Autodesk 2016 Annual Report Download - page 112

2016 Form 10-K 40
reseller, and direct end user, among others). We analyze BESP at least annually or on a more frequent basis if a significant
change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices.
In situations when we have multiple contracts with a single counterparty, we use the guidance in ASC 985-605 to evaluate
both the form and the substance of the arrangements to determine if they should be combined and accounted for as one
arrangement or as separate arrangements.
Our assessment of the likelihood of collection is also a critical factor in determining the timing of revenue recognition. If
we do not believe that collection is probable, the revenue will be deferred until the earlier of when collection is deemed
probable or payment is received.
Our indirect channel model includes both a two-tiered distribution structure, where distributors sell to resellers, and a
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.
As part of the indirect channel model, we have a partner incentive program that uses quarterly attainment of monetary
rewards to motivate distributors and resellers to achieve mutually agreed upon business goals in a specified time period. A
portion of these incentives reduce license and other revenue in the current period. The remainder, which relates to incentives on
our Subscription Program, is recorded as a reduction to deferred revenue in the period the subscription transaction is billed and
subsequently recognized as a reduction to subscription revenue over the contract period. These incentive balances do not
require significant assumptions or judgments. The reserves associated with the partner incentive program are treated on the
balance sheet as either contra account receivable (when due to distributors and direct resellers) or accounts payable (when due
to indirect resellers).
Marketable Securities. As described in Note 2, “Financial Instruments,” in the Notes to the Consolidated Financial
Statements, our investments in marketable securities are measured at the end of each reporting period and reported at fair value.
Fair value is defined as the price 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 on the measurement
date. In determining the fair value of our investments we are sometimes required to use various alternative valuation
techniques. Inputs to valuation techniques are either observable or unobservable. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created
the following fair value hierarchy:
• Level 1 - Quoted prices for identical instruments in active markets;
• Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers
are observable in active markets; and
• Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
This hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available,
when determining fair value. 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 probability
weighted discounted cash flow models, in which some of the inputs are unobservable in the market, to estimate the fair value of
our convertible debt securities. 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.
2016 Annual Report