Autodesk 2007 Annual Report Download - page 104

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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 we
conduct our business. It is possible that these positions may be challenged which may have a significant
impact on our effective tax rate.
Stock Option Accounting. 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 25. SFAS 123R requires the
measurement of all share-based payments to employees, including grants of employee stock options,
using a fair-value based method and the recording of such expense in our Consolidated Statements of
Income. In March 2005, the SEC issued Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB
107”), which provides interpretive guidance related to the interaction between SFAS 123R and certain SEC
rules and regulations, as well as provides the SEC staff’s views regarding the valuation of share-based
payment arrangements.
We adopted SFAS 123R using the modified prospective transition method, which requires the
application of the accounting standard as of February 1, 2006, the first day of our fiscal year 2007. Our
consolidated financial statements for fiscal 2007 reflect our adoption of SFAS 123R. In accordance with the
modified prospective transition method, our consolidated financial statements for prior periods have not
been restated for, and do not include the impact of, compensation expense calculated under SFAS 123R.
SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date
of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to
vest is recognized as expense over the requisite service periods in our Consolidated Statements of Income.
Prior to the adoption of SFAS 123R, we accounted for stock-based awards to employees and directors using
the intrinsic value method in accordance with APB 25, as permitted by SFAS 123. Under the intrinsic value
method, compensation expense resulted primarily from stock option grants to non-executive employees
at exercise prices below fair market value on the option measurement date. The majority of these grants
were made between August 2000 and February 2005.
We use the Black-Scholes-Merton option-pricing model as the most appropriate method for
determining the estimated fair value for employee stock awards. This is the same option-pricing model used
in prior years to calculate the pro forma compensation expense under our SFAS 123 footnote disclosures.
This model requires the input of assumptions, including expected stock price volatility, expected life,
expected dividend yield and risk-free interest rate of each award. The parameters used in the model are
reviewed on a quarterly basis and adjusted, as needed. Compensation expense for employee stock awards
is recognized on a straight-line basis over the vesting period of the award. The adoption of SFAS 123R also
requires certain changes to the accounting for income taxes, the method used in determining diluted
shares, the application of a pre-vesting forfeiture rate against both pre- and post-adoption grants, as
well as additional disclosure related to the cash flow effects resulting from share-based compensation.
The relevant interpretive guidance of SAB 107 was applied in connection with the implementation and
adoption of SFAS 123R. See Note 3, “Employee and Director Benefit Plans,” for more information on this
new standard.
We are restating our consolidated balance sheet as of January 31, 2006, the related consolidated
statements of income, stockholders’ equity, and cash flows for each of the fiscal years ended January 31,
2006 and January 31, 2005, and each of the quarters in fiscal 2006 to include net revenues and stock-based
compensation adjustments. Previously filed annual reports on Form 10-K and quarterly reports on Form
10-Q affected by the restatements have not been amended and should not be relied on.
In connection with the restatement of our consolidated financial statements, we applied judgment
and sensitivity analysis in choosing whether to revise measurement dates for prior option grants. In
addition, if we determined that a measurement date needed to be revised, judgment and sensitivity
analysis was applied in determining the appropriate measurement date.