Financial and Operations Q&A

August 2000

How has the Grass Valley Group performed financially since its launch?

The Grass Valley Group has been profitable since its emergence as a privately held company in September 1999. The company has continued to grow within its traditional broadcast market; increase its presence in new, adjacent, high-growth markets, such as Interactive TV and the Internet; invest in digital media research and development software and hardware solutions; and acquire strategic, complementary companies and products.

While the company does not provide specific projections about future financial performance, its current infrastructure is based upon average annual revenue of approximately $220 million. Its current performance is exceeding that model.

How is this Grass Valley Group different from the original company? Given the financial track record of the original company, why is this one better positioned for success?

The Grass Valley Group is just not poised for success, but achieving it. As a single, focused company, it is not competing for resources with other businesses as part of a larger, portfolio company.

The Grass Valley Group has rolled out next-generation products across all major lines and is seeing strong customer acceptance for all of them.

How financially stable is the Grass Valley Group?

Dr. Gooding and several prestigious individual, international bankers financed the acquisition of the Grass Valley Group's assets. All have significant contacts within the communications industry.

What primary markets does the Grass Valley Group serve?

The Grass Valley Group continues to focus on the broadcast and professional video markets, offering a full line of Media Software, Media Platform, Media Connectivity, Media Production, and News Product solutions.

What's the state of the broadcast industry and what is the Grass Valley Group doing to serve its future needs?

The next century of broadcasting will be defined by Digicasting: the ability to create high-caliber content that can be easily re-purposed for delivery via any transmission network, protocol, or output format. Through its Media Without Bounds initiative, the Grass Valley Group is focused on bringing together the right applications with existing platforms and distribution products to provide for these needs. In addition, the company's focus is on streamlining production workflow to enable material to move from high-resolution production formats to those suitable for new distribution channels.

What is the Grass Valley Group's Internet strategy?

Grass Valley Group has a long-standing recognition of the Internet as the foundation for entirely new commercial enterprise, and believes that true freedom for content providers means leveraging their work across new, developing, and as-yet unseen markets built upon Internet-related technologies. All of Grass Valley Group's products are developed to encompass content creation and distribution to all digital pipelines, including the Internet.

An important product, designed exclusively for the Internet is WebAble™ - Grass Valley Group's tool suite for streamlining and simplifying the processes used by broadcasters, video professionals, and e-commerce providers to re-purpose their content for Webcasting and Web distribution. WebAble bypasses today's manual processes that make breaking video-based news old news before a Web site is even published.

What is the Grass Valley Group's doing in the News Production arena?

The worldwide newsroom market is on the cusp of a wholesale transition to digital technologies. Broadcasters are in need of tools to rapidly assemble and edit hard news stories for on-air and online packages. The Grass Valley Group can now address those needs with its Vibrint™ digital news production workgroup.

Acquired by Grass Valley Group in March 2000, Vibrint Technologies is a leading developer of innovative solutions for digital news production. Its products are the first cost-effective, open and standards-based news production solution targeted precisely for hard news production. Engineered to complement the Profile XP Media Platform, the workgroup, which includes FeedClip™, an interactive feed capture system, NewsEdit™, a nonlinear editor, and Vibrint NewsQ™, a low-cost news playback product.

What is the Grass Valley Group doing to prepare for Digital Cinema?

Digital Cinema is the electronic distribution and playback of movie material, encompassing feature-length films, trailers, and advertising. Its acceptance is growing, fueled by the continued expansion of disk drive capability, the increased sophistication of compression algorithms, and improvements to other, key digital technologies. One of those technologies is the video server -- which has been the cornerstone of worldwide broadcast industry's transition to providing high-quality, digital video content instead of traditional, analog-based video content. A leader in the broadcast industry and in defining digital compression standards such as MPEG2, the Grass Valley Group's video server, the Profile XP Media Platform™, can easily support the compression and image quality requirements of digital cinema.

As the technology to support digital cinema is rapidly falling into place, Grass Valley is positioning itself to be a leading supplier. Once the studios and technology groups have agreed upon a standard for encryption of the transport datastreams, the worldwide adoption of digital cinema systems will accelerate, providing consistently better picture quality, lowering overall costs of distribution, and providing new ways for theatres to improve margins and generate additional income.

