Avid 2006 Annual Report Download - page 70

Download and view the complete annual report

Please find page 70 of the 2006 Avid annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 109

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109

60
Translation of Foreign Currencies
The functional currency of each of the Company’s foreign subsidiaries is the local currency, except for the Irish
manufacturing branch whose functional currency is the U.S. dollar. The assets and liabilities of the subsidiaries
whose functional currencies are other than the U.S. dollar are translated into U.S. dollars at the current exchange
rate in effect at the balance sheet date. Income and expense items for these entities are translated using the
average exchange rate for the period. Cumulative translation adjustments are included in accumulated other
comprehensive income (loss), which is reflected as a separate component of stockholders’ equity.
The Irish manufacturing branch and the U.S. parent company, both of whose functional currency is the U.S. dollar,
carry monetary assets and liabilities denominated in currencies other than the U.S. dollar. These assets and liabilities
typically include cash, accounts receivable and intercompany operating balances denominated in the euro, pound
sterling, Japanese yen, Swedish krona, Danish kroner, Norwegian krone, Canadian dollar, Singapore dollar, Australian
dollar and Korean won. These assets and liabilities 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, 2006 or 2005. 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 lack of marketability 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.