Autodesk 2004 Annual Report Download - page 29

markets worsen and we are not able to sublease the properties as expected, we will record additional
expenses in the period when such rental payments are made. This situation occurred during fiscal 2002,
2003 and 2004; we therefore recorded additional charges as a result of the inability to sublease abandoned
offices. If the real estate markets subsequently improve, and we are able to sublease the properties earlier
or at more favorable rates than projected, we will reverse a portion of the underlying restructuring accruals,
which will result in increased net income in the period when such sublease becomes effective.
Legal Contingencies. As described in Item 3, “Legal Proceedings” and Note 7, “Commitments and
Contingencies”, in the Notes to Consolidated Financial Statements, we are periodically involved in various
legal claims and proceedings. We routinely review the status of each significant matter and assess our
potential financial exposure. If the potential loss from any matter is considered probable and the amount
can be reasonably estimated, we record a liability for the estimated loss. Because of inherent uncertainties
related to these legal matters, we base our loss reserves on the best information available at the time. As
additional information becomes available, we reassess our potential liability and may revise our estimates.
Such revisions could have a material impact on future quarterly results of operations.
Stock Option Accounting. We do not record compensation expense when stock option grants are
awarded to employees at exercise prices equal to the fair market value of Autodesk common stock on the
date of grant.
Had we recorded compensation expense, our net income would have been substantially less. In
addition, if we are required to record compensation expense, our ability to achieve our target operating
margins will be adversely affected. The impact of expensing employee stock awards is further described
in Note 1, “Business and Summary of Significant Accounting Policies” in the Notes to Consolidated
Financial Statements.
Recently Issued Accounting Standards
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest
Entities.” FIN 46 expands upon existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of another entity. A variable interest
entity is a corporation, partnership, trust or any other legal structure used for business purposes that either
(a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk of loss from the variable
interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. The
consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31,
2003. The consolidation requirements apply to older entities in the first fiscal year or interim period ending
after December 15, 2003. Disclosure requirements apply to any financial statements issued after January 31,
2003. The adoption of this statement had no effect on our consolidated financial position, results of
operations or cash flows.
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, “Amendment of
Statement 133 on Derivative Instruments and Hedging Activities,” (“SFAS 149”). SFAS 149 amends and
clarifies the accounting for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” SFAS 149 is generally effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.
Adoption of SFAS 149 did not have a material impact on our consolidated financial position, results of
operations or cash flows.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”) which requires
that certain financial instruments, which under previous guidance were accounted for as equity, must now
be accounted for as liabilities. SFAS 150 is effective for financial instruments entered into or modified after
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