Avid 2004 Annual Report Download - page 63

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records that difference multiplied by the number of shares under option as deferred compensation, which is then amortized
over the vesting period of the options. Additionally, deferred compensation is recorded for restricted stock granted to
employees based on the fair market value of the Company’s stock at date of grant and is amortized over the period in which
the restrictions lapse. The Company reverses deferred compensation associated with unvested options issued at below fair
market value as well as unvested restricted stock upon the cancellation of such options or shares for terminated employees.
The Company provides the disclosures required by Statement of Financial Accounting Standards (“SFAS”) No. 123,
“Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-
Transition and Disclosure”. All stock-based awards to non-employees are accounted for at their fair value in accordance
with SFAS No. 123.
The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee awards. See Note K for additional disclosure.
For the Year Ended December 31,
2004
2003
2002
Net income, as reported
$71,701
$40,889
$2,999
Add: Stock-based employee compensation expense
included in reported net income, net of related tax effect
1,448
181
1,028
Deduct: Total stock-based employee compensation
expense determined under fair value-based method for
all awards, net of related tax effect
(15,881)
(11,876)
(12,209)
Pro forma net income (loss)
$57,268
$29,194
($8,182)
Income (loss) per common share:
Basic-as reported
$2.21
$1.40
$0.11
Basic-pro forma
$1.76
$1.00
($0.31)
Diluted-as reported
$2.05
$1.25
$0.11
Diluted-pro forma
$1.65
$0.89
($0.31)
Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs”, an amendment of ARB No. 43, which is the result
of its efforts to converge U.S. accounting standards for inventories with International Accounting Standards. SFAS No. 151
requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be recognized as current-
period charges. It also requires that the allocation of fixed production overheads to the costs of conversion be based on the
normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company is currently evaluating the impact of SFAS No. 151 on its consolidated
financial statements.
On December 16, 2004, the FASB released SFAS No. 123R. This new accounting standard requires all forms of stock
compensation, including stock options issued to employees, to be reflected as an expense in the Company’s financial
statements. Public companies must adopt the standard by their first fiscal period beginning after June 15, 2005. SFAS No.
123R allows three alternative methods of transitioning to the standard: modified prospective application (MPA), without
restatement of prior interim periods in the year of adoption; MPA with restatement of prior interim periods in the year of
adoption; or modified retrospective application. The Company intends to use the MPA without restatement alternative and
to apply the revised standard beginning in the quarter ending September 30, 2005. Although the Company has not finalized
its analysis, it expects that the adoption of the revised standard will result in higher operating expenses and lower earnings