Avid 2009 Annual Report Download - page 28

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A portion of our revenues from sales of consumer video-editing and audio 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.
At the time of a sales transaction, we make an assessment of the collectibility of the amount due from the customer.
Revenues are recognized only if it is probable that collection will occur in a timely manner. In making this assessment,
we consider customer credit-worthiness and historical payment experience. If it is determined from the outset of the
arrangement that collection is not probable based on our credit review process, revenues are recognized on a cash-
collected basis to the extent that the other criteria of ASC subtopic 985-605 and SAB 104 are satisfied. At the outset of
the arrangement, we assess 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, we consider the payment terms of the
transaction, our collection experience in similar transactions without making concessions, and our involvement, if any,
in third-party financing transactions, among other factors. If the fee is not fixed or determinable, revenues are
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 days, but can be up
to 90 days, after the invoice date, we evaluate whether we have sufficient history of successfully collecting past
transactions with similar terms. If that collection history is successful, revenues are recognized upon delivery of the
products, assuming all other revenue recognition criteria are satisfied. If we were to change any of these assumptions
and judgments, it could cause a material increase or decrease in the amount of revenue reported in a particular period.
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue
Arrangements, an amendment to ASC topic 605, Revenue Recognition, and Accounting Standards Update No. 2009-14,
Certain Revenue Arrangements That Include Software Elements, an amendment to ASC subtopic 985-605, Software –
Revenue Recognition (the ―Updates‖). The Updates provide guidance on arrangements that include software elements,
including tangible products that have software components that are essential to the functionality of the tangible product
and will no longer be within the scope of the software revenue recognition guidance, and software-enabled products that
will now be subject to other relevant revenue recognition guidance. The Updates also provide authoritative guidance on
revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition
guidance. Under the new guidance, when vendor-specific objective evidence or third-party evidence of fair value for
deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate
deliverables and allocate arrangement consideration using the relative selling price method. The Updates also include
new disclosure requirements on how the application of the relative selling price method affects the timing and amount
of revenue recognition. The Updates must be adopted in the same period using the same transition method and are
effective prospectively, with retrospective adoption permitted, for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, or January 1, 2011 for us. Early adoption is also permitted;
however, early adoption during an interim period requires retrospective application from the beginning of the fiscal
year. We are currently assessing the timing and method of adoption, as well as the possible impact of this guidance on
our revenue recognition policies.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC topic 718, Compensation – Stock Compensation
(formerly SFAS No. 123 (revised 2004), Share-Based Payment), which requires the application of a fair-value-based
measurement method in accounting for share-based payment transactions with employees. During 2009, we granted
stock options as part of our key performer stock-based compensation program, as well as stock options and restricted
stock units to newly hired employees. During 2008, we granted both stock options and restricted stock units as part of
our key performer stock-based compensation program. The vesting of stock option grants 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.