Autodesk 2006 Annual Report Download - page 75

at the time of sale provided all revenue recognition criteria have been met. Customer consulting and training
revenues are recognized over time, as the services are performed.
Maintenance revenues consist primarily of revenues from our subscription program. Under this program,
customers are eligible to receive unspecified upgrades when-and-if-available, downloadable training courses and
optional on-line support. We recognize revenues from our subscription program ratably over the subscription
contract periods.
Product Returns 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 supersede older versions. The product returns reserve
is 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.
Our product returns reserves were $14.2 million at January 31, 2006 and $15.3 million at January 31, 2005.
Product returns as a percentage of applicable revenues were 3.7% in fiscal 2006, 4.1% in fiscal 2005 and 5.4%
in fiscal 2004. During fiscal year 2006, we recorded additions to our product returns reserve of $41.0 million,
which reduced our revenue.
While we believe our accounting practice for establishing and monitoring product returns reserves is
adequate and appropriate, 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 assess the realizability of our long-lived assets and related intangible
assets, other than goodwill, annually during the fourth fiscal quarter, or sooner should events or changes in
circumstances indicate the carrying values of such assets may not be recoverable. We consider the following
factors important in determining when to perform an impairment review: significant under-performance of a
business or product line relative to budget; shifts in business strategies which affect 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 which include assumptions regarding
projected cash flows. Variances in these assumptions could have a significant impact on our conclusion as to
whether an asset is impaired or the amount of the impairment charge. Impairment charges, if any, result in
situations where 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.
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. As required under Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets,” we no longer amortize goodwill, but test goodwill for impairment annually in the fourth
quarter or sooner should 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 $193.6 million of net deferred tax assets, mostly arising from net
operating losses, including stock option deductions, as well as 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 projected future taxable
income of approximately $607 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.
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