Autodesk 2008 Annual Report Download - page 107

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the price is fixed or determinable and collection is probable. However, determining whether
and when some of these criteria have been satisfied often involves assumptions and judgments that can have a
significant impact on the timing and amount of revenue we report.
For multiple element arrangements that include software products, we allocate the sales price among each of
the deliverables using the residual method, under which revenue is allocated to undelivered elements based on
their vendor-specific objective evidence (“VSOE”) of fair value. VSOE is the price charged when an element is
sold separately or a price set by management with the relevant authority. If we do not have VSOE of the
undelivered element, we defer revenue recognition on the entire sales arrangement until all elements are
delivered. We are required to exercise judgment in determining whether VSOE exists for each undelivered
element based on whether our pricing for these elements is sufficiently consistent.
Our assessment of likelihood of collection is also a critical factor in determining the timing of revenue
recognition. If we do not believe that collection is probable, the revenue will be deferred until the earlier of when
collection is deemed probable or payment is received.
Our product license revenue from distributors and resellers are generally recognized at the time title to our
product passes to the distributor or reseller provided all other criteria for revenue recognition are met. This policy
is predicated on our ability to estimate sales returns among other criteria. We are also required to evaluate
whether our distributors and resellers have the ability to honor their commitment to make fixed or determinable
payments, regardless of whether they collect payment from their customers. Our policy also presumes that we
have no significant performance obligations in connection with the sale of our product licenses by our
distributors and resellers to their customers. If we were to change any of these assumptions or judgments, it could
cause a material increase or decrease in the amount of revenue that we report in a particular period.
Product Returns Reserves. We permit our distributors and resellers to return products up to a percentage
of prior quarter purchases. The product returns reserve is based on historical experience of actual product returns,
estimated channel inventory levels, the timing of new product introductions and promotions, channel sell-in for
applicable markets and other factors.
Our product returns reserves were $14.4 million at January 31, 2008 and $18.2 million at January 31, 2007.
Product returns as a percentage of applicable revenue were 3.5% in fiscal 2008, 3.9% in fiscal 2007 and 3.7% in
fiscal 2006. During fiscal year 2008 and 2007, we recorded additions to our product returns reserves of $43.6
million and $57.1 million, respectively, which reduced our revenue. While we believe our accounting practice for
establishing and monitoring product returns reserves is adequate and appropriate, any adverse activity or unusual
circumstances could result in an increase in reserve levels in the period in which such determinations are made.
Partner Incentive Reserves. Autodesk has a Partner Incentive Program that uses quarterly attainment
monetary rewards to motivate distributors and resellers to achieve mutually agreed upon business goals in a
specified time period. A portion of these reserves reduce license and other revenue in the current period. The
remainder, which relates to incentives on our Subscription Program, reduces deferred revenue in the period the
subscription transaction is billed, which results in a reduction to maintenance revenue over the maintenance
contract period. Partner incentive reserves were $41.2 million and $28.3 million at January 31, 2008 and 2007,
respectively.
Realizability of Long-Lived Assets. We assess the realizability of our long-lived assets and related intangible
assets, other than goodwill, annually during the fourth fiscal quarter, or sooner should events or changes in
circumstances indicate the carrying values of such assets may not be recoverable. We consider the following factors
important in determining when to perform an impairment review: significant under-performance of a business or
product line relative to budget; shifts in business strategies which affect the continued uses of the assets; significant
negative industry or economic trends; and the results of past impairment reviews.
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2008 Annua
l Report