Autodesk 2007 Annual Report Download - page 142

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AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Business and Summary of Significant Accounting Policies (Continued)
Deferred Tax Assets
Deferred tax assets arise primarily from net operating losses including stock option deductions taken
in fiscal years prior to fiscal 2007, as well as tax credits, reserves and deductible temporary differences
offset by the establishment of U.S. deferred tax liabilities on unremitted earnings from certain foreign
subsidiaries and taxable temporary differences for purchased technologies and capitalized software. They
are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. Valuation allowances are established when necessary to
reduce gross deferred tax assets to the amount “more likely than not” expected to be realized in accordance
with SFAS 109.
Employee Stock-Based Compensation
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, “Share-
Based Payment,” (“SFAS 123R”), which replaced Statement of Financial Accounting Standards No. 123
(“SFAS 123”) and superseded Accounting Principles Board Opinion No. 25 (“APB 25”).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 the Company’s 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.
Autodesk 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 the Company’s fiscal
2007 year. The Company’s consolidated financial statements for fiscal year 2007 reflect our adoption of
SFAS 123R. In accordance with the modified prospective transition method, the Company’s consolidated
financial statements for prior periods have not been revised for, and do not include, 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 the Company’s Consolidated
Statements of Income. Prior to the adoption of SFAS 123R, the Company 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 has been recognized in Autodesk’s
consolidated financial statements primarily as a result of the Company’s Monthly Date Selection Process
that was applied to stock option grants to non-executive employees during the period July 2000 through
February 2005. This process resulted in the granting of stock option awards with exercise prices below
the fair market value on the option measurement date. As of March 2005, the Company no longer follows
the Monthly Date Selection Process. See Note 2, “Restatement of Consolidated Financial Statements” for
further discussion of this matter.