Autodesk 2016 Annual Report Download - page 114

2016 Form 10-K 42
For our annual impairment assessment in fiscal 2016, we utilized the optional assessment for the following reporting
units: Platform Solutions and Emerging Business (“PSEB”), Manufacturing ("MFG"), Architecture, Engineering, and
Construction ("AEC"), and Media and Entertainment (“M&E”). Based on a review of the qualitative factors described above,
we determined that it was more likely than not that the fair value of each of the reporting units exceeded the carrying value. As
a result, we concluded that performing the two-step impairment test was not necessary, and therefore the goodwill of our PSEB,
MFG, AEC, and M&E reporting units were not impaired during the fiscal year ended January 31, 2016.
For the Delcam reporting unit, we 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, we estimated fair value was 16% in
excess of the carrying value for Delcam, and therefore the goodwill was not impaired during the fiscal year ended January 31,
2016.
Estimating the fair value of the reporting units requires the use of estimates and significant judgments regarding future
cash flows that are based on a number of factors including actual operating results, forecasted billings, revenue, and spend
targets, discount rate assumptions, and long-term growth rate assumptions. The estimates and judgments described above could
adversely change in future periods and we cannot provide absolute assurance that all of the targets will be achieved, which
could lead to future impairment charges.
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. When such events or changes in circumstances occur, we assess recoverability of these assets.
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 account for income taxes under the asset and liability approach. Under this method, deferred tax
assets, including those related to tax loss carryforwards and credits, and deferred tax liabilities are determined based on the
differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. We recognize the tax benefit for an uncertain tax position when it meets a more
likely than not threshold. We recognize potential accrued interest and penalties related to unrecognized tax benefits as income
tax expense.
A valuation allowance is recorded to reduce deferred tax assets when management cannot conclude that it is more likely
than not that the net deferred tax asset will be recovered. The valuation allowance is determined by assessing both positive and
negative evidence to determine whether it is more likely than not that deferred tax assets are recoverable; such assessment is
required on a jurisdiction-by-jurisdiction basis. Significant judgment is required in determining whether the valuation allowance
should be recorded against deferred tax assets. In assessing the need for valuation allowance, we consider all available evidence
including past operating results and estimates of future taxable income. Beginning in the second quarter of fiscal 2016, we
considered recent cumulative losses in the United States arising from the Company’s business model transition as a significant
source of negative evidence. Considering this negative evidence and the absence of sufficient positive objective evidence that
we would generate sufficient taxable income in our United States tax jurisdiction to realize the deferred tax assets, we
determined that is was not more likely than not that the Company would realize US federal and state deferred tax assets and
recorded a valuation allowance on our federal and state deferred tax assets. As we continually strive to optimize our overall
business model, tax planning strategies may become feasible and prudent whereby management may determine that it is more
2016 Annual Report