Avid 2004 Annual Report Download - page 60

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lives of two to twelve years. Straight-line amortization is used because no other pattern over which the economic benefits
will be consumed can be reliably determined.
Goodwill is the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the date of
acquisition. The Company assesses goodwill for impairment on a reporting unit basis annually during the fourth quarter of
each year, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.
If the book value of a reporting unit exceeds its fair value, which is estimated on a total-Company basis by reference to the
quoted market price of the Company’s stock and then allocated among reporting units based on the discounted expected
future cash flows of the reporting unit, the implied fair value of goodwill is compared with the carrying amount of goodwill.
If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that
excess.
Long-Lived Assets
The Company periodically evaluates its long-lived assets, other than goodwill, for events and circumstances that indicate a
potential impairment. A long-lived asset is assessed for impairment when the undiscounted expected future cash flows
derived from that asset are less than its carrying value. The cash flows used for this analysis take into consideration a
number of factors including past operating results, budgets and economic projections, market trends and product
development cycles. The amount of any impairment would be equal to the difference between the estimated fair value of
the asset, based on a discounted cash flow analysis, and its carrying value.
Revenue Recognition and Allowance for Doubtful Accounts
The Company recognizes revenue from sales of products upon receipt of a signed purchase order or contract and product
shipment to distributors or end users, provided that collection is reasonably assured, the fee is fixed or determinable, and all
other revenue recognition criteria of Statement of Position (“SOP”) 97-2, "Software Revenue Recognition", as amended,
and Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”,
are met. Within the Video segment and a portion of the Audio segment, the Company follows the guidance of SOP 97-2 for
revenue recognition on most of its products and services since they are software-related. However, for certain offerings in
the Company’s Audio segment, software is incidental to the delivered products and services. For these products, the
Company records revenue based on satisfying the criteria in SAB No. 104.
In connection with many of the Company’s product sale transactions, customers typically purchase a one-year maintenance
and support agreement. The Company recognizes revenue from maintenance contracts on a ratable basis over their term.
The Company recognizes revenue from training, installation or other services as the services are performed.
The Company uses the residual method to recognize revenues when an order includes one or more elements to be delivered
at a future date and evidence of the fair value of all undelivered elements exists, including arrangements that include both
products and maintenance contracts. Under the residual method, the fair value of the undelivered elements is deferred and
the remaining portion of the total arrangement fee is recognized as revenues related to the delivered elements. If evidence
of the fair value of one or more undelivered elements does not exist, revenues are deferred and recognized when delivery of
those elements occurs or when fair value can be established. Fair value is typically based on the price charged when the
same element is sold separately to customers. However, in certain transactions, fair value is based on the renewal price of
the undelivered element that is granted as a contractual right to the customer. The Company’s current pricing practices are
influenced primarily by product type, purchase volume, term and customer location. Management reviews services
revenues sold separately and corresponding renewal rates on a periodic basis and updates, when appropriate, the fair value
for such services used for revenue recognition purposes to ensure that it reflects the Company’s recent pricing experience.
In most cases the Company's products do not require significant production, modification or customization of software.
Installation of the products is generally routine, requires minimal effort and is not typically performed by the Company.
However, a growing number of transactions, those typically involving orders from end-users for a significant number of
products for a single customer site, such as news broadcasters, may require that we perform an installation effort that we
deem to be non-routine and complex. In these situations, the Company does not recognize revenue for either the products
shipped or the installation services until the installation is complete. In addition, if such orders include a customer
acceptance provision, no revenue is recognized until the customer’s acceptance of the products and services has been
received or the acceptance period has lapsed.