Avid 2009 Annual Report Download - page 62

57
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 Avid. Early adoption is also permitted; however, early adoption during an
interim period requires retrospective application from the beginning of the fiscal year. The Company is currently assessing
the timing and method of adoption, as well as the possible impact of this guidance on its financial position and results of
operations.
Advertising Expenses
All advertising costs are expensed as incurred and are classified as marketing and selling expenses. Advertising expenses
during 2009, 2008 and 2007 were $6.3 million, $10.0 million and $10.7 million, respectively.
As part of its advertising initiatives, the Company maintains a cooperative marketing program for certain of its resellers.
Participating resellers can earn reimbursement credits of up to 1% of qualified purchases from Avid. Consideration given to
these resellers is included in marketing and selling expenses in accordance with ASC subtopic 605-50 as the Company
receives an identifiable benefit that is sufficiently separable from the sale of the Company’s products and can reasonably
estimate the fair value of that benefit. The Company records the cooperative marketing credit earned by the reseller at the
date the related revenue is recognized based on an estimate of claims to be made. To date, actual claims have not differed
materially from management’s estimates.
Research and Development Costs
Research and development (―R&D‖) costs are expensed as incurred, except for costs of internally developed or externally
purchased software that qualify for capitalization. Development costs for software to be sold that are incurred subsequent to
the establishment of technological feasibility, but prior to the general release of the product, are capitalized in accordance
with ASC subtopic 985-20, Software – Costs of Software to be Sold, Leased or Marketed (formerly FAS No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed). Upon general release, these
costs are amortized using the straight-line method over the expected life of the related products, generally 12 to 36 months.
The straight-line method generally results in approximately the same amount of expense as that calculated using the ratio
that current period gross product revenues bear to total anticipated gross product revenues. Capitalized software
development costs amortized to cost of product revenues were $1.4 million, $1.6 million and $1.5 million, respectively, for
the years ended December 31, 2009, 2008 and 2007. The Company evaluates the net realizable value of capitalized
software at each balance sheet date, considering a number of business and economic factors. Unamortized capitalized
software development costs were $1.5 million and $1.2 million at December 31, 2009 and 2008, respectively.
Income Taxes
The Company accounts for income taxes under ASC topic 740, Income Taxes, (formerly SFAS No. 109, Accounting for
Income Taxes). ASC topic 740 defines an asset and liability approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial
statements or tax returns. ASC topic 740 further requires that a tax position must be more likely than not to be sustained
before being recognized in the financial statements, as well as the accrual of interest and penalties as applicable on
unrecognized tax positions.