Avid 2000 Annual Report Download - page 44

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37
As part of most sales transactions, telephone support, enhancements and unspecified upgrades are provided at no additional
charge during the products initial warranty period, generally between three and twelve months. The Company allocates a
portion of product revenue to this warranty and recognizes the revenue ratably over the warranty period. The Company from
time to time offers certain customers free upgrades or future enhancements of specified product releases. The Company
allocates revenue among all elements of the order, including specified upgrades, based upon the relative fair value of each
element of the arrangement. The Company defers recognition of revenue allocated to the specified upgrade until delivery
has occurred and any remaining contractual terms relating to the upgrade have been met.
Included in accounts receivable allowances are sales allowances provided for expected returns, rebates and credits and an
allowance for bad debts. Actual returns have not differed materially from managements estimates and have not been
significant. The Company from time to time offers rebates on purchases of certain products or rebates based on purchasing
volume, which are accounted for as offsets to revenue upon shipment of related products or expected achievement of
purchasing volumes.
During the fourth quarter of 2000, the Company adopted EITF 00-10, Accounting for Shipping and Handling Fees and
Costs. EITF 00-10 requires that shipping and handling costs associated with amounts billed to customers be included in
revenues and cost of revenues and not offset against each other. Upon adoption of EITF 00-10, shipping and handling costs
should be retroactively reclassified for all periods presented in the statement of operations. Due to the immateriality of
shipping and handling costs in all reported periods, the Company has not reclassified these amounts within the consolidated
statement of operations for any period prior to adoption.
Research and Development Costs
Research and development costs are expensed as incurred except for costs of internally developed or externally purchased
software that qualify for capitalization. Capitalized costs are amortized upon general release using the straight-line method
over the expected life of the related products, generally 12 to 24 months. The straight-line method generally results in
approximately the same amount of expense as that calculated using the ratio that current period gross product revenues bear
to total anticipated gross product revenues. The Company evaluates the net realizable value of capitalized software on an
ongoing basis, relying on a number of business and economic factors.
The Company follows the guidance of EITF 00-02 to account for its web site development costs. To date, web site
development costs eligible for capitalization have not been material.
Computation of Net Income (Loss) Per Common Share
Net income (loss) per common share is presented for both basic earnings per share (Basic EPS) and diluted earnings per
share (Diluted EPS). Basic EPS is based upon the weighted average number of common shares outstanding during the
period excluding unvested restricted stock held by employees. Diluted EPS is based upon the weighted average number of
common and potential common shares outstanding during the period. Potential common shares are included in the Diluted
EPS calculation when the effect of their inclusion would be dilutive. Potential common shares result from the assumed
exercise of outstanding stock options and warrants as well as unvested restricted stock shares, the proceeds of which are
then assumed to have been used to repurchase outstanding common stock using the treasury stock method.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign
currency translation adjustments and unrealized gains and losses on certain investments. For the purposes of comprehensive
income (loss) disclosures, the Company does not record tax provisions or benefits for the net changes in the foreign
currency translation adjustment, as the Company intends to permanently reinvest undistributed earnings in its foreign
subsidiaries.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees in fixed amounts and with fixed
exercise prices at least equal to the fair market value of the Companys common stock at the date of grant. When the
exercise price of stocks granted to employees is less than the fair market value of common stock at the date of grant, the
Company records that difference multiplied by the number of shares under option as deferred compensation, which is then