Autodesk 2012 Annual Report Download - page 98

Business Combinations. We allocate the purchase price of acquired companies to assets and liabilities, as well as to in-
process research and development based upon their estimated fair values at the acquisition date. The purchase price allocation
process requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible
assets and deferred revenue obligations.
Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical
experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples
of critical estimates used in valuing certain of the intangible assets we have acquired or may acquire in the future include but
are not limited to: future expected cash flows from sales, maintenance agreements and acquired developed technologies; the
acquired company’s trade name and customer relationships as well as assumptions about the period of time the acquired trade
name and customer relationships will continue to be used in the combined company’s product portfolio; expected costs to
develop the in-process research and development into commercially viable products and estimated cash flows from the projects
when completed; and discount rates.
Goodwill. We test goodwill for impairment annually in our fourth fiscal 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 is impaired, or the amount of any 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.
As of January 31, 2012, a hypothetical 10% decrease in the fair value of our reporting units would not have an impact on
the carrying value of goodwill, nor result in impairment of goodwill. For further discussion see Note 1, “Business and
Summary of Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements.
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.
We assessrecoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the
assets are expected to generate. If impairment indicators were present based on our undiscounted cash flow models, which
include assumptions regarding projected cash flows, we would perform a discounted cash flow analysis 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 $165.9 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,
including intercompany transfer pricing adjustments. 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. We believe
our tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which
we conduct our business. It is possible that these positions may be challenged by jurisdictional tax authorities and may have a
significant impact on our effective tax rate.
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
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