Avid 2009 Annual Report Download - page 58

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The following table summarizes the Company’s fair value hierarchy for assets and liabilities measured at fair value on a
nonrecurring basis during the year ended December 31, 2009 (in thousands):
Fair Value Measurements Using
Year
Ended
December 31,
2009
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Related
Expenses
Assets:
Assets held-for-sale $
408
$ — $ 408 $ — $
3,198
Liabilities:
Facilities-related restructuring accruals
$
11,495
$
—
$
11,495
$
—
$
11,495
The Company typically uses the following valuation techniques to determine fair values of assets and liabilities measured
on a nonrecurring basis:
Goodwill: When performing goodwill impairment tests, the Company estimates the fair value of its reporting
units using an income approach, which is generally a discounted cash flow methodology that includes assumptions
for, among other things, forecasted revenues, gross profit margins, operating profit margins, working capital cash
flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require
significant judgments by management. The Company also considers comparable market data based on multiples of
revenue as well as the reconciliation of the Company’s market capitalization to the total fair value of its reporting
units. If the estimated fair value of any reporting unit is less that its carrying value, an impairment exists.
Intangible Assets: When performing an intangible asset impairment test, the Company estimates the fair value of
the asset using a discounted cash flow methodology, which includes assumptions for, among other things, budgets
and economic projections, market trends, product development cycles and long-term discount rates. If the
estimated fair value of the asset is less that its carrying value, an impairment exists.
Assets Held-for-Sale: A disposal group classified as held-for-sale is measured at the lower of its carrying amount
or fair value less the cost to sell. The Company estimates the fair value of assets held-for-sale at the lower of cost
or the average selling price in available markets. The assets held-for-sale are related to the Company’s sale of the
PCTV product line in 2008.
Facilities-Related Restructuring Accruals: During the year ended December 31, 2009, the Company recorded
accruals associated with exiting all or portions of certain leased facilities. The Company estimates the fair value of
such liabilities, which are discounted to net present value at an assumed risk-free interest rate, based on observable
inputs, including the remaining payments required under the existing lease agreements, utilities costs based on
recent invoice amounts, and potential sublease receipts based on quoted market prices for similar sublease
arrangements.
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out or moving-average 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 on 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.
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.