Pinnacle Systems Reports Results for the Second Quarter of Fiscal Year 2005

Pinnacle Systems Reports Results for the Second Quarter of Fiscal
Year 2005 


MOUNTAIN VIEW, Calif., Jan. 25  /PRNewswire-FirstCall/ -- Pinnacle Systems(R),
Inc. (NASDAQ:PCLE) a leader in digital video solutions, today announced
financial results for its second quarter of fiscal 2005, ended December 31,
2004.

The previously-announced sale of Steinberg Media Technologies GmbH
("Steinberg") to Yamaha Corporation closed on January 21, 2005.  The results of
operations for Steinberg are reported as discontinued operations in this press
release.

Net sales from continuing operations for the second quarter of fiscal 2005 were
$86.1 million compared to net sales of $80.3 million in the second quarter of
fiscal 2004.  Net sales from discontinued operations for the second quarter of
fiscal 2005 were $6.0 million compared to net sales of $9.0 million in the
second quarter of fiscal 2004.  The GAAP net loss for the second quarter of
fiscal 2005 was $6.9 million or $0.10 per share. The non-GAAP net income for
the second quarter of fiscal 2005 was $4.3 million or $0.06 per share. This
non-GAAP net income excludes $0.8 million of amortization of other intangible
assets, $9.4 million of goodwill impairment, $3.3 million in restructuring
costs, a $3.1 million reversal of an accrued liability associated with a legal
judgment and a $0.7 million difference between GAAP and non-GAAP discontinued
operations which related to amortization of other intangible assets. The
reconciliation of the GAAP to non-GAAP measurements for net income (loss) for
the second quarter of fiscal 2005 is set forth below with Pinnacle Systems'
financial statements.  The Company ended the second quarter of fiscal 2005 with
a cash balance of $92.1 million from continuing operations.

"This quarter we made significant progress towards streamlining our business by
monetizing non-strategic assets, strengthening our cash position and improving
our operational efficiencies," said Patti S. Hart, Pinnacle Systems' chairman
of the board and chief executive officer.

"In addition, we were very pleased with the overall demand for our products,
especially the video editing and Digital Home products during the traditionally
strong holiday quarter," continued Hart.  "With greater focus on our core
business, we will further leverage our resources to expand our leadership in
the markets we serve."

Pinnacle Systems will host an audio web-cast at 2:00 p.m. (Pacific Time) which
can be heard live at http://www.pinnaclesys.com/. Additionally, a replay of the
conference call will be available at http://www.pinnaclesys.com/ for two weeks
following the call. Thereafter, a transcript of the conference call will be
available under the "Investor Relations" section of our website at
http://www.pinnaclesys.com/aboutus/investorrelation.asp?Langue_ID=7 .

Use of Non-GAAP Financial Measures

To supplement its consolidated financial statements presented in accordance
with GAAP, Pinnacle Systems uses non-GAAP measures of pro forma net income
(loss) and pro forma net income (loss) per share, which are adjusted from its
GAAP results to exclude certain expenses. These non-GAAP adjustments are
provided to enhance the reader's overall understanding of the Company's current
financial performance and its prospects for the future. The Company believes
the non-GAAP results provide useful information to both management and
investors by excluding certain expenses that it believes are not indicative of
its core operating results. The non-GAAP measures are included to provide
investors and management with an alternative method for assessing Pinnacle
Systems' operating results in a manner that is focused on the performance of
Pinnacle Systems' ongoing operations and to provide a more consistent basis for
comparison between quarters. Further, these non-GAAP results are one of the
primary indicators management uses for planning and forecasting in future
periods. In addition, since the Company has historically reported non-GAAP
results to the investment community, it believes the inclusion of non-GAAP
numbers provides consistency in its financial reporting. The presentation of
this additional information should not be considered in isolation or as a
substitute for results prepared in accordance with accounting principles
generally accepted in the United States.

About Pinnacle Systems, Inc.

Pinnacle Systems provides broadcasters and consumers with cutting-edge digital
media creation, storage, and play-back solutions for use at Home, in the Studio
and on the Air. Pinnacle Systems' award winning digital media solutions are in
use around the world for broadcast, video and audio editing, DVD and CDR
authoring and on the Internet. A recognized industry leader, the Company has
received nine prestigious Emmy Awards for its technical innovations and carries
this commitment throughout all of its product lines. Pinnacle Systems may be
reached at [phone] or at http://www.pinnaclesys.com/.

Safe Harbor Statement

This press release contains forward-looking statements that involve risks and
uncertainties within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934, including statements
regarding Pinnacle Systems' expectations for the leveraging of resources and
the expansion of market leadership. Forward-looking statements contained in
this press release relating to expectations about future events or results are
based upon information available to the Company as of the date hereof. Readers
are cautioned that these forward-looking statements are only predictions and
are subject to risks, uncertainties and assumptions that are difficult to
predict. As a result, Pinnacle Systems' actual results may differ materially
and adversely from those expressed in the forward-looking statements. Factors
that may cause such a difference include, but are not limited to, risks related
to demand for the Company's current and future products and the ability to
execute proposed initiatives. Factors that could affect Pinnacle Systems'
business and financial results are detailed in the Company's periodic reports
filed with the Securities and Exchange Commission, including, but not limited
to, its Annual Report on Form 10-K for the fiscal year ended June 30, 2004,
including, but not limited to, under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which are on file
with the Securities and Exchange Commission (the "SEC") and available at the
SEC's website at http://www.sec.gov/.  All information set forth in this
release and its attachments is made as of January 25, 2005, and Pinnacle
Systems undertakes no obligation to revise or update publicly this information
for any reason.

