Autodesk 2004 Annual Report Download - page 28

Realizability of Long-Lived Assets. We assess the realizability of our long-lived assets and related
intangible assets 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 impact 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 and discount rates. 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. During fiscal 2004, we recognized an impairment charge of $1.8 million related to
technology acquired as part of the software division of Media 100, Inc. (See Note 10, “Business
Combinations”, in the Notes to Consolidated Financial Statements for further discussion).
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. On February 1, 2002, we adopted Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets.” Therefore, we no longer amortize goodwill. We 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 $17.6 million of net deferred tax assets, mostly arising from net
operating losses, tax credits, reserves and timing differences for purchased technologies and capitalized
software offset by the establishment of US 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
$46.0 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.
Restructuring Expenses. In November 2003, the Board of Directors approved a restructuring plan that
involves the elimination of between 550 and 650 positions and the closure of a number of offices worldwide.
This plan is designed to further reduce operating expense levels to help achieve our targeted operating
margins as well as redirect resources to product development, sales development and other critical areas.
The restructuring charge under this plan is estimated to be up to $37.0 million and is expected to be
substantially complete by the end of the third quarter of fiscal 2005.
During the fiscal year ended January 31, 2004, we recorded gross restructuring charges of $4.9 million
of which $3.6 million related to the elimination of positions in the fourth quarter of fiscal 2004 under the fiscal
2004 restructuring plan, $0.2 million related to the closure of a facility under the fiscal 2004 restructuring plan
and $1.1 million related to the office closures effected during previous years. The office closure costs were
basedupon the projectedrental payments throughthe remaining termsof the underlyingoperating leases,
offset by projected sublease income. The projected sublease income amounts were calculated by using
information provided by third-party real estate brokers as well as management judgments and were based
on assumptions for each of the real estate markets where the leased offices were located. Should real estate
18