Autodesk 2011 Annual Report Download - page 130

AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In addition to the recoverability assessments, Autodesk routinely reviews the remaining estimated useful
lives of its 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.
Deferred Tax Assets
Deferred tax assets arise primarily from 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 advance payments, and a valuation allowance against
California and Canadian deferred tax assets. They are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to reverse. Valuation allowances
are established when necessary to reduce gross deferred tax assets to the amount “more likely than not” expected
to be realized.
Revenue Recognition
Autodesk recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price is fixed or determinable, and collection is probable. For multiple element
arrangements that include software products, Autodesk allocates the sales price among each of the deliverables
using the residual method, under which revenue is allocated to undelivered elements based on their vendor-
specific objective evidence (“VSOE”) of fair value. VSOE is the price charged when an element is sold
separately or a price set by management with the relevant authority. If Autodesk does not have VSOE of an
undelivered software license, revenue recognition is deferred on the entire sales arrangement until all elements
for which Autodesk does not have VSOE are delivered. If Autodesk does not have VSOE for undelivered
maintenance or services, the revenue for the arrangement is recognized over the longest contractual period in the
arrangement. Revenue recognition for significant lines of business is discussed further below.
Autodesk’s assessment of likelihood of collection is also a critical element in determining the timing of
revenue recognition. If collection is not probable, the revenue will be deferred until the earlier of when collection
is deemed probable or cash is received.
License and other revenue are comprised of two components: (1) all forms of product license revenue and
(2) other revenue:
(1) All Forms of Product License Revenue
Product license revenue includes: software license revenue from the sale of new seat licenses,
upgrades and crossgrades, product revenue for Creative Finishing sales wherein software is bundled
with hardware components, and revenue from on-demand collaboration software and services.
Autodesk’s existing customers who are using a currently supported version of a product can upgrade to
the latest release of the product by paying a separate fee at current available prices. An existing
customer also has the option to upgrade to a vertical design or model-based design product, which
generally has a higher price, for a premium fee; this is referred to as a crossgrade.
Autodesk’s product license revenue from distributors and resellers is generally recognized at the
time title to Autodesk’s product passes to the distributor or reseller, provided all other criteria for
revenue recognition are met.
Autodesk establishes reserves for product returns based on historical experience of actual product
returns, estimated channel inventory levels, the timing of new product introductions, channel sell-in for
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