Autodesk 2011 Annual Report Download - page 100

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 would discount 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 $147.5 million of net deferred tax assets, primarily a result of tax
credits, net operating losses, and timing differences for reserves, accrued liabilities, stock options, purchased
technologies and capitalized intangibles, partially offset by the establishment of U.S. deferred tax liabilities on
unremitted earnings from certain foreign subsidiaries, deferred tax liabilities associated with tax method change
on advanced payments and valuation allowances against California and Canadian deferred tax assets. 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. Any
change in future profitability may require material adjustments to these net deferred tax assets, resulting in a
reduction in net income in the period when such determination is made.
Stock-Based Compensation. We measure stock-based compensation cost at the grant date fair value of the
award, and recognize expense on a straight-line basis over the requisite service period, which is generally the
vesting period. We estimate the fair value of stock-based payment awards using the Black-Scholes-Merton
option-pricing model. The determination of the fair value of a stock-based award on the date of grant using the
Black-Scholes-Merton option-pricing model is affected by our stock price on the date of grant as well as
assumptions regarding a number of complex and subjective variables. These variables include our expected stock
price volatility over the expected term of the award, actual and projected employee stock option exercise
behaviors, the risk-free interest rate for the expected term of the award and expected dividends. The variables
used in the model are reviewed on a quarterly basis and adjusted, as needed. The value of the portion of the
award that is ultimately expected to vest is recognized as expense in our Consolidated Statements of Operations.
Legal Contingencies. As described in Part I, Item 3, “Legal Proceedings” and Part II, Item 8, Note 8,
“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
uncertainties related to these legal matters, we base our loss accruals on the best information available at the
time. As additional information becomes available, we reassess our potential liability and may revise our
estimates. Such revisions could have a material impact on future quarterly or annual results of operations.
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