Avid 2011 Annual Report Download - page 30

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changes in the pricing model are not expected to materially impact our allocation of arrangement consideration.
From time to time, we offer certain customers free upgrades or specified future products or enhancements. For software products,
if elements are undelivered at the time of product shipment and provided that we have VSOE of fair value for the undelivered
elements, 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 elements have been satisfied. If we cannot
establish VSOE for each undelivered element, all revenue is deferred until all elements are delivered, we establish VSOE or the
remaining contractual terms relating to the undelivered elements have been satisfied. For non-software products, if elements are
undelivered at the time of product shipment, we defer the relative selling price 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
elements have been satisfied.
Approximately 60% of our 2011 revenues were derived from indirect sales channels, including authorized resellers and
distributors. Certain channel partners are offered limited rights of return, stock rotation and price protection. For these partners,
we record a provision for estimated returns and other allowances as a reduction of revenues in the same period that related
revenues are recorded in accordance with ASC Subtopic 605-15, Revenue Recognition - Products. 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.
While we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective. 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 video-editing and audio 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 are recognized when the products are sold through to the customer
instead of being recognized at the time products are shipped to the channel partners.
At the time of a sales transaction, we make an assessment of the collectability 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 ASC Topic 605, ASC Subtopic 985-605 and Securities and Exchange Commission Staff Accounting Bulletin
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 sufficient, revenues are recognized upon delivery of the products, assuming all other
revenue recognition criteria are satisfied. If we were to change any of these assumptions and judgments, it could cause a material
increase or decrease in the amount of revenue reported in a particular period.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation, which
requires the application of a fair-value-based measurement method in accounting for share-based payment transactions with
employees. During 2011, we granted both stock options and restricted stock units as part of our key performer stock-based
compensation program, as well as stock options and restricted stock units to newly hired employees. In prior years, we have also
issued restricted stock, and we refer to restricted stock and restricted stock units collectively as restricted stock awards. The
vesting of stock options and restricted stock awards may be based on time, performance, market conditions, or a combination of
performance and 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 ASC Topic 718, we generally use the