Avid 2011 Annual Report Download - page 59

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AVID TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND OPERATIONS
Avid Technology, Inc. (“Avid” or the “Company”) develops, markets, sells and supports a wide range of software and hardware
for digital media content production, management and distribution. Digital media are video, audio or graphic elements in which
the image, sound or picture is recorded and stored as digital values, as opposed to analog, or tape-based, signals. The Company's
products are used worldwide in production and post-production facilities; film studios; network, affiliate, independent and cable
television stations; recording studios; live-sound performance venues; advertising agencies; government and educational
institutions; corporate communication departments; and by Internet professionals and consumers. Projects produced using Avid's
products include major motion pictures, prime-time television programs, music, video and other recordings.
The Company's evaluation of the discrete financial information that is regularly reviewed by the chief operating decision makers
determined that beginning in 2010 the Company had only one reportable segment. Effective January 1, 2010, the Company began
reporting based on a single reportable segment and reclassified its 2009 segment reporting to conform to the current presentation
(see Note R).
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany
balances and transactions have been eliminated.
The Company's preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reported periods. The most significant estimates reflected in these financial statements include
revenue recognition, stock-based compensation, accounts receivable and sales allowances, inventory valuation, goodwill and
intangible asset valuations, fair value measurements and income tax valuation allowances. Actual results could differ from those
estimates.
During 2011, the Company determined that the classification of certain assets and liabilities as either short-term or long-term
should be changed. These amounts have been reclassified in the Company's balance sheet at December 31, 2010 to conform to
the current presentation. Also during 2011, the Company determined it was appropriate to revise the way it presents certain
amounts in its cash flow statements. Certain prior period cash flow amounts have been reclassified to conform to the current
presentation. Certain other prior period amounts disclosed in these financial statements have also been reclassified to conform to
the current year presentation (see Note H). None of these reclassifications or changes in presentation are considered material.
Except as disclosed in Note S, the Company evaluated subsequent events through the date of issuance of these financial
statements and determined that no other recognized or unrecognized subsequent events required recognition or disclosure.
Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) No.
2009-13, Multiple-Deliverable Revenue Arrangements, an amendment to Accounting Standards Codification (“ASC”) Topic 605,
Revenue Recognition, and ASU No. 2009-14, Certain Revenue Arrangements That Include Software Elements, an amendment to
ASC Subtopic 985-605, Software - Revenue Recognition (the “Updates”). ASU No. 2009-13 requires the allocation of revenue to
each unit of accounting using the relative selling price of each deliverable for multiple-element arrangements. ASU No. 2009-13
also amends the accounting for multiple-element arrangements to provide guidance on how the deliverables in an arrangement
should be separated and eliminates the use of the residual method by establishing a hierarchy of evidence to determine the stand-
alone selling price of a deliverable based on vendor-specific objective evidence (“VSOE”), third-party evidence (“TPE”) and the
best estimate of selling price (“ESP”). If VSOE is available, it is used to determine the selling price of a deliverable. If VSOE is
not available, the entity must determine whether TPE is available. If so, TPE would be used to determine the selling price. If TPE
is not available, then the entity would be required to determine an ESP. ASU No. 2009-14 amends ASC Subtopic 985-605 to
exclude from the scope of software revenue recognition requirements sales of tangible products that contain both software and
non-software components that function together to deliver the essential functionality of the tangible products. The Updates also
include new disclosure requirements on how the application of the relative selling price method affects the timing and amount of