Avid 2014 Annual Report Download - page 40

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historical experience, considering the exercise behavior of past grants and models the pattern of aggregate exercises. The fair
values of restricted stock and restricted stock unit awards with time-based vesting are based on the intrinsic values of the awards
at the date of grant as these awards have a purchase price of $0.01 per share.
We have also issued stock option grants or restricted stock unit awards with vesting based on market conditions, which
historically included Avid’s stock price; or performance conditions, generally our return on equity or operating margin. The fair
values and derived service periods for all grants that include vesting based on market conditions are estimated using the Monte
Carlo simulation method. For stock option grants that include vesting based on performance conditions, the fair values are
estimated using the Black-Scholes option pricing model. For restricted stock unit awards that include vesting based on
performance conditions, the fair values are estimated based on the intrinsic values of the awards at the date of grant as these
awards have a purchase price of $0.01 per share.
Income Tax Assets and Liabilities
We record deferred tax assets and liabilities based on the net tax effects of tax credits, operating loss carryforwards and temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes compared to the amounts used
for income tax purposes. We regularly review our deferred tax assets for recoverability with consideration for such factors as
historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. A
valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be
realized. Based on the magnitude of our gross deferred tax assets, which totaled approximately $404 million at December 31,
2014, and our level of historical U.S. losses, we have determined that the uncertainty regarding the realization of these assets is
sufficient to warrant the need for a full valuation allowance against our U.S. deferred tax assets. We also determined that a
valuation allowance is warranted on a portion of our foreign deferred tax assets.
Our assessment of the valuation allowance on our U.S. and foreign deferred tax assets could change in the future based on our
levels of pre-tax income and other tax-related adjustments. Reversal of the valuation allowance in whole or in part would result
in a non-cash reduction in income tax expense during the period of reversal. To the extent some or all of our valuation allowance
is reversed, future financial statements would reflect an increase in non-cash income tax expense until such time as our deferred
tax assets are fully utilized.
The amount of income taxes we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. We
have taken and will continue to take tax positions based on our interpretation of such tax laws. There can be no assurance that a
taxing authority will not have a different interpretation of applicable law and assess us with additional taxes. Should we be
assessed with additional taxes, it could have a negative impact on our results of operations or financial condition.
We account for uncertainty in income taxes recognized in our financial statements by applying a two-step process to determine
the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be
sustained upon examination by the taxing authorities, based on the technical merits of the position. If the tax position is deemed
more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the
financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50%
likelihood of being realized upon ultimate settlement. Our provision for income taxes includes the effects of any resulting tax
reserves, referred to as unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
At December 31, 2014 and 2013, the amounts recorded for unrecognized tax benefits in our consolidated balance sheets totaled
$25.8 million and $24.7 million, respectively, including interest and penalties. If these benefits had been recognized, a reduction
of our income tax provision of $0.8 million would have resulted at both December 31, 2014 and 2013.
Restructuring Charges and Accruals
We recognize facility-related restructuring charges upon exiting all or a portion of a leased facility and meeting cease-use and
other requirements. The amount of restructuring charges is based on the fair value of the lease obligation for the abandoned space,
which includes a sublease assumption that could be reasonably obtained.
Based on our policies for the calculation and payment of severance benefits, we account for employee-related restructuring
charges as an ongoing benefit arrangement in accordance with ASC Topic 712, Compensation - Nonretirement Postemployment