Avid 2008 Annual Report Download - page 28

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In December 2008, we sold our PCTV product line, which was part of our Consumer Video segment, to Hauppauge
Computer Works, Inc. for total proceeds of approximately $4.7 million, which included $2.2 million in cash and a note
valued at $2.5 million. We recognized a gain of approximately $1.8 million as a result of this transaction. PCTV
inventory valued at $7.5 million was classified as held-for-sale in accordance with Statement of Financial Accounting
Standards, or SFAS, No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and included in “other
current assets” in our consolidated balance sheet as of December 31, 2008. We will be reimbursed for the cost of any
PCTV inventory sold by the buyer and expect the inventory to be sold during the next twelve months. The PCTV
product line accounted for approximately $42.4 million of our 2008 revenues.
During 2008, we initiated restructuring plans that included reductions in force of approximately 600 positions, including
employees related to our divested product lines, and the closure of five small facilities. The restructuring plan is
intended to improve operational efficiencies. In connection with these plans, we recorded restructuring charges of $24.4
million related to employee termination costs and $0.7 million for the facilities closures. In addition, as a result of our
decision to divest our PCTV product line, we recorded a non-cash restructuring charge of $1.9 million in cost of
revenues related to the write-down of inventory. We expect annual cost savings of approximately $55 million to result
from actions taken under these restructuring plans.
During the first quarter of 2008, we used $93.2 million in cash to repurchase 4,254,397 shares of our common stock. No
additional shares of our common stock were repurchased during the remainder of 2008. At December 31, 2008, we had
authorization from our board of directors for additional repurchases of up to $80.3 million.
We derive a significant percentage of our revenues from sales to customers outside the United States. International sales
accounted for 61% of our consolidated net revenues in 2008, compared to 58% and 57% of our consolidated net
revenues for 2007 and 2006, respectively. Our international business is, for the most part, transacted through
international subsidiaries and generally in the currency of the customers. Changes in foreign currency exchange rates
could materially affect, either positively or adversely, our revenues, net income and cash flow.
A significant portion of our operating expenses are fixed in the short term, and we plan our expense run rate based on
our expectations of future revenues. In addition, a significant percentage of our sales transactions are completed during
the final weeks or days of each quarter, and, therefore, we generally do not know whether revenues have met our
expectations until after the end of the quarter. If we have a shortfall in revenues in any given quarter, there is an
immediate effect on our overall earnings.
See “Risk Factors” in Item 1A of this annual report for additional risk factors that may cause our future results to differ
materially from our current expectations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and
liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. We regularly reevaluate our estimates and judgments, including those related to revenue recognition
and allowances for product returns and exchanges; stock-based compensation; allowances for bad debts and reserves for
recourse under financing transactions; the valuation of inventories, business combinations, and goodwill and other
intangible assets; divestitures; fair value measurements; and income tax assets. We base our estimates and judgments on
historical experience and various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and
expenses that are not readily apparent from other sources. Actual results may differ from these estimates.
We believe the following critical accounting policies most significantly affect the portrayal of our financial condition
and involve our most difficult and subjective estimates and judgments.