Avid 2009 Annual Report Download - page 61

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A significant portion of the Company’s revenues are derived from indirect sales channels, including authorized resellers
and distributors. Within the Company’s 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,
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 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 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.
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 ASC subtopic 605-50, Revenue Recognition – Customer Payments and Incentives (formerly
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 a 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.
At the time of a sale transaction, the Company makes 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 making this assessment, the Company
considers customer credit-worthiness and historical payment experience. If the Company determines from the outset of the
arrangement that collection is not probable based on the Company’s 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, 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, 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 the Company’s normal
payment terms, which are generally 30 days, 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 revenues are 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. To date, actual bad debts have not differed materially from management's estimates. 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 revenues all amounts billed to customers for shipping and handling costs and records its actual
shipping costs as a component of cost of revenues. Reimbursements received from customers for out-of-pocket expenses
are recorded as revenues, with related costs recorded as cost of revenues. The Company presents revenues net of any taxes
collected from customers and remitted to a government authority.