Autodesk 2014 Annual Report Download - page 110

2013 Annual Report
2014 Form 10-K 36
structure, provided all other criteria for revenue recognition are met. This policy is predicated on our ability to estimate sales
returns, among other criteria. 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 payment from their customers.
Our policy also presumes that we have no significant performance obligations in connection with the sale of our product
licenses by our distributors and resellers to 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.
As part of the indirect channel model, Autodesk has a partner incentive program that uses quarterly attainment
monetary rewards to motivate distributors and resellers to achieve mutually agreed upon business goals in a specified time
period. A portion of these incentives reduce license and other revenue in the current period. The remainder, which relates to
incentives on our Subscription Program, is recorded as a reduction to deferred revenue in the period the maintenance
transaction is billed and subsequently recognized as a reduction to maintenance revenue over the contract period. These
incentive balances do not require significant assumptions or judgments. The reserves associated with the partner incentive
program are treated on the balance sheet as either contra account receivable (when due to distributors and direct resellers) or
accounts payable (when due to indirect resellers).
Marketable Securities. As described in Note 2, “Financial Instruments,” in the Notes to the Consolidated Financial
Statements, our investments in marketable securities are measured at the end of each reporting period and reported at fair value.
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. In determining the fair value of our investments we are sometimes required to use various alternative valuation
techniques. Inputs to valuation techniques are either observable or unobservable. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created
the following fair value hierarchy:
 Level 1 - Quoted prices for identical instruments in active markets;
 Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets; and
 Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant
value drivers are unobservable.
This hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available,
when determining fair value. This is generally true for our cash and cash equivalents and the majority of our marketable
securities, which we consider to be Level 1 assets and Level 2 assets. However, determining the fair value of marketable
securities when observable inputs are not available (Level 3) requires significant judgment. For example, we use probability
weighted discounted cash flow models, in which some of the inputs are unobservable in the market, to estimate the fair value of
our convertible debt securities. These assumptions are inherently subjective and involve significant management judgment.
Whenever possible, we use observable market data and rely on unobservable inputs only when observable market data is not
available, when determining fair value.
All of Autodesk’s marketable securities are subject to a periodic impairment review. We recognize an impairment
charge when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. Autodesk
considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to
which the fair value has been less than Autodesk’s cost basis, the financial condition and near-term prospects of the investee,
and Autodesk’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in
the market value.
Business Combinations. We allocate the purchase price of acquired companies to the assets and liabilities acquired, as
well as to in-process research and development based on their estimated fair values at the acquisition date. Any residual
purchase price is recorded as goodwill. The allocation of the purchase price allocation requires us to make significant estimates
and assumptions, especially at the acquisition date with respect to intangible assets and deferred revenue obligations.
Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical
experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples