We are a leading provider of digital media content-creation products and solutions for audio, film, video, broadcast professionals, as well as artists and musicians. Our audio and video solutions are designed to be extensions of the people using them, so that they amplify creativity, speed production processes and provide the science behind the art of making great creative experiences. We have historically provided our products and solutions to customers in three market segments: Media Enterprises segment, which consists of broadcast, government, sports and other organizations that acquire, create, process, and/or distribute audio and video content to a large audience for communication, entertainment, analysis, and/or forensic purposes; Professionals and Post segment, which is composed of individual artists and entities that create audio and video media as a paid service, but who do not distribute media to end consumers on a large scale; and Creative Enthusiasts segment, which is made up of individuals who are music, film or video enthusiasts with varying degrees of involvement in content creation, ranging from casual users to dedicated hobbyists, including amateur musicians, disc jockeys and "prosumers." As described below, on July 2, 2012, we announced a series of strategic actions, including divestitures of certain of our consumer audio and video product lines, to focus on our Media

Enterprise and Professionals and Post market segments.

Our mission is to inspire passion, unleash creativity and enable our customers to realize their dreams in a digital world. We do this by helping anyone with a passion for making music, movies, video and television, by providing both the technology and the expertise that power those experiences. Customers use our solutions to create the most listened to, most watched and loved media in the world. Around the globe, feature films, primetime television shows, news programs, commercials, live performances and chart-topping music hits are made using one or more of our solutions.

On July 2, 2012, as a result of a strategic review of Avid's business and the markets we serve, we announced a series of strategic actions that we had initiated to focus on our Media Enterprise and Professionals and Post market segments and to drive improved operating performance. These actions include the divestiture of certain of our consumer focused product lines, a rationalization of our business operations and a reduction in force. We believe that these actions will generate several advantages for us as they will allow us to focus on the Media Enterprise and Professionals and Post market segments, the markets where we expect the highest growth. In addition we expect these actions will reduce complexity of our operations, improve operational efficiencies, and allow us to change our cost structure, by moving away from lower growth, lower margin sectors to drive improved financial performance.

As part of these actions, on July 2, 2012, we announced that we had sold a group of consumer audio products to Numark Industries, L.P. ("Numark") for approximately $11.8 million and sold a group of consumer video products to Corel Corporation ("Corel") for approximately $3.0 million. The consumer audio products that were sold include M-Audio brand keyboards, controllers, certain interfaces, speakers and digital DJ equipment and other product lines, as well as certain associated intellectual property, including the M-Audio trademark. We will continue to develop and sell our Pro Tools line of software and hardware, as well as certain associated I/O devices including Mbox and Fast Track. The consumer video products that were sold include the Pinnacle and Avid Studio range of software and hardware. This includes Avid's Studio and Pinnacle Studio desktop editing software and the Avid studio for the iPad as well as legacy video capture offerings and certain associated intellectual property including the Pinnacle trademark. Total revenues for 2011 from these divested product lines was approximately $91.0 million, or 13% of our consolidated net revenues for the year ended December 31, 2011.

Also as part of these actions, on July 2, 2012 we announced a reduction in our work force in line with the strategic shift in our business. The reduction in force due to head count reduction plans and certain employees transferring to the acquiring companies will impact approximately 20% of our permanent employees. We anticipate that we will complete the reduction in force and related actions prior to December 31, 2012. We expect to incur total expenses relating to termination benefits and facility costs associated with the reduction in force and related actions of approximately $20 million to $23 million, which primarily represent cash expenditures. During the quarter ended June 30, 2012, we recorded restructuring charges of approximately $14.9 million under this plan. We expect to take additional charges of $5 million to $8 million in the second half of 2012 mostly related to closure or partial closure of facilities. The proceeds from the divestitures of the consumer product lines are expected to offset most of the cash restructuring charges paid in 2012.

In aggregate, we expect to realize estimated annualized cost savings, excluding product material cost, from both the restructuring actions and the consumer product line divestitures of approximately $80 million. These savings will appear in each of our cost of sales and operating expenses lines in our statement of operations. In addition, since the product material margin from these divested product lines was lower than the average material margin for our ongoing products, we expect overall gross margins to improve in the second half of 2012 and further improve in 2013 due to favorable product mix and our cost reduction efforts.
We remain firmly committed to the professional markets and the devices and control services that support the Media Enterprise and Professionals and Post customers. These strategic actions described above will enable us to focus effectively on our core business as the leading provider of video and audio content-creations and management solutions for these professional markets.

