Avid 2008 Annual Report Download - page 79

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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 $4.4 million through 2011. The
Company has restructuring accruals of $3.0 million at December 31, 2008 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, which expire 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
penalties of approximately $1.8 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 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 $22.9 million, $22.6
million and $22.2 million for the years ended December 31, 2008, 2007 and 2006, respectively. Total rent received
from the Company’s operating subleases was approximately $2.6 million, $3.2 million and $3.5 million for the years
ended December 31, 2008, 2007 and 2006, respectively.
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, 2007, be eligible to draw against this letter of credit to a maximum of $0.8 million. The letter of credit
will remain in effect at $0.8 million throughout the remaining lease period, which extends to September 2014. As of
December 31, 2008, the Company was not in default of this lease.
Purchase Commitments and Sole Source Suppliers
As of December 31, 2008, the Company had 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 in the aggregate total approximately $56.3 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 on 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.
Transactions with Recourse
The Company, through third parties, provides lease financing options to its customers, including end users and, on a
limited basis, resellers. During the terms of these leases, which are generally three years, the Company may remain
liable for any unpaid principal balance upon default by the customer, but such liability is limited in the aggregate
based on a percentage of initial amounts funded or, in certain cases, amounts of unpaid balances. At December 31,
2008 and 2007, the Company’s maximum recourse exposure totaled approximately $4.6 million and $8.8 million,
respectively. The Company records revenues from these transactions upon the shipment of products, provided that all
other revenue recognition criteria, including collectibility being reasonably assured, are met. Because the Company
has been providing financing options to its customers for many years, the Company has a substantial history of
collecting under these arrangements without providing significant refunds or concessions to the end user, reseller or
financing party. To date, the payment default rate has consistently been between 2% and 4% per year of the original
funded amount. The Company maintains a reserve for estimated losses under recourse lease programs based on these
historical default rates applied to the funded amount outstanding at period end. At both December 31, 2008 and 2007,
the Company’s accrual for estimated losses was $0.8 million.