What is the Grass Valley Group's strategy in regard to Interactive TV?

Television provides one of the most attractive devices for network operators to deliver new Internet-enabled and other interactive services. Adding interactivity to this medium will make it more useful, fun and engaging for the consumer and create significant new economic opportunities for network operators and their suppliers of programming, hardware and software.

To make Interactive TV a reality, Grass Valley Group is working with Microsoft to bring the necessary technology to mainstream broadcast television playback and distribution via the Profile XP Media Platform. Together, the two companies are targeting one of the most critical links in the content creation chain: the point at which video, audio, and data-enhancing materials are assembled, packaged, and delivered. This will enable content providers to edit ATVEF interactive television data on the platform (both actual data and the timing algorithms key to ensuring that the video and data material are properly matched)- and ultimately will enable the insertion and playout of interactive television data in real time.

How competitive are Grass Valley Group products in their respective markets? What is the company's overall market share?

More than $1 billion of Grass Valley Group products are installed worldwide today, with nearly 80 percent of television signals worldwide passing through them. Grass Valley Group holds the number one or number two share in most markets in which it competes. In fact, according to both industry and internal analyses, there are twice as many Grass Valley Profile Digital Video Servers installed than any other digital server on the market.

What specific research and development efforts have been undertaken to ensure the future competitiveness of these products?

During Fiscal 2000, the Grass Valley Group invested approximately $21 million in research & development to develop and deliver 18 new products. This investment spending built upon a focused, 2.5-year research & development initiative spanning fiscal year 1998 and 1999. During that time, the company invested approximately $60 million to refresh the existing product lines. For nine months ending June 30, 2000, approximately 60% of revenue was generated from products introduced over the last year. The new products are currently registering return on investments exceeding 50% and investment payback within 12 months.

With its focus on incorporating a greater software component into future product offerings, the Grass Valley Group has a 3:1 ratio of software to hardware engineers. To accelerate the development of critical software products and expedite entry into emerging digital video markets, the company has made an equity investment in and signed a long-term agreement for software product development with Celstream Technologies, a software engineering firm in Bangalore, India.

How does the Grass Valley Group intend to stay competitive in those markets?

Grass Valley Group has a proven ability to successfully introduce new products that met the changing needs of its dynamic customer base in a timely manner. The company has an effective, common sense approach to new product development that continues to provide Grass Valley Group with a sustainable competitive advantage in the marketplace.

The company as a whole works to stay ahead of the technology curve and anticipate the needs of its customers. To satisfy these needs, the new products developed have cross-functionality between platforms (e.g. Profile and Kalypso, Profile and Vibrint) and relevant add-ons which both provide customers with a clear, scalable path of evolution. These add-ons, including modular and software enhancements, are rolled-out in a timely manner. The company is also working to address the needs of many segments of the broadcasting market; differently featured versions of each product are being developed to address application and price differences.

A prime example of this strategy is Grass Valley Group's Profile XP Media Platform™. The Profile, a digital video server, works with all of the company's product lines. The company offers three important software packages for it, with over 50 external vendors creating applications for it as well. The Profile has several versions, ranging in price from $22,000 to $70,000. These factors have all added to the fact that the Profile server line holds a strong number one position in the worldwide broadcasting marketplace.

Where is the Grass Valley Group now located?

The company is headquartered in Nevada City, California (northeast of Sacramento), with engineering design centers in Nevada City, Bedford, Mass., and in Beaverton, Oregon. The digital broadcast and video product development efforts continue to be supported by a software development center in Bangalore, India. In addition, new offices have been opened worldwide in Cologne, Germany; London, England; Paris, France; Hong Kong; Bangalore, India; Sydney, Australia; and Tokyo, Japan.

For address information, please visit the Locations section.

What is the distribution of Grass Valley Group personnel worldwide?

The Grass Valley Group has more than 700 employees worldwide: 550 in the US and the Americas; 100 in Europe; and, 110 in the Pacific Region. Of those employees supporting product development efforts in the Pacific Region, 60 are employees of the Celstream software development center in Bangalore, India.