Avid 2014 Annual Report Download - page 38

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In accordance with ASU No. 2009-14, we exclude from the scope of software revenue recognition requirements our sales of
tangible products that contain both software and non-software components that function together to deliver the essential
functionality of the tangible products. We adopted ASU No. 2009-13 and ASU No. 2009-14 prospectively on January 1, 2011 for
new and materially modified arrangements originating after December 31, 2010.
Prior to our adoption of ASU No. 2009-14, we primarily recognized revenues using the revenue recognition criteria of Accounting
Standards Codification, or ASC, Subtopic 985-605, Software-Revenue Recognition. As a result of our adoption of ASU No.
2009-14 on January 1, 2011, a majority of our products are now considered non-software elements under GAAP, which excludes
them from the scope of ASC Subtopic 985-605 and includes them within the scope of ASC Topic 605, Revenue Recognition.
Because we had not been able to establish VSOE of fair value for Implied Maintenance Release PCS, as described further below,
substantially all revenue arrangements prior to January 1, 2011 were recognized on a ratable basis over the service period of
Implied Maintenance Release PCS. Subsequent to January 1, 2011 and the adoption of ASU No. 2009-14, we determine a
relative selling price for all elements of the arrangement through the use of BESP, as VSOE and TPE are typically not available,
resulting in revenue recognition upon delivery of arrangement consideration attributable to product revenue, provided all other
criteria for revenue recognition are met, and revenue recognition of Implied Maintenance Release PCS and other service and
support elements over time as services are rendered.
The timing of revenue recognition of customer arrangements follows a number of different accounting models determined by the
characteristics of the arrangement, and that timing can vary significantly from the timing of related cash payments due from
customers. One significant factor affecting the timing of revenue recognition is the determination of whether each deliverable in
the arrangement is considered to be a software deliverable or a non-software deliverable. For transactions occurring after January
1, 2011, our revenue recognition policies have generally resulted in the recognition of approximately 70% of billings as revenue
in the year of billing, and prior to January 1, 2011, the previously applied revenue recognition policies resulted in the recognition
of approximately 30% of billings as revenue in the year of billing. We expect this trend to continue in future periods.
Revenue Recognition of Non-Software Deliverables
Revenue from products that are considered non-software deliverables is recognized upon delivery of the product to the customer.
Products are considered delivered to the customer once they have been shipped and title and risk of loss has been transferred. For
most of our product sales, these criteria are met at the time the product is shipped. Revenue from support that is considered a
non-software deliverable is initially deferred and is recognized ratably over the contractual period of the arrangement, which is
generally twelve months. Professional services and training services are typically sold to customers on a time and materials basis.
Revenue from professional services and training services that are considered non-software deliverables is recognized for these
deliverables as services are provided to the customer. Revenue for Implied Maintenance Release PCS that is considered a non-
software deliverable is recognized ratably over the service period of Implied Maintenance Release PCS, which ranges from 1 to 8
years.
Revenue Recognition of Software Deliverables
We recognize the following types of elements sold using software revenue recognition guidance: (i) software products and
software upgrades, when the software sold in a customer arrangement is more than incidental to the arrangement as a whole and
the product does not contain hardware that functions with the software to provide essential functionality, (ii) initial support
contracts where the underlying product being supported is considered to be a software deliverable, (iii) support contract renewals,
and (iv) professional services and training that relate to deliverables considered to be software deliverables. Because we do not
have VSOE of the fair value of our software products, we are permitted to account for our typical customer arrangements that
include multiple elements using the residual method. Under the residual method, the VSOE of fair value of the undelivered
elements (which could include support, professional services or training, or any combination thereof) is deferred and the
remaining portion of the total arrangement fee is recognized as revenue for the delivered elements. If evidence of the VSOE of
fair value of one or more undelivered elements does not exist, revenues are deferred and recognized when delivery of those
elements occurs or when VSOE of fair value can be established. VSOE of fair value is typically based on the price charged when
the element is sold separately to customers. We are unable to use the residual method to recognize revenues for most
arrangements that include products that are software deliverables under GAAP since VSOE of fair value does not exist for
Implied Maintenance Release PCS elements, which are included in a majority of our arrangements.
For software products that include Implied Maintenance Release PCS, an element for which VSOE of fair value does not exist,
revenue for the entire arrangement fee, which could include combinations of product, professional services, training and support,