Avid 2011 Annual Report Download - page 60

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revenue recognition. The Updates must be adopted in the same period using the same transition method and are effective
prospectively, with retrospective adoption permitted. The Company adopted the Updates prospectively on January 1, 2011 for
new and materially modified arrangements originating after December 31, 2010.
Prior to adoption of the Updates, the Company 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, the
Company now typically recognizes revenue using the criteria of ASC Topic 605, Revenue Recognition. Historically, the
Company was 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, revenue 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, the Company 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.
For the year ended December 31, 2011, adoption of the Updates resulted in an increase in total revenues of approximately $6.8
million. The Company cannot reasonably estimate the effect of the adoption of the Updates 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.
Revenue Recognition and Allowance for Product Returns and Exchanges
The Company recognizes 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 the
Company reports. For example, the Company often receives 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 the Company sells 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 the Company's video products, typically complex solution sales that include a
significant number of products and may involve multiple customer sites, require the Company to perform an installation effort
that it deems to be complex, non-routine and essential to the functionality of the products delivered. In these situations, the
Company does 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, the Company 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. The Company adopted this
accounting guidance prospectively and applied its provisions to arrangements entered into or materially modified after
December 31, 2010.
The Company recognizes 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. The Company
recognizes 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 that are 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, the Company allocates