Avid 2006 Annual Report Download - page 57

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In connection with our acquisition of Wizoo, we became contingently obligated to make additional payments to the
former shareholders of Wizoo of up to €1.0 million, dependent upon Wizoo achieving four engineering milestones
through January 2008. These payments, if required, would be recorded as additional purchase consideration,
allocated to goodwill. As of December 31, 2006, three of the engineering milestones have been met and €0.6 million
has been recorded as additional purchase price. See Footnote G to our Consolidated Financial Statements in Item 8.
We conduct our business globally and, consequently, our results from operations are exposed to movements in
foreign- currency exchange rates. We enter into forward exchange contracts, which generally have one-month
maturities, to reduce exposures associated with the foreign exchange exposures of certain forecasted third-party
and intercompany receivables, payables and cash balances. As of December 31, 2006, we had $92.7 million of
forward-exchange contracts outstanding, denominated in the euro, British pound, Swedish krona, Norwegian krone,
Danish kroner, Canadian dollar, Japanese Yen, Australian dollar, Singapore dollar and Korean won, as a hedge
against forecasted foreign currency denominated receivables, payables and cash balances, and to hedge
the investment in our Canadian subsidiary.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.” SFAS No. 159
permits entities to choose to measure many financial instruments and certain other items at fair value and is
effective for fiscal years beginning after November 15, 2007, or January 1, 2008 for Avid. Early adoption is permitted
as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of
that fiscal year and also elects to apply the provisions of SFAS No. 157. We are in the process of evaluating the
impact this pronouncement may have on our results of operations and financial condition and whether to adopt
the provisions of SFAS No 159 for the fiscal year beginning January 1, 2007.
In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108, or SAB
108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements,” which was issued in order to eliminate the diversity of practice surrounding how public companies
quantify financial statement misstatements. SAB 108 provides interpretive guidance on the consideration of the
effects of prior year misstatements for the purpose of materiality assessment and allows application of its provisions
either by (1) restating prior financial statements or (2) recording the cumulative effect of applying the guidance as
adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the opening
balance of retained earnings. SAB 108 was effective for the year ended December 31, 2006. Adoption did not result
in either a restatement of our prior year financial statements or a cumulative adjustment.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes
a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value measurements, but its provisions apply to
all other accounting pronouncements that require or permit fair value measurement. SFAS No. 157 will be effective
for fiscal years beginning after November 15, 2007, or January 1, 2008 for Avid. Adoption of SFAS No. 157 is not
expected to have a material impact on our financial position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48, or FIN 48, “Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109,” which prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 will be effective for fiscal years beginning after December 15, 2006, or January 1, 2007
for Avid. Related to the transition to FIN 48, the FASB has issued two methods, Alternative A and Alternative B,
for reporting subsequent events occurring during the first quarter of 2007. We have elected to use Alternative
B as its method for reporting subsequent events. Under Alternative B, we will no longer recognize differences
between Type I and Type II subsequent events. Type I events are those items that would effect pre FIN 48 adoption
accounting and therefore would be reflected in the financial statements at December 31, 2006. Type II subsequent
events would not have an impact on pre FIN 48 adoption accounting. When determining the cumulative-effect
adjustment, the subsequent information would not be considered as available and, therefore, the information is
not reflected in the cumulative-effect adjustment at January 1, 2007. Although we have not completed the process
of evaluating the effects that will result from adopting FIN 48, based on our preliminary analysis, we do not believe
that there will be a material impact on its financial position or results of operation.