Avid 2014 Annual Report Download - page 68

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In accordance with ASU No. 2009-14, Certain Revenue Arrangements That Include Software Elements, an amendment to ASC
Subtopic 985-605 (“ASU No. 2009-14”), the Company excludes from the scope of software revenue recognition requirements its sales
of tangible products that contain both software and non-software components that function together to deliver the essential
functionality of the tangible products. The Company adopted ASU No. 2009-13 and ASU No. 2009-14 prospectively on January 1,
2011 for new and materially modified arrangements originating after December 31, 2010.
Prior to the adoption of ASU No. 2009-14, the Company primarily recognized revenues using the revenue recognition criteria of
Accounting Standards Codification, or ASC, Subtopic 985-605, Software-Revenue Recognition. As a result of its adoption of ASU
No. 2009-14 on January 1, 2011, a majority of the Company’s products are now considered non-software elements under GAAP,
which excludes them from the scope of ASC Subtopic 985-605 and includes them within the scope of ASC Topic 605, Revenue
Recognition. Because the Company had not been able to establish VSOE of fair value for Implied Maintenance Release PCS,
substantially all revenue arrangements prior to January 1, 2011 were recognized on a ratable basis over the service period of Implied
Maintenance Release PCS. Subsequent to January 1, 2011 and the adoption of ASU No. 2009-14, the Company determines a relative
selling price for all elements of the arrangement through the use of BESP, as VSOE and TPE are typically not available, resulting in
revenue recognition upon delivery of arrangement consideration attributable to product revenue, provided all other criteria for revenue
recognition are met, and revenue recognition of Implied Maintenance Release PCS and other service and support elements over time
as services are rendered.
The timing of revenue recognition of customer arrangements follows a number of different accounting models determined by the
characteristics of the arrangement, and that timing can vary significantly from the timing of related cash payments due from
customers. One significant factor affecting the timing of revenue recognition is the determination of whether each deliverable in the
arrangement is considered to be a software deliverable or a non-software deliverable, as defined under GAAP.
Revenue Recognition of Non-Software Deliverables
Revenue from products that are considered non-software deliverables is recognized upon delivery of the product to the customer.
Products are considered delivered to the customer once they have been shipped and title and risk of loss have been transferred. For
most of the Company’s product sales, these criteria are met at the time the product is shipped. Revenue from support that is
considered a non-software deliverable is initially deferred and is recognized ratably over the contractual period of the arrangement,
which is generally twelve months. Professional services and training services are typically sold to customers on a time and materials
basis. Revenue from professional services and training services that are considered non-software deliverables is recognized for these
deliverables as services are provided to the customer. Revenue for Implied Maintenance Release PCS that is considered a non-
software deliverable is recognized ratably over the service period of Implied Maintenance Release PCS, which ranges from 1 to 8
years.
Revenue Recognition of Software Deliverables
The Company recognizes the following types of elements sold using software revenue recognition guidance: (i) software products and
software upgrades, when the software sold in a customer arrangement is more than incidental to the arrangement as a whole and the
product does not contain hardware that functions with the software to provide essential functionality, (ii) initial support contracts
where the underlying product being supported is considered to be a software deliverable, (iii) support contract renewals, and (iv)
professional services and training that relate to deliverables considered to be software deliverables. Because the Company does not
have VSOE of the fair value of its software products, it is permitted to account for its typical customer arrangements that include
multiple elements using the residual method. Under the residual method, the VSOE of fair value of the undelivered elements (which
could include support, professional services or training, or any combination thereof) is deferred and the remaining portion of the total
arrangement fee is recognized as revenue for the delivered elements. If evidence of the VSOE of fair value of one or more
undelivered elements does not exist, revenues are deferred and recognized when delivery of those elements occurs or when VSOE of
fair value can be established. VSOE is typically based on the price charged when the element is sold separately to customers. The
Company is unable to use the residual method to recognize revenues for most arrangements that include products that are software
deliverables under GAAP since VSOE of fair value does not exist for Implied Maintenance Release PCS elements, which are included
in a majority of the Company’s arrangements.
For software products that include Implied Maintenance Release PCS, an element for which VSOE of fair value does not exist,
revenue for the entire arrangement fee, which could include combinations of product, professional services, training and support, is
recognized ratably as a group over the longest service period of any deliverable in the arrangement, with recognition commencing on
the date delivery has occurred for all deliverables in the arrangement (or begins to occur in the case of professional services, training
and support). Standalone sales of support contracts are recognized ratably over the service period of the product being supported.