Avid 2008 Annual Report Download - page 60

55
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 content 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. The Company’s products are used worldwide in production and post-production facilities; film
studios; network, affiliate, independent and cable television stations; recording studios; live-sound performance
venues; advertising agencies; government and educational institutions; corporate communication departments; and by
Internet professionals and consumers. Projects produced using Avid’s products include major motion pictures, prime-
time television programs, 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.
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. Actual results could differ from those
estimates. The most significant estimates reflected in these financial statements include revenue recognition, stock-
based compensation, accounts receivable and sales allowances, inventory valuation, goodwill and intangible asset
valuation, divestitures, fair value measurements and income tax valuation allowances.
Since the acquisition of Pinnacle Systems, Inc. in 2005, the Company has been organized into three strategic business
units, Professional Video, Audio, and Consumer Video, each of which is a reportable segment. During the first quarter
of 2008, the Company changed the way it reviews and manages its business by excluding certain corporate
infrastructure costs and expenses, including finance, human resources, legal and some information technology
expenses, when evaluating reportable segment performance and measuring the profitability of each segment. Such
expenses, which were previously allocated to the reportable segments, are managed outside the segments and are not
controllable at the segment level. The Company believes that excluding these costs provides a better measure of each
reportable segment’s performance. The Company also continues to exclude certain other costs and expenses when
evaluating reportable segment performance and profitability, including the amortization and impairment of acquired
intangible assets, the write-off of acquired in-process research and development, stock-based compensation expenses,
restructuring expenses and legal settlements. The Company now reports a contribution margin for each business unit
that excludes these costs and has revised the prior period reportable segment disclosures to conform to the current
presentation. The change to the current presentation did not affect the Company’s consolidated operating results. In
July 2008, the Company announced several changes to its business unit structure, and the Company took the actions
necessary to transition to this new business structure during the second half of 2008. The new business unit structure,
which includes a single customer-facing organization, will be used to evaluate reportable segment performance and
measure segment profitability beginning January 1, 2009. The Company’s full assessment of the reporting model to be
used starting in 2009 is not yet complete.
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 due to the extensive interrelationship of the
operations of the Irish branch and the U.S. parent and the high volume of intercompany transactions between that