Avid 2006 Annual Report Download - page 86

Download and view the complete annual report

Please find page 86 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

76
J. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company leases its office space and certain equipment under non-cancelable operating leases. The
future minimum lease commitments under these non-cancelable leases at December 31, 2006 are as follows (in
thousands):
Year
2007 $25,173
2008 20,804
2009 18,196
2010 14,341
2011 9,456
Thereafter 21,233
Total $109,203
The total of future minimum rentals to be received by the Company under non-cancelable subleases related to
the above leases is $7.7 million as of December 31, 2006. Such sublease income amounts are not reflected in the
schedule of minimum lease payments above. Included in the operating lease commitments above are obligations
under leases for which the Company has vacated the underlying facilities as part of various restructuring plans.
These leases expire at various dates through 2011 and represent an aggregate obligation of $10.4 million through
2011. The Company has a restructuring accrual of $3.1 million at December 31, 2006 which represents the difference
between this aggregate future obligation and expected future sublease income under actual or estimated potential
sublease agreements, on a net present value basis, as well as other facilities related obligations (see Note N).
The Company’s two leases for corporate office space in Tewksbury, Massachusetts, expiring in June 2010, contain
renewal options to extend the respective terms of each lease for an additional 60 months. The Company has other
leases for office space that have early termination options, which if exercised by the Company, would result in a
penalty of approximately $1.3 million in the aggregate. The future minimum lease commitments above include the
Company’s obligations through the original lease terms and do not include these penalties.
The Company has a standby letter of credit at a bank that is used as a security deposit in connection with the
Company’s Daly City, California office space lease. In the event of default on this lease, the landlord would, as of
December 31, 2006, be eligible to draw against this letter of credit to a maximum of $0.75 million. The letter of
credit will remain in effect at $0.75 million throughout the remaining lease period, which extends to September
2014. As of December 31, 2006, the Company was not in default of this lease.
The accompanying consolidated results of operations reflect rent expense on a straight-line basis over the term of
the leases. Total rent expense under operating leases, net of operating subleases, was approximately $22.2 million,
$19.6 million and $16.7 million for the years ended December 31, 2006, 2005 and 2004, respectively. Total rent
received from the Company’s operating subleases was approximately $3.5 million, $3.5 million and $3.6 million for
the years ended December 31, 2006, 2005 and 2004, respectively.
Purchase Commitments and Sole Source Suppliers
As of December 31, 2006, the Company has entered into non-cancelable purchase commitments for certain
inventory components used in its normal operations. The purchase commitments covered by these agreements are
generally less than one year and aggregate approximately $69.9 million.
The Company depends on sole source suppliers for certain key hardware components of its products. If any
of these sole source suppliers cease, suspend or otherwise limit production or shipment of their hardware
components, or adversely modify purchasing terms or pricing structures, the Company’s ability to sell and service its
products may be impaired. The Company procures product components and builds inventory based upon forecasts
of product life cycle and customer demand. If the Company is unable to provide accurate forecasts or manage
inventory levels in response to shifts in customer demand, the Company may have insufficient, excess or obsolete
product inventory.