Avid 2006 Annual Report Download - page 50

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depreciation of $2.1 million, all primarily resulting from our acquisitions which took place during 2005 and 2006. We
also incurred increased stock-based compensation expense of $4.4 million in 2006 as a result of the adoption of
SFAS 123(R) on January 1, 2006. The increase in general and administrative expense as a percentage of revenues
also relates to the spending increases noted.
Comparison of 2005 to 2004
Years Ended December 31, 2005 and 2004
(dollars in thousands)
2005 Expenses 2004 Expenses Change % Change
General and administrative $47,147 $35,468 $11,679 32.9%
As a percentage of net revenues 6.1% 6.0% 0.1%
The increase in general and administrative expenditures in 2005, as compared to 2004, was primarily due to higher
personnel-related costs related to our acquisitions of Pinnacle in August 2005 and M-Audio in August 2004. We also
incurred higher consulting and temporary help expenses, as well as increased audit and external legal fees in 2005,
as compared to 2004, in part related to the acquisitions over the past year.
Amortization of Intangible Assets
Intangible assets result from acquisitions accounted for under the purchase method of accounting and include
developed technology, customer-related intangibles, trade names and other identifiable intangible assets with
finite lives. These intangible assets are amortized using the straight-line method, with the exception of developed
technology. Developed technology is amortized over the greater of: 1) 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 2) the straight-line method over each product’s remaining respective useful life.
Amortization of developed technology is recorded within cost of revenues and amortization of customer related
intangibles, trade names and other identifiable intangible assets are recorded within operating expenses.
Comparison of 2006 to 2005
Years Ended December 31, 2006 and 2005
(dollars in thousands)
2006 Expenses 2005 Expenses Change
Amortization of intangible assets recorded in cost of revenues $21,193 $11,027 $10,166
Amortization of intangible assets recorded in operating expenses 14,460 9,194 5,266
Total amortization of intangible assets $35,653 $20,221 $15,432
As a percentage of net revenues 3.9% 2.6% 1.3%
The increases in amortization of intangible assets for 2006, as compared to 2005, is primarily the result of a full year
of amortization related to the acquisition of Pinnacle in August 2005 and, to a lesser extent, amortization related
to the acquisitions of Sibelius, Sundance and Medea in 2006. In the purchase price allocation for the Pinnacle
acquisition, we recorded amortizing identifiable intangible assets totaling $90.8 million. For the Sibelius, Sundance
and Medea acquisitions, we recorded amortizing identifiable intangible assets totaling $9.2 million, $5.6 million and
$3.8 million, respectively.
The unamortized balance of the identifiable intangible assets relating to all acquisitions was $102.0 million at
December 31, 2006. We expect amortization of these intangible assets to be approximately $30 million in 2007,
$20 million in 2008, $16 million in 2009 and $36 million thereafter. See Footnote G to our Consolidated Financial
Statements in Item 8 regarding identifiable intangible assets related to acquisitions.