Avid 2004 Annual Report Download - page 72

58
approximately $0.8 million but not below $2.0 million. The letter of credit will remain in effect at $2.0 million throughout
the remaining lease period, which extends to September 2009. As of December 31, 2004, the Company was not in default
of this lease.
The accompanying consolidated results of operations reflect rent expense on a straight-line basis over the term of the leases.
Total rent expense under operating leases, net of operating subleases, was approximately $16.7 million, $14.2 million and
$14.3 million for the years ended December 31, 2004, 2003 and 2002, respectively. Total rent received from our operating
subleases was approximately $3.6 million, $3.2 million and $3.3 million for the years ended December 31, 2004, 2003 and
2002, respectively.
Purchase Commitments
As of December 31, 2004, the Company has entered into non-cancelable purchase commitments for certain inventory
components used in its normal operations. The purchase commitments covered by these agreements are generally less than
one year and aggregate approximately $25.0 million.
Transactions with Recourse
The Company, through a third party, provides lease financing options to its customers, including primarily end-users, and
occasionally distributors. During the terms of these leases, which are generally three years, the Company remains liable for
any unpaid principal balance upon default by the end-user, but such liability is limited in the aggregate based on a
percentage of initial amounts funded or, in certain cases, amounts of unpaid balances. At December 31, 2004 and 2003,
Avid’s maximum recourse exposure totaled approximately $17.2 million and $14.8 million, respectively. The Company
records revenue from these transactions upon the shipment of products, provided that all other revenue recognition criteria
are met. Because the Company has been providing these financing options to its customers for many years, the Company
has a substantial history of collecting under these arrangements without providing refunds or concessions to the end user or
financing party. To date, the payment default rate has consistently been between 2% and 4% per year of the original funded
amount. The Company maintains a reserve for estimated losses under this recourse lease program based on these historical
default rates. At December 31, 2004, the Company’s accrual for estimated losses was $2.2 million.
Contingencies
On March 11, 1996, Avid was named as a defendant in a patent infringement suit filed in the United States District Court
for the Western District of Texas by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, upon Avid's motion, the suit was transferred to the United States District Court for the
Southern District of New York. The complaint alleged infringement by Avid of U.S. patent number 4,258,385, and sought
injunctive relief, treble damages, costs, and attorneys' fees. In its answer to the complaint, Avid asserted that it did not
infringe the patent and that the patent was invalid. In August 2004, Avid filed a Motion To Dismiss based on Combined
Logic’s failure to prosecute. An oral hearing on Avid's Motion was held on November 5, 2004 and the District Court
granted the Motion on November 22, 2004. The District Court entered Judgment in favor of Avid on December 10, 2004,
dismissing the suit with prejudice. Combined Logic Company filed a Notice Of Appeal to the Court of Appeals for the
Second Circuit on January 6, 2005. On February 14, 2005, Avid filed a Motion To Dismiss For Lack of Jurisdiction. On
February 15, 2005, Combined Logic, by letter to the Second Circuit, indicated that it did not object to the dismissal of its
appeal and did not object to the relief sought in Avid’s Motion. Because of the foregoing facts, Avid considers this matter
terminated.
Avid receives inquiries from time to time with regard to possible patent infringement claims. If any infringement is
determined to exist, the Company may seek licenses or settlements. In addition, as a normal incidence of the nature of the
Company’s business, various claims, charges, and litigation have been asserted or commenced against the Company arising
from or related to contractual or employee relations, intellectual property rights or product performance. Management does
not believe these claims will have a material adverse effect on the financial position or results of operations of the Company.
From time to time, the Company provides indemnification provisions in agreements with customers covering potential
claims by third parties that Avid products infringe their intellectual property rights. Pursuant to these indemnification
provisions, the Company agrees to indemnify customers for losses that they suffer or incur in connection with any valid U.S.
patent or copyright infringement claim brought by a third party with respect to Avid products. These indemnification
provisions generally offer perpetual coverage for infringement claims based upon the products covered by the agreement.
The maximum potential amount of future payments the Company could be required to make under these indemnification
provisions is theoretically unlimited; however, to date, the Company has not received any claims under these