Avid 1998 Annual Report Download - page 37

32
AVID TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND OPERATIONS
Avid Technology, Inc. (“Avid” or “the Company”) develops, markets, sells and supports a wide range of software and
systems for creating and manipulating digital media content. Digital media are media elements, whether video or audio or
graphics, in which the image, sound or picture is recorded and stored as digital values, as opposed to analog signals. Avid’ s
digital, nonlinear video and film editing systems are designed to improve the productivity of video and film editors by
enabling them to edit moving pictures and sound in a faster, easier, more creative, and more cost-effective manner than
traditional analog tape-based systems. To complement these systems, Avid develops and sells a range of image
manipulation products that allow users in the video and film post-production and broadcast markets to create graphics and
special effects for use in feature films, television programs and advertising, and news programs. Additionally, Avid
develops and sells digital audio systems for the professional audio market. Avid’ s products are used worldwide in
production and post-production facilities; film studios; network, affiliate, independent, and cable television stations;
recording studios; advertising agencies; government and educational institutions; corporate communication departments;
and by individual home users.
As described in Note O, in August 1998, the Company acquired the common stock of Softimage Inc. (“Softimage”) and
certain assets related to the business of Softimage for total consideration of $247.9 million. Softimage is a leading
developer of three-dimensional (“3D”) animation, video production, two-dimensional (“2D”) cel animation and compositing
software solutions and technologies. The acquisition was recorded as a purchase and, accordingly, the results of operations
of Softimage have been included in the Company’ s financial statements as of the acquisition date.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
Intercompany balances and transactions have been eliminated. Certain amounts in the prior years' financial statements have
been reclassified to conform to the current year presentation.
The Company’ s preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure 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 included in these financial statements include accounts
receivable and sales allowances, inventory valuation, the recoverability of intangible assets including goodwill and income
tax valuation allowances. Actual results could differ from those estimates.
Translation of Foreign Currencies
The functional currency of the Company's foreign subsidiaries is the local currency, except for the Irish manufacturing
branch and Avid Technology Sales Ltd. in Ireland, whose functional currencies are the U.S. dollar. The assets and
liabilities of the subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars at the
current exchange rate in effect at the balance sheet date. Income and expense items are translated using the average
exchange rate during the period. Cumulative translation adjustments are included in accumulated other comprehensive
income, which is reflected as a separate component of stockholders' equity. Foreign currency transaction gains and losses
are included in results of operations.
The Company enters into foreign exchange forward contracts to hedge the effect of certain intercompany receivables and
payables (asset and liability positions) of its foreign subsidiaries. Gains and losses associated with currency rate changes on
the contracts are currently recorded in results of operations, offsetting losses and gains on the related assets and liabilities.
The cash flows related to the gains and losses of foreign currency forward contracts are classified in the statements of cash
flows as part of cash flows from operations.
The market risk exposure from forward contracts is assessed in light of the underlying currency exposures and is limited by
the term of the Company’ s contracts, generally one month. Credit risk from forward contracts is minimized through the