Avid 2004 Annual Report Download - page 61

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Telephone support, enhancements and unspecified upgrades typically are provided at no additional charge during the
product's initial warranty period (generally between 30 days and twelve months), which precedes commencement of the
maintenance contracts. The Company defers the fair value of this support period and recognizes the related revenue ratably
over the initial warranty period. The Company also from time to time offers certain customers free upgrades or specified
future products or enhancements. For each of these elements that are undelivered at the time of product shipment, the
Company defers the fair value of the specified upgrade, product or enhancement and recognize that revenue only upon later
delivery or at the time at which the remaining contractual terms relating to the upgrade have been satisfied.
A significant portion of the Company’s revenue is derived from indirect sales channels, including authorized resellers and
distributors. Most of the Company’s resellers and distributors of Video and Film Editing and Effects products are not
granted rights to return products after purchase, and actual product returns from them have been insignificant to date.
However, the Company’s revenue from sales of Audio products is generally derived from transactions with distributors and
authorized resellers that typically allow limited rights of return, inventory stock rotation and price protection. Accordingly,
reserves for estimated returns, exchanges and credits for price protection are provided, as a reduction of revenues, upon
shipment of the related products to such distributors and resellers, based upon the Company’s historical experience. To date,
actual returns have not differed materially from management's estimates.
The Company from time to time offers rebates on purchases of certain products or rebates based on purchasing volume,
which are accounted for as reductions to revenue upon shipment of related products or expected achievement of purchasing
volumes. In accordance with Emerging Issues Task Force Issue 01-09, Accounting for Consideration Given by a Vendor to
a Customer (including a Reseller of the Vendor’s Products), consideration given to customers or resellers under the rebate
program is recorded as a reduction to revenue because the Company does not receive an identifiable benefit that is
sufficiently separable from the sale of the Company’s products.
At the time of a sale transaction, the Company makes an assessment of the collectibility of the amount due from the
customer. Revenue is recognized only if the Company is reasonably assured that collection will occur. In making this
assessment, the Company considers customer credit-worthiness and historical payment experience. If it is determined from
the outset of the arrangement that collection is not reasonably assured based upon our credit review process, revenue is
recognized on a cash-collected basis to the extent that the other criteria of SOP 97-2 and SAB 104 are satisfied. At the outset
of the arrangement, the Company assesses 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, the Company considers the
payment terms of the transaction, collection experience in similar transactions without making concessions, and the
Company’s involvement, if any, in third-party financing transactions, among other factors. If the fee is not fixed or
determinable, revenue is 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, but can be up to 90, days after the invoice date, the Company evaluates whether there is sufficient history of successfully
collecting past transactions with similar terms. If that collection history is successful, then revenue is recognized upon
delivery of the products, assuming all other revenue recognition criteria are satisfied.
The Company maintains allowances for estimated bad debt losses resulting from the inability of its customers to make
required payments for products or services. When evaluating the adequacy of the allowances, the Company analyzes
accounts receivable balances, historical bad debt experience, customer concentrations, customer credit-worthiness and
current economic trends. If the financial condition of certain customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances could be required.
The Company records as revenue all amounts billed to customers for shipping and handling cost and records its actual
shipping costs as a component of cost of revenues. The Company records reimbursements received from customers for out-
of-pocket expenses as revenue, with related costs recorded as cost of revenues.
With respect to sales of “solutions”, the Company is able to invoice the customer under a billing plan in advance of
providing products and services or maintenance and support. In these instances, the Company records invoiced amounts
and cash payments received prior to revenue recognition as deferred revenue.
Advertising Expenses
All advertising costs are expensed as incurred and are classified as selling and marketing expenses. Advertising expenses
during 2004, 2003 and 2002 were $8.1 million, $6.0 million and $6.9 million, respectively.