Autodesk 2009 Annual Report Download - page 110

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. If impairment indicators were present based on our undiscounted cash flow models, which include
assumptions regarding projected cash flows, we discounted the cash flows to assess impairments on long-lived
assets. Variances in these assumptions could have a significant impact on our conclusion as to whether an asset is
impaired or the amount of any impairment charge. Impairment charges, if any, result in situations where any 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.
Income Taxes. We currently have $133.7 million of net deferred tax assets, mostly arising from tax
credits, net operating losses, and timing differences for reserves, accrued liabilities, stock options, purchased
technologies and capitalized software, partially offset by the establishment of U.S. deferred tax liabilities on
unremitted earnings from certain foreign subsidiaries and acquired intangibles. We perform a quarterly
assessment of the recoverability of these net deferred tax assets and believe that we will generate sufficient future
taxable income in appropriate tax jurisdictions to realize the net deferred tax assets. 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.
Stock-Based Compensation. We account for stock-based compensation in accordance with Statement of
Financial Accounting Standards No. 123—revised 2004, “Share-Based Payment” (“SFAS 123R”). Under the fair
value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based
on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service
period, which is generally the vesting period. SFAS 123R requires companies to estimate the fair value of stock-
based payment awards on the date of grant using an option-pricing model. The value of the portion of the award
that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated
Statements of Income. We use the Black-Scholes-Merton option-pricing model for determining the estimated fair
value for employee stock awards. This model requires the input of assumptions, including expected stock price
volatility, expected life, expected dividend yield and risk-free interest rate of each award. The parameters used in
the model are reviewed on a quarterly basis and adjusted, as needed. Compensation expense for employee stock
awards is recognized on a straight-line basis over the vesting period of the award.
Legal Contingencies. As described in Part I, Item 3, “Legal Proceedings” and Part II, Item 8, Note 6,
“Commitments and Contingencies,” in the Notes to Consolidated Financial Statements, we are periodically
involved in various legal claims and proceedings. We routinely review the status of each significant matter and
assess our potential financial exposure. If the potential loss from any matter is considered probable and the
amount can be reasonably estimated, we record a liability for the estimated loss. Because of inherent
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