See Note 7, Assets Held-for-Sale, and Note 13, Restructuring Costs and Accruals, to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional details and the related accounting for these consumer product line divestitures and the 2012 restructuring plan. See also the Results of Operations section below for additional information on revenue from divested product lines and expected trends.

While preparing our financial statements for the three months ended March 31, 2012, we identified and corrected certain errors related to the accounting for an intercompany note made between two of our international subsidiaries that occurred in the fourth quarter of 2007. We determined that we should have accrued withholding taxes of approximately $3.8 million at the time of the

loan, and as a result, we had understated the provision for income taxes in 2007 and income taxes payable reported on our balance sheets for each period subsequent to the transaction. Additionally, as the tax was not withheld and paid to the taxing authority, we are 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 June 30, 2012 and December 31, 2011, respectively. During the three months ended June 30, 2012, the Company recorded a discrete tax benefit of approximately $3.8 million when it determined that it would repay the intercompany note and file a refund claim for the withholding taxes due (see Note 16). In addition, upon repayment of the intercompany note, we will 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 Securities and Exchange Commission ("SEC") Staff Accounting Bulletin Nos. 99 and 108 ("SAB 99" and "SAB 108"), we 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 SEC 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, we believe the impact would have been significant and would impact comparisons to prior periods. Therefore, as required by SAB 108, we have revised in our Form 10-Q for the period ended March 31, 2012 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, we recorded other adjustments to prior period amounts to correct other previously unrecorded immaterial errors. Also, in accordance with SAB 108, we will include this revised financial information when we file subsequent reports on Form 10-Q and Form 10-K or file a registration statement under the Securities Act of 1933, as amended.

The Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2011 have been revised to reflect the effect of the withholding tax errors described above and the other immaterial errors and is presented herein. See Note 1 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information on these revisions.

The Condensed Consolidated Balance Sheet at December 31, 2011 has been revised to reflect the cumulative effect of the errors described above and other immaterial errors and are presented herein. See Note 1 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information on these revisions.

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.

                               Financial Summary

The following table sets forth certain items from our consolidated statements of
operations as a percentage of net revenues for the three and six months ended
June 30, 2012 and 2011:

                                       30
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                                             Three Months Ended June 30,          Six Months Ended June 30,
                                               2012         2011 (Revised)         2012         2011 (Revised)
Net revenues:
Product revenues                               78.1  %            80.0  %          78.5  %              81.3  %
Services revenues                              21.9  %            20.0  %          21.5  %              18.7  %
Total net revenues                            100.0  %           100.0  %         100.0  %             100.0  %
Cost of revenues                               53.5  %            49.1  %          51.3  %              48.2  %
Gross margin                                   46.5  %            50.9  %          48.7  %              51.8  %
Operating expenses:
Research and development                       17.1  %            18.8  %          17.6  %              18.5  %
Marketing and selling                          27.6  %            28.4  %          28.9  %              27.8  %
General and administrative                      8.8  %             8.8  %           9.3  %               8.9  %
Amortization of intangible assets               0.7  %             1.3  %           0.8  %               1.3  %
Restructuring costs (recoveries), net          10.1  %             0.1  %           5.2  %              (0.4 )%
Loss on sale of assets                          6.3  %             0.4  %           3.1  %               0.2  %
Total operating expenses                       70.6  %            57.8  %          64.9  %              56.3  %
Operating loss                                (24.1 )%            (6.9 )%         (16.2 )%              (4.5 )%
Interest and other income (expense), net       (0.2 )%            (0.4 )%          (0.2 )%              (0.3 )%
Loss before income taxes                      (24.3 )%            (7.3 )%         (16.4 )%              (4.8 )%
Provision for income taxes, net                 0.6  %            (0.4 )%           0.5  %               0.1  %
Net loss                                      (24.9 )%            (6.9 )%         (16.9 )%              (4.9 )%

Total net revenues for the three-month period ended June 30, 2012 were $157.4 million, a decrease of $4.4 million compared to the same period in 2011, with revenues from products decreasing by 5.0% and services revenues increasing by 6.5%. During the three months ended June 30, 2012, compared to the same period in 2011, video products revenues increased by $3.4 million and audio products revenues decreased by $7.0 million, while services revenues increased $2.1 million. Total net revenues for the six-month period ended June 30, 2012 were $309.6 million, a decrease of $18.0 million compared to the same period in 2011, with revenues from products decreasing by 8.7% and services revenues increasing by 8.7%. During the six months ended June 30, 2012, compared to the same period in 2011, video products revenues and audio products revenues decreased by $9.7 million and $10.7 million, respectively, while services revenues increased $5.3 million. Included within net revenues for each of the three-month and six-month periods ended June 30, 2012 is approximately $2.8 million for estimated sales returns related to the July 2, 2012 announcement of the divestiture of the consumer audio and consumer video product lines. The decreases in products revenues were largely driven by weakness in sales of our consumer products to creative enthusiast customers, the timing of new product introductions and product transitions. We divested our consumer product lines on July 2, 2012. Excluding the revenues from divested product lines, net revenues from the ongoing business increased 4.7% and were flat for the three-month and six-month periods ended June 30, 2012, respectively, compared to the same periods in 2011. The increase in our services revenues was primarily the result of increased maintenance revenues, driven by new maintenance contracts and strong contract renewal rates. Since 2010, we began to include maintenance contracts with certain product sales, which has had a positive effect on our maintenance revenues. The changes in revenues are discussed in further detail in the section titled "Results of Operations" below.

