Autodesk 2013 Annual Report Download - page 106

one-tiered structure where Autodesk sells directly to resellers. Our product license revenue from distributors and resellers are
generally recognized at the time title to our product passes to the distributor, in a two-tiered structure, or reseller, in a one-tiered
structure, provided all other criteria for revenue recognition are met. This policy is predicated on our ability to estimate sales
returns, among other criteria. We are also required to evaluate whether our distributors and resellers have the ability to honor
their commitment to make fixed or determinable payments, regardless of whether they collect payment from their customers.
Our policy also presumes that we have no significant performance obligations in connection with the sale of our product
licenses by our distributors and resellers to their customers. If we were to change any of these assumptions or judgments, it
could cause a material increase or decrease in the amount of revenue that we report in a particular period.
Marketable Securities. At January 31, 2013 we had $753.2 million of short and long-term marketable securities.
Marketable securities are stated at fair value. As described in Note 2, “Financial Instruments,” in the Notes to the Consolidated
Financial Statements, we estimate the fair value of our marketable securities each quarter. Fair value is defined as an exit price,
representing the amount that would be received from the sale of an asset or paid to transfer a liability in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
When identical or similar assets are traded in active markets, the level of judgment required to estimate their fair value is
relatively low. This is generally true for our cash and cash equivalents and the majority of our marketable securities, which we
consider to be Level 1 assets and Level 2 assets. However, determining the fair value of marketable securities when observable
inputs are not available (Level 3) requires significant judgment. For example we use a discounted cash flow model to estimate
the fair value of our auction rate securities; because we have determined that the market for those securities is inactive. These
assumptions are inherently subjective and involve significant management judgment. Whenever possible, we use observable
market data and rely on unobservable inputs only when observable market data is not available, when determining fair value.
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 assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. Qualitative factors considered in this assessment include cost factors;
financial performance; legal, regulatory, contractual, political, business, or other factors; entity specific factors; industry and
market considerations, macroeconomic conditions, and other relevant events and factors affecting the reporting unit. If, after
assessing the totality of events or circumstances, it is more likely than not that the fair value of the reporting unit is greater than
its carrying value, then performing the two-step impairment test is unnecessary. If the two-step impairment test is necessary, 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.
For our annual impairment assessment in fiscal 2013, based on a review of the qualitative factors described above, we
determined that for each of our Platform Solutions and Emerging Business, Manufacturing ("MFG") and Architecture,
Engineering and Construction ("AEC") reporting units, it was more likely than not that the fair vale of the reporting units
exceeded the carrying amount. As a result, we concluded that performing the two-step impairment test was not necessary for
these reporting units.
For the Media and Entertainment (“M&E”) reporting unit, Autodesk deemed the two-step impairment test was necessary
and used a discounted cash flow model which included assumptions regarding projected cash flows. Based on this testing,
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