Avid 2008 Annual Report Download - page 29

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Revenue Recognition and Allowances for Product Returns and Exchanges
We generally recognize revenues from sales of software and software-related products upon receipt of a signed
purchase order or contract and product shipment to distributors or end users, provided that collection is reasonably
assured, the fee is fixed or determinable and all other revenue recognition criteria of Statement of Position, or SOP, 97-
2, Software Revenue Recognition, as amended, are met. We often receive multiple purchase orders or contracts from a
single customer or a group of related parties that are evaluated to determine if they are, in effect, parts of a single
arrangement. If they are determined to be parts of a single arrangement, revenues are recorded as if a single multiple-
element arrangement exists. In addition, for certain transactions where our services are non-routine or essential to the
delivered products, we record revenues upon satisfying the criteria of SOP 97-2 and obtaining customer acceptance.
Within our Professional Video segment, our Consumer Video segment and much of our Audio segment, we follow the
guidance of SOP 97-2 for revenue recognition because our products and services are software or software-related.
However, for certain offerings in our Audio segment, software is incidental to the delivered products and services. For
these products, we record revenues based on satisfying the criteria in Securities and Exchange Commission Staff
Accounting Bulletin, or SAB, No. 104, Revenue Recognition, and Emerging Issues Task Force, or EITF, Issue 00-21,
Revenue Arrangements with Multiple Deliverables.
In connection with many of our product sale transactions, customers may purchase a maintenance and support
agreement. We recognize revenues from maintenance contracts on a ratable basis over their term. We recognize
revenues from training, installation or other services as the services are performed.
We use the residual method to recognize revenues when an order includes one or more elements to be delivered at a
future date and evidence of the fair value of all undelivered elements exists. Under the residual method, the fair value of
the undelivered element, typically professional services or maintenance, is deferred and the remaining portion of the
total arrangement fee is recognized as revenues related to the delivered element. If evidence of the fair value of one or
more undelivered elements does not exist, we defer all revenues and only recognize them when delivery of those
elements occurs or when fair value can be established. Fair value is typically based on the price charged when the same
element is sold separately to customers. However, in certain transactions, fair value of maintenance is based on the
renewal price that is offered as a contractual right to the customer, provided that the renewal price is substantive. Our
current pricing practices are influenced primarily by product type, purchase volume, term and customer location. We
review services revenues sold separately and corresponding renewal rates on a periodic basis and update, when
appropriate, the fair value for services used for revenue recognition purposes to ensure that it reflects our recent pricing
experience.
In most cases, the products we sell do not require significant production, modification or customization of software.
Installation of the products is generally routine, requires minimal effort and is not typically performed by us. However,
certain transactions for our Professional Video products, typically complex solution sales that include a significant
number of products and that may involve multiple customer sites, require us to perform an installation effort that we
deem to be complex and non-routine. In these situations, we do not recognize revenues for either the products shipped
or the installation services until the installation is complete. In addition, if these orders include a customer acceptance
provision, no revenues are recognized until the customer’s acceptance of the products and services has been received or
the acceptance period has lapsed.
Technical support, enhancements and unspecified upgrades typically are provided at no additional charge during the
product's initial warranty period (generally between 30 days and twelve months), which precedes commencement of the
maintenance contracts. We defer the fair value of this support period and recognize the related revenues ratably over the
initial warranty period. We also from time to time offer certain customers free upgrades or specified future products or
enhancements. For each of these elements that is undelivered at the time of product shipment, and provided that we
have vendor-specific objective evidence of fair value for the undelivered element, we defer the fair value of the
specified upgrade, product or enhancement and recognize those revenues only upon later delivery or at the time at
which the remaining contractual terms relating to the upgrade have been satisfied.
In 2008, approximately 70% of our revenues were derived from indirect sales channels, including authorized resellers
and distributors. Within our Professional Video segment, our resellers and distributors are generally not granted rights
to return products to us after purchase, and actual product returns from them have been insignificant to date. However,
distributors of our Media Composer software and Avid Mojo products have a contractual right to return a percentage of