Avid 2000 Annual Report Download - page 42

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The accompanying notes are an integral part of the consolidated financial statements.
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
systems for digital media production, management and distribution. Digital media are media elements, whether video or
audio or graphics, in which the image, sound or picture is recorded and stored as digital values, as opposed to analog, or
tape-based, signals.
As described in Note F, in August 1998, the Company acquired the common stock of Softimage Inc. (Softimage) and
certain assets related to the business of Softimage for total consideration of $247.9 million. Softimage is a developer of
three-dimensional (3D) animation, video production, two-dimensional (2D) cel animation and compositing software
solutions and technologies. The acquisition was recorded as a purchase and, accordingly, the results of operations of
Softimage have been included in the Companys financial statements as of the acquisition date.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
Intercompany balances and transactions have been eliminated. Certain amounts in the prior years' financial statements have
been reclassified to conform to the current year presentation.
The Companys preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure 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 accounts
receivable and sales allowances, inventory valuation, the recoverability of intangible assets including goodwill and income
tax valuation allowances. Actual results could differ from those estimates.
Translation of Foreign Currencies
The functional currency of the Company's foreign subsidiaries is the local currency, except for the Irish manufacturing
branch and Avid Technology Sales Ltd. in Ireland, whose functional currencies are the U.S. dollar. The assets and
liabilities of the subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars at the
current exchange rate in effect at the balance sheet date. Income and expense items are translated using the average
exchange rate for the period. Cumulative translation adjustments are included in accumulated other comprehensive income
(loss), which is reflected as a separate component of stockholders' equity. Foreign currency transaction gains and losses are
included in results of operations.
The Company enters into foreign currency forward-exchange contracts, which typically mature within one month, to hedge
the exposure to foreign currency fluctuations of expected intercompany and third-party receivables and payables as well as
foreign-currency cash balances. Gains and losses realized from the forward contracts upon maturity are recorded in results
of operations, offsetting transaction gains and losses on the related assets and liabilities. Prior to contract maturity, the
Company records on the balance sheet at each reporting period the fair value of its forward-exchange contracts and records
any fair value adjustments in results of operations, due to the immateriality of the adjustments that result from the short
period that the contracts are then outstanding. The cash flows related to the gains and losses of foreign currency forward-
exchange contracts are classified in the statements of cash flows as part of the cash flows from operations.
The market risk exposure from forward contracts is assessed in light of the underlying currency exposures and is mitigated
by the short term of the Companys contracts. Credit risk from forward contracts is minimized through the placement of
contracts with multiple financial institutions. Forward contracts are revalued monthly by comparing contract rates to month-
end exchange rates. (See Note O).