Avid 2009 Annual Report Download - page 63

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58
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 and restricted stock units, 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 when 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 or that are contingently issuable are considered anti-dilutive. The contingently issuable potential
common shares result from certain stock options and restricted stock units granted to the Company’s executive officers that
vest based on performance and market conditions (see Note Q).
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) 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, 2009 and 2008 is composed of cumulative translation
adjustments of $7.6 million and $2.3 million, respectively, and net unrealized losses on debt securities of ($0.4) million and
($0.4) million, respectively.
Accounting for Stock-Based Compensation
The Company’s stock-based employee compensation plans, which are described more fully in Note L, allow the Company
to grant stock awards, options, or other equity-based instruments, or a combination thereof, as part of its overall
compensation strategy. For stock-based awards granted, the Company records stock-based compensation cost based on the
fair value estimated in accordance with ASC topic 718, Compensation – Stock Compensation (formerly SFAS No. 123
(revised 2004), Share-Based Payment), over the requisite service periods for the individual awards, which generally equals
the vesting period. The vesting of stock-based award grants may be based on time, performance, market conditions or a
combination of performance and market conditions.
The fair values of restricted stock awards with time-based vesting, including restricted stock and restricted stock units, are
generally based on the intrinsic values of the awards at the date of grant. As permitted under ASC topic 718, the Company
generally uses the Black-Scholes option pricing model to estimate the fair value of stock option grants with time-based
vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. The assumed
dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to
pay cash dividends. The expected stock-price volatility assumption is based on recent (six-month trailing) implied volatility
calculations. These calculations are performed on exchange traded options of the Company’s common stock, based on the
implied volatility of long-term (9- to 39-month term) exchange-traded options, which is consistent with the requirements of
ASC topic 718. The Company believes that using a forward-looking market-driven volatility assumption will result in the
best estimate of expected volatility. The assumed risk-free interest rate is the U.S. Treasury security rate with a term equal
to the expected life of the option. The assumed expected life is based on company-specific historical experience. With
regard to the estimate of the expected life, the Company considers the exercise behavior of past grants and models the
pattern of aggregate exercises.
The following table sets forth the weighted-average key assumptions and fair value results for stock options with time-
based vesting granted during the years ended December 31, 2009, 2008 and 2007:
2009
2008
2007
Expected dividend yield
0.00%
0.00%
0.00%
Risk-free interest rate
1.94%
2.49%
4.48%
Expected volatility
55.6%
41.0%
32.8%
Expected life (in years)
4.58
4.47
4.26
Weighted-average fair value of options granted (per share)
$6.12
$7.95
$10.76