Pinnacle Systems is a registered trademark of Pinnacle Systems, Inc.  All other
trademarks and registered trademarks are the property of their owners. (C)
2004. Pinnacle Systems, Inc.  All Rights Reserved.

                 PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
             (Unaudited, in thousands, except per share data)


                                             GAAP             NON-GAAP

                                            Three               Three
                                         Months Ended        Months Ended
                                          December 31,       December 31,
                                        2004      2003      2004      2003

  Net sales                           $86,129   $80,348   $86,129   $80,348

  Costs and expenses:
    Cost of sales                      46,294    48,043    46,294    48,043
    Cost of sales - license fee            --     3,813        --        --
    Engineering and product
     development                        8,586     8,990     8,586     8,990
    Sales, marketing, and service      20,475    22,494    20,475    22,494
    General and administrative          6,583     5,213     6,583     5,213
    Amortization of other intangible
     assets                               847     1,490        --        --
    Impairment of goodwill              9,447     5,950        --        --
    Restructuring costs                 3,337     3,320        --        --
    Legal judgment                     (3,137)       --        --        --

      Total costs and expenses         92,432    99,313    81,938    84,740

      Operating income (loss)          (6,303)  (18,965)    4,191    (4,392)

  Interest paid on legal settlement        --    (2,050)       --        --
  Interest and other income, net          418       327       418       327

  Income (loss) from continuing
   operations before income taxes      (5,885)  (20,688)    4,609    (4,065)

  Income tax expense                    1,009       908     1,009       909

    Income (loss) from continuing
     operations                        (6,894)  (21,596)    3,600    (4,974)

  Income (loss) from discontinued
   operations, net of taxes                35    (8,259)      726       934

      Net income (loss)               $(6,859) $(29,855)   $4,326   $(4,040)

  Loss per share from continuing
   operations:
    Basic and Diluted                  $(0.10)   $(0.33)

  Income (loss) per share from
   discontinued operations:
    Basic and Diluted                   $0.00    $(0.12)

  Net income (loss) per share:
    Basic and Diluted                  $(0.10)   $(0.45)    $0.06    $(0.06)

  Shares used to compute net income
   (loss) per share:
    Basic and Diluted                  69,517    66,401    70,031    66,401


                 PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
                    RECONCILIATION OF NON-GAAP TO GAAP
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        (Unaudited, in thousands)

                                                                Three
                                                            Months Ended
                                                             December 31,
                                                           2004       2003

  Non-GAAP net income (loss)                              $4,326    $(4,040)

  Cost of sales - license fee                                 --     (3,813)
  Amortization of other intangible assets                   (847)    (1,490)
  Impairment of goodwill                                  (9,447)    (5,950)
  Restructuring costs                                     (3,337)    (3,320)
  Legal judgment                                           3,137         --
  Interest paid on legal settlement                           --     (2,050)
  Discontinued operations                                   (691)    (9,193)
  Income tax effect                                           --          1

  GAAP net loss                                          $(6,859)  $(29,855)


                 PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS
                        (Unaudited, in thousands)

                                                      December 31,  June 30,
                                                          2004        2004

  Assets

  Current assets:
    Cash and cash equivalents                           $78,444     $59,059
    Marketable securities                                13,631      10,955
    Accounts receivable, net                             39,996      40,970
    Inventories                                          34,740      46,417
    Prepaid expenses and other current assets             6,431       8,388
    Current assets of discontinued operations             5,320       4,522
      Total current assets                              178,562     170,311

  Restricted cash                                           --       16,850
  Property and equipment, net                           14,981       16,314
  Goodwill                                              52,116       59,211
  Other intangible assets, net                           7,193        8,840
  Other assets                                           7,995        7,628
  Long-term assets of discontinued operations           23,930       22,590
                                                      $284,777     $301,744

  Liabilities and Shareholders' Equity

  Current liabilities:
    Accounts payable                                   $11,020      $17,912
    Accrued and other liabilities                       51,569       54,003
    Deferred revenue                                    12,667       13,818
    Current liabilities of discontinued operations       3,055        3,357
      Total current liabilities                         78,311       89,090

  Long-term liabilities of discontinued operations       1,988        1,972
      Total liabilities                                 80,299       91,062

  Shareholders' equity:
    Common stock                                       379,303      375,550
    Accumulated deficit                               (186,277)    (169,487)
    Accumulated other comprehensive income              11,452        4,619
      Total shareholders' equity                       204,478      210,682
                                                      $284,777     $301,744


DATASOURCE: Pinnacle Systems, Inc.



CONTACT:  Media:  Amy Whelan, [phone] or ,

or Investors: Brooke Deterline, [phone] or ,

both of Pinnacle Systems, Inc.



Web site:  http://www.pinnaclesys.com/ 

Copyright