Avid said that due to an ongoing internal audit of past treatment of software upgrades, it “is not able to complete and cannot file its quarterly report on Form 10-Q for the quarter ended June 30, 2013 by the prescribed due date or by August 14, 2013.” The disclosure was made in a regulatory filing with the SEC. The company has also delayed the filing of its Q2 2013 earnings.
The focus of Avid’s internal audit is the past accounting treatment of certain software upgrades that the company previously made available to certain of its customers at no-charge. Avid management has now determined that these upgrades should have been accounted for as “implied post-contract customer support” under US GAAP accounting rules.
As a result, Avid is currently in the process of restating its financial statements for the fiscal years ended December 31, 2011, 2010 and 2009 and for its quarterly periods ended September 30, 2012 and 2011, June 30, 2012 and 2011, and March 31, 2012 and 2011.
Because the work required to review and restate historical transactions has not yet been completed, the company says it is not in a position at this time to compare results of operations for the quarters ended June 30, 2012 and 2013 respectively, resulting in the delayed filing of its 10-Q for the second quarter of 2013.
It’s worth noting that the work being done by the company is an internal accounting review that focuses on the timing of revenue recognition, not the validity or overall amount of revenue received.
Avid says that although the restatement adjustments will impact previously reported revenue and operating results for prior periods, they are “not expected to affect the amount of total revenue ultimately to be earned, or the amount or timing of cash received or to be received, from the sales transactions or the company’s liquidity or cash flow for any prior period.”
After reviewing current and previous regulatory filings, it appears that the crux of the matter is that in past periods Avid recognized the revenue received for the software upgrades in question at the time the upgrade was performed, rather than over the “implied post-contract customer support period” specified in GAAP accounting rules.
Given the fact that Avid is presumably be going back over every single transaction for the three-year period from 2009 to 2011, this process is going to take some time.
Indeed, the audit has been ongoing for many months and has already resulted in the delayed filing of Avid’s Q4 2012 results, 2012 10-K filing, and Q1 2013 results. In May 2013, the company received notice of potential delisting from the NASDAQ stock market for failure to submit its 10-K filing for 2012.
Avid has not disclosed the value of the software upgrades in question. It also says that at this time it “cannot estimate the full impact of the adjustments of revenue and costs, and the related impact on income taxes, on any previously issued financial statements for any individual reporting period, although it may be significant.” Avid also said that “the timing of recognition of certain costs related to these customer arrangements may also be impacted, along with the timing of related income taxes.”
Avid has not disclosed how much it has spent on the ongoing audit. However, in July 2013, the company said in a filing that “expects that additional cash expenditures related to the ongoing accounting evaluation through the fiscal year ending December 31, 2013 will amount to approximately $11 million to $14 million.” This includes up to $1.7 million for a potential Remediation Bonus that will be paid once the company has filed its 2012 Form 10-K with securities regulators.
During this process, Avid has made significant changes to its finance team during the past six months. In July 2012 the company said that Karl Johnsen, the company’s chief accounting officer & controller has left the company. In April 2013 Avid announced that John Frederick, who joined the company in February 2013 as Chief of Staff became CFO, replacing Ken Sexton, who has been Avid’s CFO since 2008 under previous CEO Gary Greenfield. Prior to joining Avid, Frederick was the Corporate EVP and CFO at Open Solutions, where he served under current Avid CEO Louis Hernandez.
Avid for NT 10-Q: Notice of Delayed Filing of Form 10-Q for the Period Ended June 30, 2013
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