Autodesk 2004 Annual Report Download - page 42

minimum quantities or set prices that exceed our expected requirements for three months. We also enter
into contracts for outsourced services; however in most instances, the obligations under these contracts
were not significant and the contracts contain clauses allowing for cancellation without significant penalty.
In addition we have certain software royalty commitments associated with the shipment and licensing
of certain products. Royalty expense is generally based on the number of units shipped or a percentage of
the underlying revenue. Royalty expense, included in cost of license and other revenues, was $8.6 million,
$7.6 million and $10.8 million in fiscal 2004, 2003 and 2002, respectively.
Principal commitments at January 31, 2004, consisted of obligations under operating leases for facilities
and computer equipment, IT infrastructure costs, marketing costs, contractual development costs and
certain capital expenditures related to the purchase and implementation of customer relationship
management software and services.
The expected timing of payment of the obligations discussed above is estimated based on current
information. Timing of payments and actual amounts paid may be different depending on the time of
receipt of goods or services or changes to agreed-upon amounts for some obligations.
We provide indemnifications of varying scopes and certain guarantees, including limited product
warranties.Historically, costs relatedto these warrantiesand indemnifications havenot been significant,and
because potential future costs are highly variable, we are unable to estimate the maximum potential impact
of these guarantees on our future results of operations.
Off-Balance Sheet Arrangements
Other than operating leases, we do not engage in off-balance sheet financing arrangements or have
any variable-interest entities. As of January 31, 2004 we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Stock Compensation
We maintain three active stock option plans for the purpose of granting stock options to employees
and members of Autodesk’s Board of Directors: the 1996 Stock Plan (available to employees but not
directors), the Nonstatutory Stock Option Plan (available only to non-executive employees) and the 2000
Directors’ Option Plan (available only to outside directors). Additionally, there are five expired plans with
options outstanding. Our 1996 Stock Plan expires during calendar 2006.
Our stock option program is a broad-based, long-term retention program. Essentially all of our
employees participate. Approximately 88% of the options we granted during fiscal 2004 were awarded to
employees other than our CEO and four of the most highly compensated executive officers. Options
granted under the above-mentioned plans vest over periods ranging from one to five years and expire
within ten years. The exercise price of the stock options is equal to the fair market value of the stock on the
grant date.
With the exception of grants to our outside directors, all stock option grants to executive officers and
guidelines for grants to other employees are made by the Compensation and Human Resources
Committee of the Board of Directors. All members of the Compensation Committee are independent
directors, as defined in the application rules for issuers traded on The Nasdaq National Market. See the
“Report of the Compensation and Human Resources Committee of the Board of Directors on Executive
Compensation” appearing in Autodesk’s proxy statement dated May 20, 2003, for further information
concerning Autodesk’s policies and procedures regarding the use of stock options. Grants to our outside
directors are non-discretionary and are pre-determined by the terms of the 2000 Directors’ Option Plan.
Additional information regarding stock compensation is incorporated by reference to the section of
the Proxy Statement entitled “Employee and Director Stock Options”.
Risk Factors Which May Impact Future Operating Results
We operate in a rapidly changing environment that involves a number of risks, many of which are
beyond our control. The following discussion highlights some of these risks and the possible impact of these
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