Avid 2009 Annual Report Download - page 59

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Acquisition-Related Intangible Assets and Goodwill
Acquisition-related intangible assets, which consist primarily of customer relationships, developed technology, and trade
names, resulted from the Company’s acquisitions (see Note G). These assets were accounted for under the purchase
method. Finite-lived acquisition-related intangible assets are reported at fair value, net of accumulated amortization.
Identifiable intangible assets, with the exception of developed technology, are amortized on a straight-line basis over their
estimated useful lives of two years to twelve years. Straight-line amortization is used because no other pattern over which
the economic benefits will be consumed can be reliably determined. Acquired developed technology is generally amortized
on a product-by-product basis over the greater of the amount calculated using the ratio of current quarter revenues to the
total of current quarter and anticipated future revenues over the estimated useful lives of two years to four years, or the
straight-line method over each product’s remaining respective useful life.
Goodwill is the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the date of
acquisition. The Company assesses goodwill for impairment on a reporting unit basis annually during the fourth quarter of
each year, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.
In accordance with ASC subtopic 350-20, Intangibles – Goodwill and Others – Goodwill (formerly SFAS No. 142,
Goodwill and Other Intangible Assets), the goodwill impairment analysis compares the fair value of each reporting unit to
its carrying value, including goodwill. The Company generally uses a discounted cash flow valuation model, reconciled to
quoted market prices adjusted for a control premium, to determine the fair values of its reporting units. The discounted cash
flow valuation model focuses on estimates of future revenues and profits for each reporting unit and also assumes a
terminal value for the unit using a constant growth valuation formula. These amounts are estimated by evaluating historical
trends, current budgets, operating plans and industry data. The model also includes assumptions for, among others, working
capital cash flow, growth rates, income tax rates, expected tax benefits and long term discount rates, all of which require
significant judgments by management. The Company also considers 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 Sales 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 we measure the gain (loss) on sale of a disposal group that is part of a reporting unit, we determine whether a portion
of the goodwill of the reporting unit should be allocated to the disposal group if it constitutes a business, under the guidance
of ASC topic 805, Business Combinations. 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.