Avid 2011 Annual Report Download - page 28

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that we believe offer us better revenue growth potential. Under the plan, we expect to incur total expenses related to termination
benefits and facility costs of $9 million to $10 million. During the year ended December 31, 2011, we recorded charges of $8.9
million related to severance charges and $0.5 million related to the Irwindale closure. As a result of the actions taken under the
plan, we expect to realize annualized cost savings of between $25 million and $27 million.
See “Risk Factors” in Item 1A of this annual report for risk factors that may cause our future results to differ materially from our
current expectations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. We regularly reevaluate our estimates
and judgments, including those related to the following: revenue recognition and allowances for product returns and exchanges;
stock-based compensation; goodwill and intangible assets; the valuation of business combinations; income tax assets and
liabilities; and restructuring charges and accruals. We base our estimates and judgments on historical experience and various
other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the
carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources.
Actual results may differ from these estimates.
On January 1, 2011, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No.
2009-13, Multiple-Deliverable Revenue Arrangements, an amendment to Accounting Standards Codification, or ASC, Topic 605,
Revenue Recognition, and ASU No. 2009-14, Certain Revenue Arrangements That Include Software Elements, an amendment to
ASC Subtopic 985-605, Software - Revenue Recognition, or the Updates. As a result, our critical accounting policy for “Revenue
Recognition and Allowances for Product Returns and Exchanges” has been updated to reflect adoption of this guidance.
ASU No. 2009-13 requires the allocation of revenue to each unit of accounting using the relative selling price of each deliverable
for multiple-element arrangements. ASU No. 2009-13 also amends the accounting for multiple-element arrangements to provide
guidance on how the deliverables in an arrangement should be separated and eliminates the use of the residual method by
establishing a hierarchy of evidence to determine the stand-alone selling price of a deliverable based on vendor-specific objective
evidence, or VSOE, third-party evidence, or TPE, and the best estimate of selling price, or ESP. If VSOE is available, it is used to
determine the selling price of a deliverable. If VSOE is not available, the entity must determine whether TPE is available. If so,
TPE would be used to determine the selling price. If TPE is not available, then the entity is required to determine an ESP. ASU
No. 2009-14 amends ASC Subtopic 985-605 to exclude from the scope of software revenue recognition requirements sales of
tangible products that contain both software and non-software components that function together to deliver the essential
functionality of the tangible products. The Updates also include new disclosure requirements on how the application of the
relative selling price method affects the timing and amount of revenue recognition. The Updates must be adopted in the same
period using the same transition method and are effective prospectively, with retrospective adoption permitted. We adopted the
Updates prospectively for new and materially modified arrangements originating after December 31, 2010.
Prior to adoption of the Updates, we generally recognized revenues using the revenue recognition criteria of ASC Subtopic
985-605, Software - Revenue Recognition. As a result of adoption of ASU No. 2009-14 on January 1, 2011, we will now typically
recognize revenue using the criteria of ASC Topic 605, Revenue Recognition. Historically, we were generally able to establish
VSOE for undelivered elements in multiple-element arrangements as allowed by ASC Subtopic 985-605 and, therefore, could
typically recognize revenues for each element of multiple-element arrangements as the element was delivered. Under the new
guidance our recognition of revenues may be recognized in an earlier period for a limited number of multiple-element
arrangements for which VSOE could not be established for all undelivered elements under the previous guidance. For those
arrangements, we will now determine a relative selling price for the undelivered elements through the use of TPE or ESP, and the
recognition of certain revenues that would have been deferred under the previous guidance will typically be recognized at the time
of delivery under the new guidance, provided all other criteria for revenue recognition are met. Adoption of the Updates resulted
in an increase in our consolidated net revenues of approximately $6.8 million during 2011. We cannot reasonably estimate the
effect of the adoption of these standards on future financial periods as the impact will vary depending on the nature and volume of
new or materially modified arrangements in any given period.
We believe the following critical accounting policies most significantly affect the portrayal of our financial condition and involve
our most difficult and subjective estimates and judgments.