Avid Woes Continue – Errors in Financial Statements & 2nd Letter from Nasdaq

26 May

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Avid continues to report financial problems, the latest being that the company has acknowledged accounting errors leading to revised consolidated financial statements. In addition Avid is still not in compliance with Nasdaq continued listing requirements and expects to receive a second letter from Nasdaq regarding the company’s listing. This follows several previously announced financial issues including the potential delisting from Nasdaq (Avid Gets More Bad News) , the postponement of Q3 earnings release (Avid Postpones Q3 Earnings Release), and the replacement of Gary Greenfield as CEO (Avid Switches CEO’s on Heels of Declining Revenue Trend) and just recently as a Board Director (Avid Ex CEO Now Resigns As Director) and the replacement of CFO Ken Sexton (Avid Replace CFO Amid Financial Troubles)

The most recent announcement from Avid comes in the form of a May 21st, 2013 press release to investors titled Avid Announces Receipt of Second Anticipated NASDAQ Letter and Initial Determinations of Its Accounting Evaluation

The full press release is posted below.

In March 2013, Avid Technology, Inc. (NASDAQ:AVID) announced that due to the delay in the filing of its annual report on Form 10-K for the year ended December 31, 2012 (“Form 10-K”), it had received a notification letter from the staff of the NASDAQ Listing Qualifications Department (the “NASDAQ Staff”) stating that the Company does not comply with NASDAQ Listing Rule 5250(c)(1), which requires timely filing of periodic reports with the Securities and Exchange Commission (the “SEC”). Avid, announced today that on May 17, 2013, it received from the NASDAQ Staff an anticipated notification of Avid’s continued noncompliance with NASDAQ Listing Rule 5250(c)(1) due to Avid’s delay in filing its Form 10-Q for the first quarter ended March 31, 2013 (“Form 10-Q”). These notifications were issued in accordance with NASDAQ procedures and have no immediate effect on the listing of Avid’s common stock on the NASDAQ Global Market.

On May 20, 2013, Avid has, in accordance with the NASDAQ Staff’s requirements as set forth in the notification, submitted a plan explaining how it expects to regain compliance with NASDAQ’s continued listing requirements. If the NASDAQ Staff accepts the Company’s plan, the Company expects to have up to 180 calendar days from the initial due date for the Form 10-K, or until September 16, 2013, to regain compliance. If the NASDAQ Staff does not accept Avid’s plan, Avid will have the opportunity to appeal that decision to a NASDAQ Hearings Panel.

The Company has, as previously reported, been unable to file the Form 10-K and the Form 10-Q because it is continuing to evaluate the accounting treatment related to bug fixes, upgrades, enhancements and compatibility extensions (collectively, “Software Updates”). The first step in the Company’s evaluation was to undertake an initial review of whether Software Updates previously made available by the Company to certain of its customers at no-charge included upgrades, enhancements or compatibility extensions and if so, whether such upgrades, enhancements or compatibility extensions met the definition of post-contract customer support (PCS) under U.S. Generally Accepted Accounting Principles (“GAAP”). During the course of this initial review, the Company concluded that certain of these no-charge Software Updates should have been accounted for as implied PCS when recognizing revenue for the original sale of the related product. The Company management has evaluated the potential impact of its findings on the Company’s prior period financial statements and concluded that the Company’s unaudited interim consolidated financial statements for the quarterly periods ended (i) September 30, 2012 and 2011, (ii) June 30, 2012 and 2011, and (iii) March 31, 2012 and 2011, as well as its audited consolidated financial statements for the years ended December 31, 2011, 2010 and 2009 should no longer be relied upon because of these errors in the application of GAAP. In addition, any previously issued press release or other publicly issued statement by the Company containing financial information for such periods should not be relied upon.

The Company expects that the timing of revenue recognition for the impacted customer arrangements will change from the historical presentation in the Company’s financial statements pursuant to which revenue was recognized up front, generally to being recognized ratably over the estimated implied PCS service period. In addition, the timing of recognition of certain costs related to these customer arrangements may also be impacted, along with the timing of related income taxes. The Company cannot at this time estimate the full impact of the adjustments of revenue and costs, and the related impact on income taxes, on any previously issued financial statements for any individual reporting period, although it may be significant. However, while the restatement adjustments will impact previously reported revenue and operating results for prior periods, the restatement adjustments are not expected to affect the amount of total revenue ultimately to be earned, or the amount or timing of cash received or to be received, from the sales transactions or the Company’s liquidity or cash flow for any prior period.

In addition, the Company will revise its consolidated financial statements for the years ended December 31, 2011, 2010 and 2009 for the correction of the errors previously identified and disclosed in its Form 10-Q for the quarterly periods ended September 30, 2012, June 30, 2012 and March 31, 2012.

The Company is also reassessing its accounting for certain restructuring expenses related to lease obligations and other exit activities in the quarters ended June 30, 2012 and September 30, 2012. While the Company continues to analyze the accounting treatment of these restructuring expenses, the Company has concluded that it has improperly accounted for such restructuring expenses and currently estimates that the restructuring expenses may have been cumulatively overstated by approximately $3.5 million on a pre-tax basis at September 30, 2012.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2012 or March 31, 2013 because of the material weaknesses in the Company’s internal controls over financial reporting relating to the matters disclosed in the Company’s Form 10-Q for the quarterly periods ended September 30, 2012, June 30, 2012 and March 31, 2012 and the matters described in this press release.

The Company’s evaluation of current and historical accounting treatment related to Software Updates is ongoing and the Company may identify additional issues, which could require further adjustments to the Company’s prior financial statements for one or more prior fiscal years or periods.

The Company is working diligently to complete the review and continues to focus its efforts on completing and filing the delayed periodic reports, including restatements, as soon as possible. During this evaluation, the Company plans to continue to invest in its product innovation and execute on its growth strategy. The Company believes it is well positioned to support its customers’ ongoing success.

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