Autodesk 2008 Annual Report Download - page 136

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AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Autodesk uses the Black-Scholes-Merton 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 Year Ended
January 31, 2008
Fiscal Year Ended
January 31, 2007
Fiscal Year Ended
January 31, 2006
Stock Option
Plans ESP Plan
Stock Option
Plans ESP Plan
Stock Option
Plans ESP Plan
Range of expected
volatilities ...... 0.33 – 0.36 0.29 – 0.34 0.36 – 0.39 0.37 – 0.40 0.40 – 0.49 0.35 – 0.39
Range of expected
lives (in years) . . . 2.6 – 4.2 0.3 – 2.0 2.5 – 4.4 0.5 – 2.0 4.1 – 4.3 0.5 – 2.0
Expected
dividends ....... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Range of risk-free
interest rates .... 3.07 – 5.11% 3.98 – 5.06% 4.58 – 5.13% 4.67 – 5.01% 3.82% – 4.48% 3.14% – 4.18%
Expected
forfeitures ...... 13.0% 13.0% 13.1% 7.0% n/a n/a
Autodesk estimates expected volatility for options granted under the Company’s stock option plans and ESP
Plan awards based on two measures. The first 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 estimates 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 currently
anticipate paying any cash dividends in the foreseeable future. Consequently, an expected dividend yield of zero
is used in the Black-Scholes-Merton option pricing model.
The risk-free interest rate used in the Black-Scholes-Merton option pricing 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 lives.
In addition to the assumptions used in the Black-Scholes-Merton option 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. The Company estimates forfeitures at the time of grant and revises those
estimates in subsequent periods if actual forfeitures differ from those estimates.
As a result of the Company’s voluntary review of its historical stock option grant practices, it was
determined that certain stock options had been issued by the Company with exercise prices below the fair value
of the stock at the time of grant (“discounted options”). Under Section 409A of the U.S. Internal Revenue Code
(“Section 409A”) and a comparable provision of the California tax code (“California Section 409A”), adverse tax
consequences to employees may arise as a result of the exercise of these discounted stock options. In order to
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