Autodesk 2007 Annual Report Download - page 144

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AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Business and Summary of Significant Accounting Policies (Continued)
Autodesk uses the Black-Scholes option-pricing model to estimate the fair value of stock option
awards and the fair value of awards under the ESP Plan based on the following assumptions:
Fiscal 2007
Stock Option Plans ESP Plan
Range of expected volatilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.36 – 0.39 0.37 – 0.40
Range of expected lives (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 – 4.4 0.5 – 2.0
Expected dividends ........................................... 0% 0%
Range of risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.58% – 5.13% 4.67% – 5.01%
Expected forfeitures .......................................... 13.1% 7.0%
Autodesk estimates expected volatility for options granted under the Company’s stock option plans
and ESP Plan awards based on two measures. One is a measure of historical volatility in the trading market
for the Company’s common stock, and the second is the implied volatility of traded forward call options
to purchase shares of the Company’s common stock. Autodesk uses a third-party valuation services firm
to assist in estimating the expected life of options granted under the Company’s stock option plans. In
estimating the expected term, both exercise behavior and post-vesting termination behavior were included
in the analysis, as well as consideration of outstanding options. The Company estimates the expected term
of share purchases under the ESP Plan based upon each future scheduled purchase date. Effective after
the dividend on the Company’s common stock for the fourth quarter of fiscal 2005, which was paid in April
2006, Autodesk discontinued payment of cash dividends. Autodesk does not anticipate paying any cash
dividends in the foreseeable future. Consequently, an expected dividend yield of zero is used in the Black-
Scholes option valuation model. The risk- free interest rate used in the Black-Scholes option valuation
model for options granted under the Company’s stock option plans and ESP Plan awards is the historical
yield on U.S. Treasury securities with equivalent remaining terms. In addition to the assumptions used
in the Black-Scholes pricing model, SFAS 123R requires that the Company recognize expense only for the
awards that are ultimately expected to vest. Therefore Autodesk is required to develop an estimate of the
number of awards expected to cancel prior to vesting (“forfeiture rate”). The forfeiture rate is estimated
based on historical pre-vest cancellation experience, and is applied to all share-based awards. Autodesk
estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual
forfeitures differ from those estimates. Prior to fiscal year 2007, Autodesk accounted for forfeitures as
they occurred.
During the third quarter of fiscal 2006, Autodesk revised its approach to estimating expected volatility
on its stock awards granted during the quarter. Expected volatility is one of several assumptions in the
Black-Scholes model used by Autodesk to make an estimate of the fair value of options granted under the
Company’s stock plans and the rights to purchase shares under the employee stock purchase plan. Prior
to the third quarter of fiscal 2006, Autodesk estimated expected volatility solely based on historical stock
volatility. Under its current method of estimating expected volatility, Autodesk has considered both the
historical volatility in the trading market for its common stock as well as the implied volatility of tradable
forward call options to purchase shares of its common stock. The Company believes this approach results
in a better estimate of expected volatility.