Autodesk 2003 Annual Report Download - page 24

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” contains trend analyses and other forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
consist of, among other things, statements regarding net revenues, revenue mix, level of product returns, gross
margins, costs and expenses, legal contingencies and restructuring activity, as well as statements involving trend
analyses and statements including such words as “we believe” and similar expressions. These forward-looking
statements are subject to business and economic risks. As such, our actual results could differ materially from
those set forth in the forward-looking statements as a result of the factors set forth elsewhere herein, including
“Risk Factors Which May Impact Future Operating Results.”
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions
that affect the reported amount of assets, liabilities, net revenues, costs and expenses and related disclosures. We
regularly evaluate our estimates and assumptions. Actual results may differ from these estimates under different
assumptions or conditions.
We believe that of our significant accounting policies, which are described in Note 1 in the Notes to
Consolidated Financial Statements, the following policies involve a higher degree of judgment and complexity.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating
our financial condition and results of operations.
Revenue Recognition. Our accounting policies and practices are in compliance with Statement of Position
97-2, “Software Revenue Recognition,” as amended, and Staff Accounting Bulletin No. 101, “Revenue
Recognition in Financial Statements.”
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 collectibility 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.
Based on whether the sale is product or service related, we recognize revenue as follows. Product sales are
recognized at the time of shipment as long as all other criteria for revenue recognition have been met.
Subscription, customer support and hosted service revenues are recognized ratably over the contract periods.
Customer consulting and training revenues are recognized as the services are performed.
Allowance for Bad Debts. We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. At January 31, 2003, we had a bad debt reserve
of $9.2 million.
Estimated reserves are determined based upon historical loss patterns, the number of days that billings are
past due and an evaluation of the potential risk of loss associated with specific problem accounts. While we
believe our existing reserve for doubtful accounts is adequate and proper, additional reserves may be required
should the financial condition of our customers deteriorate or as unusual circumstances arise.
Product Return Reserves. With the exception of contracts with certain distributors, our sales contracts do
not contain specific product-return privileges. However, we permit our distributors and resellers to return product
in certain instances, generally when new product releases supercede older versions. At January 31, 2003, we had
a product returns reserve of $19.8 million.
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