Revenue Recognition
Revenue is recognized when it is probable that the economic benefits will flow to the MAGIX Group and the amount of revenue can be measured reliably. In addition the following conditions must be satisfied in order for revenue to be recognized:
Sale of Products
Revenue is recognized when the MAGIX Group delivers its products to an end customer or alternatively – depending on the IncoTerms – when the products are handed over to the freight forwarder, and it is likely that the revenue will be collected. For products delivered to retail partners, the delivery mainly depends on the terms and conditions agreed with the freight forwarders. In the case of products delivered to OEM partners (Original Equipment Manufacturer), the delivery either depends on the information from the OEM partner that the delivery has been made, either to it or to other resellers, or on release by the end customer. The MAGIX Group nets amounts for returns with product sales with retail partners if a return is likely.
Rendering of Services
Sales revenue from services is recognized when the corresponding services have been provided and the amount of revenue is measurable and collection of the corresponding receivables is probable. If services are provided over agreed periods, revenue recognition is spread evenly over this period.
Royalties
The MAGIX Group recognizes its sales revenue based on the corresponding contract as soon as the license has been delivered, the sales price is fixed or can be determined, there are no significant obligations to customers and collection of the receivables is considered probable.
Interest Income
Revenue is recognized as the interest accrues (using the effective interest method, i.e. the rate that exactly discounts estimated future cash receipts over the expected life of the financial instrument) to the net carrying amount of the financial asset.
Share-Based Payments
Employees of the MAGIX Group have been receiving share-based payments in the form of stock options since the fiscal year 2005/06. The stock option plan is basically an option plan fulfilled with equity instruments. The management board of the MAGIX Group can also use the option plan to fulfill the stock option plan using treasury shares and/or cash.
The costs incurred from the issue of stock options are measured by reference to the fair value of the stock options granted at the grant date. The fair value has been calculated using generally accepted option pricing models. The costs of issuing stock options are recognized, together with a corresponding increase in equity (capital reserve), over the period in which the performance conditions are fulfilled (vesting period). This period ends on the date of the first exercise possibility, i.e. when the entitlement of the employee in question becomes vested. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The amount charged or credited to the income statement reflects the development of the accumulated expenses recognized at the beginning and the end of the reporting period.
No expense is recognized for remuneration rights that cannot be exercised.
Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense that would have been incurred if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification.
If an equity-settled award is cancelled, this is treated as if it had been exercised on the date of cancellation. The expense not recognized so far is immediately recognized. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the grant date, the cancelled and new awards are treated as if they were a modification of the original award.
The dilutive effect of the outstanding options is reflected as additional share dilution in the computation of earnings per share (further details are given in Note 13), provided that the issue of the options and the underlying conditions result in an imputed dilution for the existing shareholders.
Government Grants
Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grants relate to an expense item, they are recognized as income over the period necessary to match the grants on a systematic basis to the costs that they are intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the asset in equal annual installments. In fiscal 2006/2007, the MAGIX Group received investment subsidies amounting to kEUR 166 (prior year: kEUR 22). The investment subsidies are tied to conditions that the subsidized non-current assets remain in the entity, and the management board of the MAGIX Group assumes that these conditions will be met.