Autodesk 2006 Annual Report Download - page 76

Autodesk is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions.
Our effective tax rate is based on expected geographic income, statutory rates and enacted tax rules, including
transfer pricing. Significant judgment is required in determining our effective tax rate and in evaluating our tax
positions on a worldwide basis. We believe our tax positions, including intercompany transfer pricing policies,
are consistent with the tax laws in the jurisdictions in which it conducts its business. It is possible that these
positions may be challenged which may have a significant impact on our effective tax rate.
Restructuring Expenses. During the fourth quarter of fiscal 2004, the Board of Directors approved a
restructuring plan that resulted in the elimination of employee positions and the closure of a number of offices
worldwide (“Fiscal 2004 Plan”). This plan was designed to improve efficiencies across the organization, reduce
operating expense levels to help achieve our targeted operating margins and redirect resources to product
development, sales development and other critical areas. The actions approved under this plan were completed
by the end of fiscal 2005.
Facility lease termination costs were based upon projected rental payments through the remaining terms
of the underlying operating leases, offset by projected sublease income. The projected sublease income amounts
were calculated by using information provided by third-party real estate brokers as well as management
judgments and were based on assumptions for each of the real estate markets where the leased facilities were
located. If real estate markets worsen and we are not able to sublease the properties as expected, we will record
additional expenses in the period when such rental payments are made. This situation occurred during each of
fiscal 2005 and 2004; we therefore recorded additional charges as a result of the inability to sublease abandoned
facilities. If the real estate markets subsequently improve, and we are able to sublease the properties earlier or
at more favorable rates than projected, we will reverse a portion of the underlying restructuring accruals, which
will result in increased net income in the period when such sublease becomes effective.
Stock Option Accounting. Historically, we have not recorded compensation expense when stock option
grants are awarded to employees at exercise prices equal to the fair market value of Autodesk common stock
on the date of grant. We disclose in Note 1, “Business and Summary of Significant Accounting Policies,” in the
Notes to Consolidated Financial Statements the expense consistent with the method of Statement of Financial
Accounting Standards No. 123, “Accounting for Stock Issued to Employees” (“SFAS 123”). The alternative fair value
accounting provided for under SFAS 123 requires the use of option valuation models which require the input of
highly subjective assumptions, including the expected life of the option and expected future volatility ofour stock.
Changes in the subjective input assumptions can materially affect the fair value estimate. Had we recorded
compensation expense from stock option grants, our net income would have been substantially less. We are
adopting Statement of Financial Accounting Standards No. 123 — revised 2004, “Share-Based Payment”
(“SFAS 123R”), which replaces SFAS 123 and supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”) in the first quarter of fiscal 2007. Autodesk believes the adoption of SFAS 123R will result
in amounts that are similar to the current pro forma disclosures under SFAS 123 and that the adoption of SFAS 123R
will have a material adverse effect on Autodesk’s Consolidated Statements of Income and net income per share.
The estimated impact is contingent upon many factors including, but not limited to, the market value of
Autodesk’s common stock on the date future options are granted.
Legal Contingencies. As described in Item 3, “Legal Proceedings” and Note 7, “Commitments and
Contingencies”, in the Notes to Consolidated Financial Statements, we are periodically involved in various legal
claims and proceedings. We routinely review the status of each significant matter and assess our potential
financial exposure. If the potential loss from any matter is considered probable and the amount can be reasonably
estimated, we record a liability for the estimated loss. Because of inherent uncertainties related to these legal
matters, we base our loss accruals on the best information available at the time. As additional information
becomes available, we reassess our potential liability and may revise our estimates. Such revisions could have
a material impact on future quarterly or annual results of operations.
Recently Issued Accounting Standards
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 — revised 2004,
“Share-Based Payment” (“SFAS 123R”) which replaces Statement of Financial Accounting Standards No. 123
(“SFAS 123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires
30