Avid 2004 Annual Report Download - page 58

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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 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. Our
products are used worldwide in production and post-production facilities; film studios; network, affiliate, independent and
cable television stations; recording studios; advertising agencies; government and educational institutions; corporate
communication departments; and game developers and Internet professionals. Projects produced using our products include
major motion pictures and prime-time television, music, video, and other recordings.
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 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, accounts receivable and sales allowances, inventory valuation and income tax
valuation allowances. Actual results could differ from those estimates.
In connection with preparation of the accompanying financial statements, the Company concluded that it was appropriate to
classify its investments in auction rate securities as marketable securities. Previously, such investments were classified as
cash and cash equivalents. Accordingly, the Company has revised the classification to exclude from cash and cash
equivalents $25.5 million and $25.4 million of auction rate securities at December 31, 2003, and 2002, respectively, and to
include such amounts as marketable securities. In addition the Company has made corresponding adjustments to the
accompanying statement of cash flows to reflect the gross purchases and sales of these securities as investing activities. As
a result, cash used in investing activities increased by $0.1 million and $25.4 million in 2003 and 2002, respectively. This
change in classification does not affect previously reported cash flows from operations or from financing activities.
Translation of Foreign Currencies
The functional currency of each of the Company's foreign subsidiaries is the local currency, except for the Irish
manufacturing branch whose functional currency is 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 for these entities 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.
The Irish manufacturing branch and the U.S parent company, both of whose functional currency is the U.S. dollar, carry
monetary assets and liabilities denominated in currencies other than the U.S. dollar. These assets and liabilities typically
include cash, accounts receivable, and intercompany operating balances denominated in euros, pounds sterling, Japanese
yen, Canadian dollars, Australian dollars, Swedish Krona, Danish Kroner, Norwegian Krone and Korean Won. These
assets and liabilities are remeasured into the U.S dollar at the current exchange rate in effect at the balance sheet date.
Foreign currency transaction and remeasurement gains and losses are included within marketing and selling expenses in the
results of operations. For the year ended December 31, 2004, net losses of $4.7 million resulting from forward-exchange
contracts were recorded, which offset net transaction and remeasurement gains of $3.0 million on the related assets and
liabilities.