Avid 2011 Annual Report Download - page 29

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Revenue Recognition and Allowances for Product Returns and Exchanges
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collection is probable. However, determining whether and when some of these criteria have been satisfied
often involves assumptions and judgments that can have a significant impact on the timing and amount of revenues we report.
For example, 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.
Generally, the products we sell do not require significant production, modification or customization of software. Installation of
the products is generally routine, consists of implementation and configuration and does not have to be performed by Avid.
However, certain transactions for our video products, typically complex solution sales that include a significant number of
products and may involve multiple customer sites, require us to perform an installation effort that we may deem to be complex,
non-routine and essential to the functionality of the products delivered. In these situations, we do not recognize revenues for
either the products shipped or services performed until the essential services have been completed. In addition, if these orders
include a customer acceptance provision, no revenues are recognized until the customer's formal acceptance of the products and
services has been received.
In the first quarter of fiscal 2011, we adopted ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, an amendment to
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. ASU No. 2009-13 requires the allocation of revenue,
based on the relative selling price of each deliverable, to each unit of accounting for multiple-element arrangements. It also
changes the level of evidence of standalone selling price required to separate deliverables by allowing a best estimate of the
standalone selling price of deliverables when more objective evidence of fair value, such as vendor-specific objective evidence or
third-party evidence, is not available. ASU No. 2009-14 amends ASC Subtopic 985-605 to exclude sales of tangible products
containing both software and non-software components that function together to deliver the tangible products essential
functionality from the scope of revenue recognition requirements for software arrangements. We adopted this accounting
guidance prospectively and applied its provisions to arrangements entered into or materially modified after December 31, 2010.
We recognize revenue from the sale of non-software products, including software bundled with hardware that is essential to the
functionality of the hardware, under the general revenue recognition accounting guidance of ASC Topic 605, Revenue
Recognition and ASC Subtopic 605-25 Revenue Recognition - Multiple-Element Arrangements. We recognize revenue in
accordance with ASC Subtopic 985-605, Software - Revenue Recognition for the following types of sales transactions:
(i) standalone sales of software products and related upgrades and (ii) sales of software elements bundled with non-software
elements, when the software elements are not essential to the functionality of the non-software elements.
For 2011 and future periods, pursuant to the guidance of ASU No. 2009-13, when a sales arrangement contains multiple elements,
such as non-software products, software products, customer support services, and/or professional services, we allocate revenue to
each element based on the aforementioned selling price hierarchy. Revenue is allocated to the non-software deliverables as a
group and to the software deliverables as a group using the relative selling prices of each of the deliverables in the arrangement
based on the aforementioned selling price hierarchy. If the arrangement contains more than one software deliverable, the
arrangement consideration allocated to the software deliverables as a group is then recognized using the guidance for recognizing
software revenue, as amended.
The process for determining our ESP for deliverables without VSOE or TPE involves management's judgment. We generally
determine ESP based on the following.
• We utilize a pricing model for our products to capture the right value given the product and market context. The model
considers such factors as: (i) competitive reference prices for products that are similar but not functionally equivalent,
(ii) differential value based on specific feature sets, (iii) geographic regions where the products are sold, (iv) customer
price sensitivity, (v) price-cost-volume tradeoffs, and (vi) volume based pricing. Management approval ensures that all
of our selling prices are consistent and within an acceptable range for use with the relative selling price method.
• While the pricing model currently in use captures all critical variables, unforeseen changes due to external market
forces may result in the revision of some of our inputs. These modifications may result in consideration allocation in
future periods that differs from the one presently in use. Absent a significant change in the pricing inputs, future