Avid 2008 Annual Report Download - page 64

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judgments by management. The Company also considers comparable market data based on multiples of revenue as
well as the reconciliation of the Company’s market capitalization to the total fair value of its reporting units. If a
reporting unit’s carrying value exceeds its fair value, an impairment loss equal to the difference between the carrying
value of the goodwill and its implied fair value is recorded.
Assets Held-for-sale and Gain on Sale of Assets
Assets and liabilities of a business are classified as held-for-sale when the Company approves and commits to a
formal plan of sale and it is probable that the sale will be completed. Depreciation and amortization expense
associated with assets held-for-sale is ceased at that time.
When a disposal group that is part of a reporting unit is being sold, the measurement of the gain (loss) on sale includes
an allocation of goodwill of the reporting unit if the disposal group constitutes a business, under the guidance of
Emerging Issues Task Force (“EITF”) Issue 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt
of Productive Assets or of a Business. If the disposal group is considered a business, the goodwill of the reporting unit
is allocated based on the relative fair values of the disposal group and the portion of the reporting unit remaining.
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 generally recognizes revenues from sales of software and software-related 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, are met. The Company often receives multiple purchase
orders or contracts from a single customer or a group of related parties that are evaluated to determine if they are, in
effect, parts of a single arrangement. If they are determined to parts of a single arrangement, revenues are recorded as
if a single multiple-element arrangement exists. In addition, for certain transactions where the Company's services are
non-routine or essential to the delivered products, the Company records revenues upon satisfying the criteria of SOP
97-2 and obtaining customer acceptance. Within the Professional Video segment, the Consumer Video segment and
much of the Audio segment, the Company follows the guidance of SOP 97-2 for revenue recognition on most of its
product and services transactions since they are software or 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 revenues based on satisfying the criteria in Securities and Exchange Commission (“SEC”) Staff
Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, and EITF Issue 00-21, Revenue Arrangements with
Multiple Deliverables.
In connection with many of the Company’s product sale transactions, customers may purchase a maintenance and
support agreement. The Company recognizes revenues from maintenance contracts on a ratable basis over their term.
The Company recognizes revenues from training, installation and 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. Under the residual method,
the fair value of the undelivered element, typically professional services or maintenance, 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 of maintenance is based