Avid 2008 Annual Report Download - page 65

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on the renewal price that is offered as a contractual right to the customer, provided that such renewal price is
substantive. The Company’s current pricing practices are influenced primarily by product type, purchase volume, term
and customer location. Management reviews services revenues sold separately and corresponding renewal rates on a
periodic basis and updates, when appropriate, the fair value for services used for revenue recognition purposes to
ensure that it reflects the Company’s recent pricing experience.
In most cases, the products the Company sells do not require significant production, modification or customization of
software. Installation of the products is generally routine, requires minimal effort and is not typically performed by the
Company. However, certain transactions for the Company’s Professional Video products, typically those orders that
include a significant number of products and may involve multiple customer sites, require that the Company perform
an installation effort that is deemed to be non-routine and complex. In these situations, the Company does not
recognize revenues for either the products shipped or the installation services performed until the installation is
complete. In addition, if such orders include a customer acceptance provision, no revenues are recognized until the
customer’s acceptance of the products and services has been received or the acceptance period has lapsed.
Technical 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
revenues 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, and provided that the Company has vendor-specific objective evidence of fair value for the
undelivered element, the Company defers the fair value of the specified upgrade, product or enhancement and
recognizes the related revenues 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 revenues are derived from indirect sales channels, including authorized
resellers and distributors. Within the Company’s Professional Video segment, resellers and distributors are generally
not granted rights to return products to the Company after purchase, and actual product returns from them have been
insignificant to date. However, distributors of the Avid Media Composer and Avid Mojo product lines have a
contractual right to return a percentage of prior quarter purchases. The return provision for these distributors has not
had a material impact on the Company’s results of operations. In contrast, certain of the Company’s Audio and
Consumer Video channel partners are offered limited rights of return, stock rotation and price protection. In
accordance with SFAS No. 48, Revenue Recognition When Right of Return Exists, the Company records a provision
for estimated returns and other allowances as a reduction of revenues in the same period that related revenues are
recorded. Management estimates must be made and used in connection with establishing and maintaining a sales
allowance for expected returns and other credits. In making such estimates, the Company analyzes historical returns
and credits and the amounts of products held by major resellers and considers the impact of new product
introductions, changes in customer demand, current economic conditions and other known factors. The amount and
timing of the Company’s revenues for any period may be affected if actual product returns or other reseller credits
prove to be materially different from the Company’s estimates. To date actual returns and other allowances have not
differed materially from management's estimates.
A portion of the Company’s revenues from sales of consumer products is derived from transactions with channel
partners who have unlimited return rights and from whom payment is contingent upon the product being sold through
to their customers. Accordingly, revenues for these channel partners are recognized when the products are sold
through to the customer instead of being recognized at the time products are shipped to the channel partners.
The Company from time to time offers rebates on purchases of certain products or rebates based on purchasing
volume that are accounted for as reductions to revenues upon shipment of related products or expected achievement of
purchasing volumes. In accordance with EITF 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 revenues because the Company does not receive an identifiable benefit
that is sufficiently separable from the sale of the Company’s products.