Autodesk 2006 Annual Report Download - page 101

During the fourth quarter of fiscal 2005, Autodesk modified its approach and updated certain assumptions
with respect to determining the estimated fair value of shares granted under the employee qualified stock
purchase plan to account for modifications to employee withholdings and the two-year offering period of the
plan. As a result of these changes, pro forma net income for fiscal 2004 was reduced by $3.4 million.
Revenue Recognition
Autodesk recognizes 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. Autodesk’s revenue
recognition policies are in compliance with the provisions of the American Institute of Certified Public
Accountants’ Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended, and SEC
Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements.”
Autodesk recognizes revenue as follows: Product sales, which include software licenses and any related
hardware and peripherals, are recognized at the time of shipment to its distributors, resellers and direct
customers, providing all other criteria for recognition of revenue have been met. In addition to product sales,
Autodesk recognizes maintenance revenues from its subscription program and hosted service revenues ratably
over the subscription contract periods. Customer consulting and training revenues are recognized as the services
are performed. In arrangements that include multiple software products and/or services, the Company allocates
the sales price among each of the deliverables using the residual method, under which revenue is allocated to
undelivered elements based on vendor-specific objective evidence (“VSOE”) of fair value of such undelivered
elements and the residual amounts of revenue are allocated to delivered elements. VSOE is the price charged
when that element is sold separately or the price as set by management with the relevant authority.
For reporting purposes, Autodesk reports revenue generated from the subscription program separately as
maintenance revenue on the Consolidated Statements of Income. Revenue from all other sales types including
product, consulting, training, hardware support, and hosting services, are reported as License and Other Revenue
on the Consolidated Statements of Income. Revenue from the sales of Autodesk’s training, support and hosting
services are immaterial for all periods presented.
With the exception of contracts with certain distributors, sales contracts do not contain specific product-
return privileges. However, Autodesk permits its distributors and resellers to return product in certain instances,
such as during periods of product transition and during update cycles.
Autodesk establishes reserves for product returns based on historical experience of actual product returns,
estimated channel inventory levels, the timing of new product introductions, channel sell-in for applicable
markets and other factors. These reserves are recorded as a direct reduction of revenue and accounts receivable
at the time the related revenue is recognized.
Shipping and Handling Costs
Shipping and handling costs are included in cost of revenues for all periods presented.
Advertising Expenses
Advertising costs are expensed as incurred. Total advertising expenses incurred were $26.2 million in
fiscal 2006, $14.8 million in fiscal 2005 and $11.7 million in fiscal 2004.
Net Income Per Share
Basic net income per share is computed using the weighted average number of common shares outstanding
during the period. Diluted net income per share is computed using the combination of the dilutive effect of stock
options and the weighted average number of common shares outstanding. Autodesk has no potentially dilutive
securities other than stock options.
2006 Annual Report
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Business and Summary of Significant Accounting Policies (Continued)
55