The following table sets forth the percentage of our net revenues attributable to geographic regions for the three and six months ended June 30, 2012 and 2011:

                                            Three Months Ended     Six Months Ended June
                                                 June 30,                   30,
                                             2012        2011        2012        2011
                                                       (Revised)               (Revised)
Americas                                     47%          53%        47%          50%
Europe, Middle East and Africa               39%          34%        38%          37%
Asia-Pacific                                 14%          13%        15%          13%

Our gross margin percentage for the three-month and six-month periods ended June 30, 2012 decreased to 46.5% and 48.7%,

respectively, compared to 50.9% and 51.8%, respectively, for the same period in 2011. This change was driven by a decrease in products gross margin percentage to 47.1% and 48.0% for the three-month and six-month periods ended June 30, 2012, respectively, compared to 50.6% and 52.0% for the three-month and six-month periods ended June 30, 2011, respectively. These decreases were partially offset by increases in services gross margin percentage to 58.4% and 59.4% for the three-month and six-month periods ended June 30, 2012, compared to 54.5% and 53.1% for the three-month and six-month periods ended June 30, 2011. The decrease in our products gross margin percentage for the three-month and six-month periods ended June 30, 2012, compared to the same periods in 2011, was largely driven by the decrease in our products revenues on relatively fixed costs for manufacturing and logistics, a shift in product mix weighted toward some lower margin products and the initiation of incentive promotions to sell certain of our older products that are at end of life or transitioning to new versions. As a result of the consumer product line divestitures and cost reduction efforts, we expect overall gross margins to improve in the second half of 2012. The increase in our services gross margin percentage for the three-month and six-month periods ended June 30, 2012, compared to the same periods in 2011, was largely driven by the increase in services revenues from maintenance contracts, which have higher gross margins than professional services and training.

For the three-month period ended June 30, 2012, we incurred a net loss of $39.2 million, compared to a net loss of $11.1 million for the same period in 2011. The increase in net loss was largely a result of our 2012 restructuring plan and loss on assets held-for-sale for the consumer product line divestitures announced on July 2, 2012. The net loss for the three months ended June 30, 2012 included charges of $1.7 million for acquisition-related intangible asset amortization; restructuring costs of $18.5 million; and loss on assets held-for-sale of $10.0 million. The net loss for the three months ended June 30, 2011 included $2.8 million for acquisition-related intangible asset amortization, partially offset by restructuring recoveries of $0.2 million.

During October 2011, we committed to a restructuring plan, the 2011 Plan, intended to improve operational efficiencies. Actions under the 2011 Plan included a reduction in force of approximately 190 employees and the closure of our facility in Irwindale, CA. These actions were intended to allow us to continue to invest in our core businesses, as well as shift some resources into areas of the business that we believe offer us better revenue growth potential. During 2011, we recorded restructuring charges of $9.1 million related to severance costs and $0.5 million related to the Irwindale closure. During the three months ended June 30, 2012, we recorded restructuring revisions of approximately $0.2 million for reductions of the estimated severance obligations. To date, total restructuring charges of approximately $9.8 million have been recorded under the 2011 Plan, and no further restructuring actions are anticipated under this plan.

At June 30, 2012, our cash balance was $59.4 million, an increase of $26.5 million from December 31, 2011, and we had no borrowings against our lines of credit. We continue to see reductions in our inventory balances and, at June 30, 2012, our days sales outstanding in accounts receivable was 51 days, which is consistent with historical levels.

Our management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. However, actual results may differ from these estimates.

We believe that our critical accounting policies are those related to revenue recognition and allowances for product returns and exchanges; stock-based compensation; the valuation of business combinations, goodwill and intangible assets; divestitures; and income tax assets and liabilities. We believe these policies are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most difficult and subjective estimates and judgments. Our critical accounting policies may be found in our 2011 Annual Report on Form 10-K in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Critical Accounting Policies and Estimates", except for our critical accounting policy on divestitures, which is included below.

