Avid 2006 Annual Report Download - page 71

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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, trade names and
developed technology, result from the Company’s acquisitions of the following companies or their assets: Sibelius,
Sundance, Medea, Pinnacle, Wizoo, M-Audio, Avid Nordic AB and NXN (see Note G), which were accounted for
under the purchase method. Finite-lived acquisition-related intangible assets are reported at fair value, net of
accumulated amortization. Identifiable intangible assets, with the exception of developed technology acquired
from Sibelius, Sundance, Medea and Pinnacle, are amortized on a straight-line basis over their estimated useful
lives of two years 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 Sibelius,
Sundance, Medea and 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 years to four years, or the straight-line method over each product’s remaining
respective useful life.
Goodwill is the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the
date of acquisition. The Company assesses goodwill for impairment on a reporting unit basis annually during the
fourth quarter of each year, or more frequently when events and circumstances occur indicating that the recorded
goodwill may be impaired. In the goodwill impairment analysis, the fair value of each reporting unit is compared
to its carrying value, including goodwill. The Company generally uses a discounted cash flow valuation model to
determine the fair values of reporting units. This model focuses on estimates of future revenues and profits for each
reporting unit and also assumes a terminal value for the unit based on a multiple of revenue. These amounts are
estimated by evaluating historical trends, current budgets, operating plans and industry data. For reporting units
comprised primarily of acquired businesses, the Company utilizes the same technique as was used to value the
acquisition assuming it is consistent with the objective of measuring fair value. If the reporting unit’s carrying value
exceeds its fair value, an impairment loss equal to the difference between the carrying value of the goodwill and its
implied fair value is recorded.
Long-Lived Assets
The Company periodically evaluates its long-lived assets, other than goodwill, for events and circumstances that
indicate a potential impairment. A long-lived asset is assessed for impairment when the undiscounted expected
future cash flows derived from that asset are less than its carrying value. The cash flows used for this analysis take
into consideration a number of factors including past operating results, budgets and economic projections, market
trends and product development cycles. The amount of any impairment would be equal to the difference between
the estimated fair value of the asset, based on a discounted cash flow analysis, and its carrying value.
Revenue Recognition and Allowance for Doubtful Accounts
The Company generally recognizes revenue from sales of software and software-related products upon receipt of
a signed purchase order or contract and product shipment to distributors or end users, provided that collection
is reasonably assured, the fee is fixed or determinable and all other revenue recognition criteria of Statement of
Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended, are met. In addition, for certain transactions
where the Company’s services are non-routine or essential to the delivered products, we record revenue upon
satisfying the criteria of SOP 97-2 and obtaining customer acceptance. Within the Professional Video segment,
much of the Audio segment and the Consumer Video segment, the Company follows the guidance of SOP 97-2 for
revenue recognition on most of its products and services since they are software or software-related. However, for
certain offerings in the Company’s Audio segment, software is incidental to the delivered products and services. For