Avid 2008 Annual Report Download - page 67

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Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 is an
asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In June
2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – An
Interpretation of FASB Statement No. 109, which clarified the accounting for uncertainty in income taxes recognized
in an enterprise's financial statement in accordance with SFAS No. 109. FIN 48 requires that a tax position must be
more likely than not to be sustained before being recognized in the financial statements. The interpretation also
requires the accrual of interest and penalties as applicable on unrecognized tax positions. The Company adopted the
provisions of FIN 48 on January 1, 2007, and did not recognize any adjustments in the liability for unrecognized
income tax benefits as a result of the adoption of FIN 48.
Computation of Net Income (Loss) Per Common Share
Net income (loss) per common share is presented for both basic earnings per share (“Basic EPS”) and diluted earnings
per share (“Diluted EPS”). Basic EPS is based on the weighted-average number of common shares outstanding during
the period, excluding non-vested restricted stock held by employees. Diluted EPS is based on the weighted-average
number of common and potential common shares outstanding during the period. Potential common shares result from
the assumed exercise of outstanding stock options and warrants as well as non-vested restricted stock, the proceeds
and remaining unrecorded compensation expense of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method. For periods that the Company reports a loss, all potential
common stock is considered anti-dilutive; for periods when the Company reports net income, potential common
shares with combined purchase prices and unamortized compensation cost in excess of the Company’s average
common stock fair value for the related period are considered anti-dilutive (see Note Q).
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss), which includes foreign
currency translation adjustments and unrealized gains and losses on certain investments. For the purposes of
comprehensive income disclosures, the Company does not record tax provisions or benefits for the net changes in the
foreign currency translation adjustment, as the Company intends to permanently reinvest undistributed earnings in its
foreign subsidiaries. Accumulated other comprehensive income at December 31, 2008 and 2007 is composed of
cumulative translation adjustments of $2.3 million and $12.6 million, respectively, and net unrealized losses on debt
securities of ($0.4) million and ($0.0) million, respectively.
Accounting for Stock-Based Compensation
The Company has several stock-based employee compensation plans, which are described more fully in Note L. The
Company records stock-based compensation cost, based on the fair value estimated in accordance with SFAS No. 123
(revised 2004), Share-Based Payment (“SFAS 123(R)”), for stock-based awards granted over the requisite service
periods for the individual awards, which generally equals the vesting period. The fair values of restricted stock
awards, including restricted stock and restricted stock units, are based on the intrinsic values of the awards at the date
of grant. As permitted under SFAS 123(R), the Company generally uses the Black-Scholes option pricing model to
estimate the fair value of stock option grants. The Black-Scholes model relies on a number of key assumptions to
calculate estimated fair values. The Company recognizes stock-compensation expense using the straight-line
attribution method.