Autodesk 2003 Annual Report Download - page 25

In the past three years, product returns as a percentage of applicable revenues have been in the range of 4%
to 7% annually. During fiscal year 2003, product returns as a percentage of applicable revenue was 6%. The
product return reserves are based on estimated channel inventory levels, the timing of new product introductions
and other factors. The greater the channel inventory level or the closer the proximity of a major new product
release such as AutoCAD 2004, the more product returns we expect. During fiscal year 2003, we recorded a
reserve for product returns of $33.3 million, which reduced our gross sales.
While we believe our accounting practice for establishing and monitoring product returns reserves is
adequate and proper, any adverse activity or unusual circumstances could result in an increase in reserve levels in
the period in which such determinations are made.
Realizability of Long-Lived Assets. We review the realizability of our long-lived assets and related
intangible assets annually during the fourth fiscal quarter, or sooner whenever events or changes in circumstances
indicate the carrying values of such assets may not be recoverable. We consider some of the following factors
important in deciding when to perform an impairment review: significant under-performance of a business or
product line relative to budget; shifts in business strategies which impact the continued uses of the assets;
significant negative industry or economic trends; and the results of past impairment reviews.
In assessing the recoverability of these long-lived assets, we first determine their fair values, which are
based on assumptions regarding the estimated future cash flows that could reasonably be generated by these
assets. When assessing long-lived assets, we use undiscounted cash flow models. Impairment charges, if any,
result in situations when the fair values of these assets are less than their carrying values.
In addition to our recoverability assessments, we routinely review the remaining estimated useful lives of
our long-lived assets. Any reduction in the useful life assumption will result in increased depreciation and
amortization expense in the quarter when such determinations are made, as well as in subsequent quarters. This
situation occurred during the fourth quarter of fiscal 2003 resulting in additional amortization expense of $0.3
million.
We will continue to evaluate the values of our long-lived assets in accordance with applicable accounting
rules. As changes in business conditions and our assumptions occur, we may be required to record impairment
charges.
Goodwill. On February 1, 2002, we adopted Statement of Financial Accounting Standards No. 142
“Goodwill and Other Intangible Assets”. Therefore, we no longer amortize goodwill. We test goodwill for
impairment annually in the fourth quarter or sooner whenever events or changes in circumstances indicate
potential impairment. As changes in business conditions and our assumptions occur, we may be required to
record impairment charges.
Deferred Tax Assets. We currently have $27.2 million of net deferred tax assets, mostly arising from net
operating losses, tax credits, reserves and timing differences for purchased technologies and capitalized software
offset by the establishment of U.S. deferred tax liabilities on unremitted earnings from certain foreign
subsidiaries. We perform a quarterly assessment of the recoverability of these net deferred tax assets, which is
principally dependent upon our achievement of future taxable income of approximately $70.0 million in specific
geographies. Our judgments regarding future profitability may change due to future market conditions and other
factors. These changes, if any, may require possible material adjustments to these net deferred tax assets,
resulting in a reduction in net income in the period when such determinations are made.
Restructuring Expenses Associated with Office Closures. During the year ended January 31, 2003, we
recorded restructuring charges of $25.9 million of which $12.5 million related to the closure of several domestic
and international offices. These office closure costs were based upon the projected rental payments through the
remaining terms of the underlying operating leases, offset by projected subleasing income. The projected
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