Divestitures
In accordance with FASB ASC No. 360, Property, Plant, and Equipment, we classify the assets and liabilities of a business as held-for-sale when management approves and commits to a formal plan of sale and it is probable that the sale will be completed. The carrying value of the net assets of the business held-for-sale are then recorded at the lower of their carrying value or fair

market value, less costs to sell, and we cease to record depreciation and amortization expense associated with assets held-for-sale. As discussed in Note 7 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, we completed the sales of the consumer audio and consumer video product lines in the third quarter of 2012. Assets with a fair value of $14.8 million, less costs to sell of $1.9 million, were classified as held-for-sale in our consolidated balance sheet as of June 30, 2012.
When we measure the gain (loss) on sale of a disposal group that is part of a reporting unit, we determine whether a portion of the goodwill of the reporting unit should be allocated to the disposal group if it constitutes a business. If the disposal group is considered a business, the goodwill of the reporting unit is allocated based on the relative fair values of the disposal group and the portion of the reporting unit remaining. We determined that the consumer audio and consumer video product lines each constituted a business; therefore, the estimated loss on assets held-for-sale of each of these businesses includes an allocation of $6.4 million and $1.6 million, respectively, of goodwill from our single reporting unit. Even though it was determined that the consumer audio and consumer video product lines constituted a business, we concluded that these businesses did not represent a component of our company that would require the presentation of the divestiture as discontinued operations. We made this determination based on the fact that the consumer audio and consumer video product lines do not have operations or cash flows that are clearly distinguishable and largely independent from the rest of our single reporting unit.

Our net revenues are derived mainly from sales of computer-based digital, nonlinear media-editing and finishing systems and related peripherals, including shared-storage systems, software licenses, and related professional services and maintenance contracts.

                  Net Revenues for the Three Months Ended June 30, 2012 and 2011
                                      (dollars in thousands)
                                             2012                  Change                 2011
                                                                                      Net Revenues
                                         Net Revenues          $             %         (Revised)
Video products revenues                 $      67,865     $    3,379       5.2%      $     64,486
Audio products revenues                        58,009         (6,993 )    (10.8)%          65,002
Less allowances related to divestitures        (2,848 )       (2,848 )   (100.0)%               -
Products revenues                             123,026         (6,462 )    (5.0)%          129,488
Services revenues                              34,405          2,110       6.5%            32,295
Total net revenues                      $     157,431     $   (4,352 )    (2.7)%     $    161,783

                   Net Revenues for the Six Months Ended June 30, 2012 and 2011
                                      (dollars in thousands)
                                             2012                  Change                 2011
                                                                                      Net Revenues
                                         Net Revenues          $             %         (Revised)
Video products revenues                 $     121,287     $   (9,709 )    (7.4)%     $    130,996
Audio products revenues                       124,525        (10,713 )    (7.9)%          135,238
Less allowances related to divestitures        (2,848 )       (2,848 )   (100.0)%               -
Products revenues                             242,964        (23,270 )    (8.7)%          266,234
Services revenues                              66,607          5,306       8.7%            61,301
Total net revenues                      $     309,571     $  (17,964 )    (5.5)%     $    327,535



                               Net Revenues of Divested Consumer Product Lines
                                           (dollars in thousands)
                                             Three Months Ended June 30,         Six Months Ended June 30,
                                                 2012              2011             2012             2011
Divested consumer video products revenues  $         2,310     $    7,532     $        6,679     $   16,311
Divested consumer audio products revenues           11,392         16,939             24,276         33,197
Total revenues from divested product lines $        13,702     $   24,471     $       30,955     $   49,508
Revenues from on-going product lines       $       143,729     $  137,312     $      278,616     $  278,027
Total net revenues                         $       157,431     $  161,783     $      309,571     $  327,535

Video products revenues increased $3.4 million, or 5.2%, for the three-month period ended June 30, 2012 compared to the same period in 2011, and decreased $9.7 million, or 7.4%, for the six-month period ended June 30, 2012 compared to the same period in 2011. Revenues from our professional video-editing solutions and our consumer video-editing products decreased during each of these periods. Revenues from our storage and workflow solutions and broadcast newsroom products increased during each of

these periods. For the six-month period ended June 30, 2012, our professional video-editing solutions unit sales increased by more than 30%, but revenues decreased as a result of an overall shift from hardware-based to software-only solutions that have significantly lower unit prices. The 2011 period benefited from successful video-editing hardware upgrade promotions. We experienced a . . .