,637		)	(11,091		)	(4,742		)	(4,374		)	(1,011		)	(1,851		)

Interest income	59			59			9			9			10			10			66			66
Interest expense	(422		)	(422		)	(717		)	(594		)	(556		)	(556		)	(358		)	(358		)
Other income (expense), net	63			63			(60		)	(60		)	43			43			(205		)	(205		)
Loss before income taxes	(3,691		)	(3,826		)	(12,405		)	(11,736		)	(5,245		)	(4,877		)	(1,508		)	(2,348		)
Provision for (benefit from) income taxes, net	1,426			957			(543		)	(590		)	2,774			2,672			(2,715		)	(2,318		)
Net (loss) income	$	(5,117	)	$	(4,783	)	$	(11,862	)	$	(11,146	)	$	(8,019	)	$	(7,549	)	$	1,207		$	(30	)

Net (loss) income per common share – basic	$	(0.13	)	$	(0.13	)	$	(0.31	)	$	(0.29	)	$	(0.21	)	$	(0.20	)	$	0.03		$	(0.00	)
Net (loss) income per common share – diluted	$	(0.13	)	$	(0.13	)	$	(0.31	)	$	(0.29	)	$	(0.21	)	$	(0.20	)	$	0.03		$	(0.00	)

Weighted-average common shares outstanding – basic	38,228			38,228			38,413			38,413			38,511			38,511			38,580			38,580
Weighted-average common shares outstanding – diluted	38,228			38,228			38,413			38,413			38,511			38,511			38,584			38,580


(a)	The “As Reported” products and services cost of revenues amounts do not sum to the annual “As Reported” products and services cost of revenues amounts due to a reclassification made to the financial statements for the year ended December 31, 2011.

Recently Adopted Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, Testing Goodwill for Impairment. This ASU allows an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of such events or circumstances, an entity determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity will be required to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test will not be required. ASU No. 2011-08 was effective for fiscal years and interim periods beginning after December 15, 2011, and prospective application was required. The Company adopted this ASU on January 1, 2012. Adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This ASU eliminates the current option to report other comprehensive income and its components in the statement of changes in equity and requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate consecutive statements. ASU No. 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011, which is January 1, 2012 for Avid, and retrospective application was required. The Company adopted this ASU on January 1, 2012. While this ASU changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance; therefore, adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This ASU amends current U.S. GAAP fair value measurement and disclosure guidance to be consistent with International Financial Reporting Standards, including increased transparency around valuation inputs and the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position, but for which the fair value of such items is required to be disclosed. ASU No. 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011 and prospective application was required. The Company adopted this ASU on January 1, 2012. Adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.