Avid 2005 Annual Report Download - page 67

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are remeasured into the U.S. dollar at the current exchange rate in effect at the balance sheet date. Foreign currency transaction and
remeasurement gains and losses are included within marketing and selling expenses in the results of operations.
The U.S. parent company and various other wholly owned subsidiaries have long-term intercompany loan balances denominated in
foreign currencies, which are remeasured into the U.S. dollar at the current exchange rate in effect at the balance sheet date. Any
gains and losses relating to these loans are included in the cumulative translation adjustment account in the balance sheet.
Cash, Cash Equivalents and Marketable Securities
Cash equivalents consist primarily of government and government agency obligations. The Company considers all debt instruments
purchased with an original maturity of three months or less to be cash equivalents. Marketable securities consist of U.S. and
Canadian government and government agency obligations, corporate obligations, municipal obligations and asset-backed
securities (see Note C). The Company generally invests in securities that mature within one year from the date of purchase. The
Company classifies its cash equivalents and marketable securities as “available for sale” and reports them at fair value, with
unrealized gains and losses excluded from earnings and reported as an adjustment to other comprehensive income (loss), which is
reflected as a separate component of stockholders’ equity. Amortization or accretion of premium or discount is included in interest
income (expense) in the results of operations.
Concentration of Credit Risk and Fair Value of Financial Instruments
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash investments and trade
receivables. The Company places its excess cash in marketable investment grade securities. There are no significant concentrations
in any one issuer of debt securities. The Company places its cash, cash equivalents and investments with financial institutions with
high credit standing. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers
comprising the Company’s customer base and their dispersion across different regions. No individual customer comprised more
than 10% of the Company’s net accounts receivable as of December 31, 2005 or 2004. The Company also maintains reserves for
potential credit losses and such losses have been within management’s expectations.
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market value. Management regularly reviews
inventory quantities on hand and writes down inventory to its realizable value to reflect estimated obsolescence or unmarketability
based upon assumptions about future inventory demand (generally for the following twelve months) and market conditions.
Inventory in the digital media market, including the Company’s inventory, is subject to rapid technological change or obsolescence;
therefore, utilization of existing inventory may differ from the Company’s estimates.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life of the
asset. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the remaining term of the
lease. Expenditures for maintenance and repairs are expensed as incurred. Upon retirement or other disposition of assets, the
cost and related accumulated depreciation are eliminated from the accounts and the resulting gain or loss is reflected in other
income (expense) in the results of operations. A significant portion of the property and equipment is subject to rapid technological
obsolescence; as a result, the depreciation and amortization periods could ultimately be shortened to reflect changes in future
technology.
Acquisition-related Intangible Assets and Goodwill
Acquisition-related intangible assets, which consists primarily of customer relationships and completed technology, result from
the Company’s acquisitions of the following companies or their assets: Pinnacle, Wizoo, M-Audio, NXN Software, Avid Nordic
AB, iKnowledge, Rocket Network, Inc. and Bomb Factory Digital, Inc. (see Note F), which were accounted for under the purchase
method. Acquisition-related intangible assets are reported at fair value, net of accumulated amortization. Identifiable intangible
assets, with the exception of developed technology acquired from Pinnacle, are amortized on a straight-line basis over their
estimated useful lives of two to twelve years. Straight-line amortization is used because no other pattern over which the economic
benefits will be consumed can be reliably determined. The developed technology acquired from Pinnacle is being amortized on a
product-by-product basis over the greater of the amount calculated using the ratio of current quarter revenues to the total of current
quarter and anticipated future revenues over the estimated useful lives of two to three years, or the straight-line method over each
product’s remaining respective useful lives.