Avid 2008 Annual Report Download - page 74

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to determine the implied fair value of the goodwill. Because the book value of the Consumer Video goodwill
exceeded the implied fair value by $46.6 million, the Company recorded this amount as an impairment loss during the
quarter ended September 30, 2008.
Previously, in December 2006, the Company's annual goodwill impairment testing determined that the carrying value
of the Consumer Video segment goodwill, which is all the result of the Pinnacle acquisition, exceeded its implied fair
value. In connection with the preparation of the 2007 budget, revenue projections for the Consumer Video reporting
unit were lowered significantly from those prepared in connection with the acquisition, indicating the fair value of the
business had declined. A new estimate of the fair value of the Consumer Video reporting unit was prepared using a
discounted cash flow valuation model similar to that used in valuing the Pinnacle acquisition, updated for then-current
revenue projections. This fair value was then allocated among the Consumer Video segment’s tangible and intangible
assets and liabilities to determine the implied fair value of goodwill. Because the book value of the Consumer Video
goodwill exceeded the implied fair value by $53.0 million, the Company recorded this amount as an impairment loss
during the quarter ended December 31, 2006.
Amortizing identifiable intangible assets related to the Company’s acquisitions consisted of the following (in
thousands):
December 31, 2008 December 31, 2007
Gross
Accumulated
Amortization Net Gross
Accumulated
Amortization Net
Completed technologies
and patents (a) $ 65,357 $ (62,003) $ 3,354 $ 65,727 $ (54,099) $ 11,628
Customer relationships
and order backlog (b) 63,072 (32,964) 30,108 71,701 (25,205) 46,496
Trade names (c) 13,714 (9,102) 4,612 21,316 (8,284) 13,032
N
on-compete covenants
—
— — 1,704 (1,637) 67
License agreements 560 (491) 69 560 (356) 204
$ 142,703 $ (104,560) $ 38,143 $ 161,008 $ (89,581) $ 71,427
(a) Allocations to the sale of the Softimage product line of $0.4 million and ($0.2) million, respectively, are reflected in the December 31,
2008 gross and accumulated amortization amounts.
(b) An impairment loss of $5.6 million and allocations to the sales of the Softimage and PCTV product lines of $3.0 million are reflected
in the December 31, 2008 gross amount. Allocations to the sales of the Softimage and PCTV product lines of ($1.5) million are
reflected in the December 31, 2008 accumulated amortization amount.
(c) Impairment losses of $5.5 million and an allocation to the sale of the PCTV product line of $2.1 million are reflected in the December
31, 2008 gross amount. An allocation to the sale of the PCTV product line of ($2.0) million is reflected in the December 31, 2008
accumulated amortization amount.
In connection with the goodwill impairment loss taken for the Audio and Consumer Video reporting units in the
fourth quarter of 2008, the Company reviewed the Audio and Consumer Video identifiable intangible assets for
possible impairment in accordance with SFAS No. 144. This analysis included grouping the intangible assets with
other operating assets and liabilities in the Consumer Video reporting unit that would not otherwise be subject to
impairment testing because the grouped assets and liabilities represent the lowest level for which cash flows are
largely independent of the cash flows of other groups of assets and liabilities within the Company. The Audio analysis
determined that the undiscounted cash flows of the long-lived assets were greater than their carrying value, indicating
no impairment existed. The Consumer Video analysis determined that the undiscounted cash flows of that reporting
unit’s net asset groups were less than the carrying value, indicating that a possible impairment loss had occurred. The
current fair values of the identifiable intangible assets were then determined using the income approach based on
revised cash flows discounted to present value. As a result of this analysis, it was determined that the Consumer Video
customer relationships and trade name intangible assets were impaired, and the Company recorded impairment losses
of $5.6 million and $0.8 million, respectively.
In September 2008, as a result of a decrease in market value for, and the then expected sale of, the Company’s PCTV
product line, the Company tested the Consumer Video identifiable intangible assets for impairment. The Company’s
analysis determined that the undiscounted cash flows of the Consumer Video net asset groups were less than the