Avid 2011 Annual Report Download - page 75

Download and view the complete annual report

Please find page 75 of the 2011 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 103

  • 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

70
Goodwill balance at December 31, 2009
Blue Order acquisition purchase accounting allocation
Euphonix acquisition purchase accounting allocation
Foreign exchange and other adjustments
Goodwill balance at December 31, 2010
Blue Order acquisition purchase accounting allocation adjustment
Euphonix acquisition purchase accounting allocation adjustment
Foreign exchange adjustments
Goodwill balance at December 31, 2011
Total
$ 227,195
9,816
10,525
(539)
246,997
(105)
(176)
(318)
$ 246,398
As described in Note B, the Company performs a goodwill impairment analysis annually in the fourth quarter of each year or
whenever events and circumstances occur that indicate that the recorded goodwill may be impaired. in accordance with ASC
Subtopic 350-20, Intangibles - Goodwill and Others - Goodwill, a two-step process is used to test for goodwill impairment. The
first step determines if there is an indication of impairment by comparing the estimated fair value of each reporting unit to its
carrying value including existing goodwill. Upon an indication of impairment from the first step, a second step is performed to
determine if goodwill impairment exists.
At September 30, 2011, as a result of a decline in the Company's stock price since its fourth quarter 2010 goodwill impairment
testing, lower than expected year-to-date 2011 revenues and operating results, and a reduction in forecasted 2011 results, the
Company performed an interim step one goodwill impairment test. The interim step one test at September 30, 2011 indicated that
the estimated fair value of the Company's single reporting unit (approximately $530 million) exceeded its carrying value of
$414.9 million by approximately 28%. Therefore, no goodwill impairment existed at September 30, 2011, and the Company was
not required to perform step two. In connection with its interim goodwill step one impairment test at September 30, 2011, the
Company has weighted the direct market capitalization approach at 67%, the income approaches at 11%, the guideline public
company market approaches at 11%, and the guideline transaction market approaches at 11%. The estimated fair value under the
direct market capitalization approach was calculated by applying control premiums of approximately 45% to the Company's
market capitalization. The Company's market capitalization was calculated using the average stock price of the Company's
common stock for the 20 trading days prior to September 30, 2011 ($8.73 per share). If the Company had used the closing stock
price of its common stock on September 30, 2011 ($7.74 per share) in the direct market capitalization described above and
applied similar weightings described above, the estimated fair value of the Company's single reporting would have exceeded its
carrying value by approximately 20% at September 30, 2011. The Company's market capitalization based on the closing stock
price at September 30, 2011 was approximately $298.3 million, compared to the carrying value of the Company's single reporting
unit of $414.9 million. This implied a control premium of approximately 39%.
The Company's annual goodwill analyses performed in the fourth quarter of 2011 indicated there was no goodwill impairment at
December 31, 2011. The step one test at December 31, 2011 indicated that the estimated fair value of the Company's single
reporting unit (approximately $506 million) exceeded its carrying value of $417.0 million by approximately 21%. Therefore, no
goodwill impairment existed at December 31, 2011, and the Company was not required to perform step two. In connection with
its annual goodwill step one impairment test at December 31, 2011, the Company has weighted the direct market capitalization
approach at 67%, the income approaches at 11%, the guideline public company market approaches at 11%, and the guideline
transaction market approaches at 11%. The estimated fair value under the direct market capitalization approach was calculated by
applying control premiums of approximately 45% to the Company's market capitalization. The Company's market capitalization
was calculated using the average stock price of the Company's common stock for the 20 trading days prior to December 31, 2011
($8.04 per share). If the Company used the closing stock price of its common stock on December 31, 2011 ($8.53 per share), the
last trading day in 2011, in the direct market capitalization described above and applied similar weightings described above, the
estimated fair value of the Company's single reporting would have exceeded its carrying value by approximately 26%. The
Company's market capitalization based on the closing stock price at December 31, 2011 was approximately $329.3 million,
compared to the carrying value of the Company's single reporting unit of $417.0 million. This implied a control premium of
approximately 27%.
Similarly, the Company's annual goodwill analysis performed in the fourth quarter of 2010 indicated there was no goodwill
impairment at December 31, 2010.