Avid 2008 Annual Report Download - page 30

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prior quarter purchases. The return provision for these distributors has not had a material impact on our results of
operations. In contrast, certain of our Audio and Consumer Video channel partners are offered limited rights of return,
stock rotation and price protection. In accordance with SFAS No. 48, Revenue Recognition When Right of Return Exists,
we record a provision for estimated returns and other allowances as a reduction of revenues in the same period that
related revenues are recorded. Management estimates must be made and used in connection with establishing and
maintaining a sales allowance for expected returns and other credits. In making these estimates, we analyze historical
returns and credits and the amounts of products held by major resellers and consider the impact of new product
introductions, changes in customer demand, current economic conditions and other known factors. The amount and
timing of our revenues for any period may be affected if actual product returns or other reseller credits prove to be
materially different from our estimates.
A portion of our revenues from sales of consumer products is derived from transactions with channel partners who have
unlimited return rights and from whom payment is contingent upon the product being sold through to their customers.
Accordingly, revenues for these channel partners is recognized when the products are sold through to the customer
instead of being recognized at the time products are shipped to the channel partners.
From time to time, we offer rebates on purchases of certain products or based on purchasing volume that are accounted
for as reductions to revenues upon shipment or expected achievement of purchasing volumes. In accordance with EITF
Issue 01-09, Accounting for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendor’s
Products), consideration given to customers or resellers under the rebate program is recorded as a reduction to revenues
because we do not receive an identifiable benefit that is sufficiently separable from the sale of our products.
At the time of a sales transaction, we make an assessment of the collectibility of the amount due from the customer.
Revenues are recognized only if it is probable that collection will occur in a timely manner. In making this assessment,
we consider customer credit-worthiness and historical payment experience. If it is determined from the outset of the
arrangement that collection is not probable based on our credit review process, revenues are recognized on a cash-
collected basis to the extent that the other criteria of SOP 97-2 and SAB No. 104 are satisfied. At the outset of the
arrangement, we assess whether the fee associated with the order is fixed or determinable and free of contingencies or
significant uncertainties. In assessing whether the fee is fixed or determinable, we consider the payment terms of the
transaction, our collection experience in similar transactions without making concessions, and our involvement, if any,
in third-party financing transactions, among other factors. If the fee is not fixed or determinable, revenues are
recognized only as payments become due from the customer, provided that all other revenue recognition criteria are
met. If a significant portion of the fee is due after our normal payment terms, which are generally 30 days, but can be up
to 90 days, after the invoice date, we evaluate whether we have sufficient history of successfully collecting past
transactions with similar terms. If that collection history is successful, then revenues are recognized upon delivery of the
products, assuming all other revenue recognition criteria are satisfied.
We record as revenues all amounts billed to customers for shipping and handling costs and record the actual shipping
costs as a component of cost of revenues. We record reimbursements received from customers for out-of-pocket
expenses as revenues, with related costs recorded as cost of revenues. We present revenues net of any taxes collected
from customers and remitted to a government authority.
Stock-Based Compensation
We account for stock-based compensation in accordance with, SFAS No. 123 (revised 2004), or SFAS 123(R), Share-
Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. During 2008 and
2007, we granted both restricted stock units and stock options as part of our key performer stock-based compensation
program, as well as stock options, restricted stock units and restricted stock to newly hired employees. The vesting of
stock option grants may be based on time, performance or market conditions. In the future, we may grant stock awards,
options, or other equity-based instruments allowed by our stock-based compensation plans, or a combination thereof, as
part of our overall compensation strategy.
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 SFAS No. 123 and
SFAS 123(R), we generally use the Black-Scholes option pricing model to estimate the fair value of stock option grants.
The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. Our assumed