Avid 2014 Annual Report Download - page 39

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is recognized ratably as a group over the longest service period of any deliverable in the arrangement, with recognition
commencing on the date delivery has occurred for all deliverables in the arrangement (or begins to occur in the case of
professional services, training and support). Standalone sales of support contracts are recognized ratably over the service period
of the product being supported.
From time to time, we offer certain customers free upgrades or specified future products or enhancements. When a software
deliverable arrangement contains an Implied Maintenance Release PCS deliverable, revenue recognition of the entire arrangement
will only commence when any free upgrades or specified future products or enhancements have been delivered, assuming all
other products in the arrangement have been delivered and all services, if any, have commenced.
Other Revenue Recognition Policies
In a limited number of arrangements, the professional services and training to be delivered are considered essential to the
functionality of our software products. If services sold in an arrangement are deemed to be essential to the functionality of the
software products, the arrangement is accounted for using contract accounting. As we have concluded that we cannot reliably
estimate our contract costs, we use the completed contract method of contract accounting. The completed contract method of
accounting defers all revenue and costs until the date that the products have been delivered and professional services, exclusive of
post-contract customer support, have been completed. Deferred costs related to fully deferred contracts are recorded as a
component of inventories in the consolidated balance sheet, and generally all other costs of sales are recognized when revenue
recognition commences.
We record a provision for estimated returns and other allowances as a reduction of revenues in the same period that related
revenues are recorded. Use of management estimates is required in connection with establishing and maintaining a sales
allowance for expected returns and other credits, including rebates and returns. In making these estimates, we analyze historical
returns and credits and other relevant 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 prove to be materially different from our estimates.
We record as revenues all amounts billed to customers for shipping and handling costs and record the actual shipping costs as a
component of cost of revenues. Reimbursements received from customers for out-of-pocket expenses are recorded as revenues,
with related costs recorded as cost of revenues. We present revenues net of any taxes collected from customers and remitted to
government authorities.
In the consolidated statements of operations, we classify revenues as product revenues or services revenues. For multiple element
arrangements that include both product and service elements, including Implied Maintenance Release PCS, we evaluate available
indicators of fair value and apply our judgment to reasonably classify the arrangement fee between product revenues and services
revenues. The amount of multiple element arrangement fees classified as product and services revenues based on management
estimates of fair value when VSOE of fair value for all elements of an arrangement does not exist could differ from amounts
classified as product and service revenues if VSOE of fair value for all elements existed.
Stock-Based Compensation
We account for stock-based compensation at fair value. 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.
We generally use the Black-Scholes option pricing model to estimate the fair value of stock option grants with time-based vesting.
The Black-Scholes option pricing model relies on a number of key assumptions to calculate estimated fair values. Our assumed
dividend yield of zero is based on the fact that we have never paid cash dividends, we have no present intention to pay cash
dividends and our current credit agreement precludes us from paying dividends. Our expected stock-price volatility assumption is
based on recent (six-month trailing) implied volatility of the traded options. These calculations are performed on exchange-traded
options of our common stock based on the implied volatility of long-term (9- to 39-month term) exchange-traded options. During
2014 we changed the method of calculating the expected volatility. The expected volatility is now based on actual historic stock
volatility for periods equivalent to the expected term of the award. The assumed risk-free interest rate is the U.S. Treasury
security rate with a term equal to the expected life of the option. The assumed expected life is based on company-specific