Autodesk 2007 Annual Report Download - page 103

43
2007 Annual Report
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. Because expected lives are relatively short, discounting the
projected cash flows would not lead to a significantly different result. 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.
When assessing goodwill for impairment, we use discounted 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 goodwill assets are impaired or the amount of the impairment charge. Impairment
charges, if any, result from instances where the fair values of net assets associated with goodwill are less
than their carrying values. As changes in business conditions and our assumptions occur, we may be
required to record impairment charges.
Deferred Tax Assets. We currently have $137.9 million of net deferred tax assets, mostly arising
from net operating losses, including stock option deductions taken in fiscal years prior to fiscal 2007, as
well as tax credits and reserves offset by the establishment of U.S. deferred tax liabilities on unremitted
earnings from certain foreign subsidiaries and taxable temporary differences for purchased technologies
and capitalized software. 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 $519 million across a specific mix of 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.
Autodesk is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax
jurisdictions. Our effective tax rate is based on expected geographic mix of earnings, statutory rates,
transfer pricing, and enacted tax rules. Significant judgment is required in determining our effective tax