Avid 2009 Annual Report Download - page 27

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However, for certain offerings in our Audio segment, software is incidental to the delivered products and services. For
these products, we record revenues based on satisfying the criteria in ASC subtopic 605-25, Revenue Recognition –
Multiple-Element Arrangements (formerly Emerging Issues Task Force, or EITF, Issue 00-21, Revenue Arrangements
with Multiple Deliverables), and Securities and Exchange Commission Staff Accounting Bulletin, or SAB, No. 104,
Revenue Recognition.
We use the residual method to recognize revenues when an order includes one or more elements to be delivered at a
future date and evidence of the fair value of all undelivered elements exists. Under the residual method, the fair values
of the undelivered elements, typically professional services, maintenance or both, are deferred and the remaining
portion of the total arrangement fee is recognized as revenues related to the delivered element. If evidence of the fair
value of one or more undelivered elements does not exist, we defer all revenues and only recognize them when delivery
of those elements occurs or when fair value can be established. Fair value is typically based on the price charged when
the same element is sold separately to customers. However, for certain transactions, fair value of maintenance is based
on the renewal price that is offered as a contractual right to the customer, provided that the renewal price is substantive.
Our current pricing practices are influenced primarily by product type, purchase volume, term and customer location.
We review services revenues sold separately and corresponding renewal rates on a periodic basis and update, when
appropriate, the fair value for services used for revenue recognition purposes to ensure that it reflects our recent pricing
experience. We are required to exercise judgment in determining whether fair value exists for each undelivered element
based on whether our pricing for these elements is sufficiently consistent.
In most cases, the products we sell do not require significant production, modification or customization of software.
Installation of the products is generally routine, requires minimal effort and does not have to be performed by us.
However, certain transactions for our Video products, typically complex solution sales that include a significant number
of products and that may involve multiple customer sites, require us to perform an installation effort that we deem to be
complex and non-routine. In these situations, we do not recognize revenues for either the products shipped or the
services performed until the installation is complete. In addition, if these orders include a customer acceptance
provision, no revenues are recognized until the customer’s formal 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 an
initial warranty period (generally between 30 days and twelve months), which precedes commencement of any
maintenance contracts. We defer the fair value of this support and recognize the related revenues ratably over the initial
warranty period. We also from time to time offer certain customers free upgrades or specified future products or
enhancements. For each of these elements that is undelivered at the time of product shipment, and provided that we
have vendor-specific objective evidence of fair value for the undelivered element, we defer the fair value of the
specified upgrade, product or enhancement and recognize those revenues only upon later delivery or at the time at
which the remaining contractual terms relating to the upgrade have been satisfied.
In 2009, approximately 67% of our revenues were derived from indirect sales channels, including authorized resellers
and distributors. Within our Video segment, our resellers and distributors are generally not granted rights to return
products to us after purchase, and actual product returns from them have been insignificant to date. However, certain
Video and many of our Audio channel partners are offered limited rights of return, stock rotation and price protection.
In accordance with ASC subtopic 605-15, Revenue Recognition – Products (formerly Statement of Financial
Accounting Standards, or SFAS, No. 48, Revenue Recognition When Right of Return Exists), we record 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 these estimates, we analyze historical returns and credits and the amounts
of products held by major resellers and consider the impact of new product introductions, changes in customer demand,
current economic conditions and other known 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 or other reseller credits prove to be materially different from our estimates.