Autodesk 2006 Annual Report Download - page 74

their most imaginative creative ideas with greater ease, speed and efficiency. A key component of our strategy
is the realization of a complete and comprehensive 3D animation portfolio and workflow. Our acquisition of Alias
is a component of that strategy. In the film, commercial, and broadcast markets, our focus remains on visual
effects design, editing and finishing tools, where we plan to continue to expand our software feature sets, improve
data interoperability, while transitioning the products to lower cost standard, open, PC-based Linux platform.
Location Services Division
The Location Services Division focus is on providing a technology platform designed to deliver location-
based applications to wired, mobile and wireless users. Our primary product offering is LocationLogic.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting
principles. In preparing our consolidated financial statements, we make assumptions, judgments and estimates
that can have a significant impact on amounts reported in our consolidated financial statements. We base our
assumptions, judgments and estimates on historical experience and various other factors that we believe to be
reasonable under the circumstances. Actual results could differ materially from these estimates under different
assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates. We believe that
of our significant accounting policies, which are described in Note 1, “Business and Summary of Significant
Accounting Policies,” 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 SEC Staff Accounting Bulletin No. 104, “Revenue Recognition.”
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 that element
is sold separately or the price as 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 element 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 cash is received.
Our product sales to 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. 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 cash from 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.
License and other revenues include revenues from the sale of new seats, upgrades, customer consulting
and training. Upgrade revenues are generated under the Autodesk Upgrade Program. Our existing customers
who are using a currently supported version of a product can upgrade to the latest release of the product by
paying a separate fee at the time of upgrade that is based on the number ofversions being upgraded. An existing
customer also has the option to upgrade to a higher priced discipline specific or 3D product for a premium fee;
we refer to this as a cross-grade. Revenues from the sale of new seats and upgrade fees are generally recognized
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