Autodesk 2010 Annual Report Download - page 158

AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Autodesk did not pay cash dividends in fiscal 2010, 2009 or 2008, and does not 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 stock-based awards
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.
Autodesk recognizes expense only for the stock-based awards that are ultimately expected to vest.
Therefore, Autodesk has developed 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 stock-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.
Revenue Recognition
Autodesk recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price is fixed or determinable, and collection is probable. For multiple element
arrangements that include software products, Autodesk allocates the sales price among each of the deliverables
using the residual method, under which revenue is allocated to undelivered elements based on their vendor-
specific objective evidence (“VSOE”) of fair value. VSOE is the price charged when an element is sold
separately or a price set by management with the relevant authority. If Autodesk does not have VSOE of the
undelivered element, revenue recognition is deferred on the entire sales arrangement until all elements for which
we do not have VSOE are delivered. Revenue recognition for significant lines of business is discussed further
below.
Autodesk’s assessment of likelihood of collection is also a critical element in determining the timing of
revenue recognition. If collection is not probable, the revenue will be deferred until the earlier of when collection
is deemed probable or cash is received.
License and other revenue are comprised of two components: (1) all forms of product license revenue and
(2) other revenue:
All Forms of Product License Revenue
Product license revenue includes: software license revenue from the sale of new seat licenses,
upgrades and crossgrades, product revenue for Advanced Systems sales wherein software is bundled
with hardware components, and revenue from on-demand collaboration software and service.
Autodesk’s existing customers who are using a currently supported version of a product can upgrade to
the latest release of the product by paying a separate fee at current available prices. An existing
customer also has the option to upgrade to a vertical design or model-based design product, which
generally has a higher price, for a premium fee; this is referred to as a crossgrade.
Autodesk’s product license revenue from distributors and resellers is generally recognized at the
time title to Autodesk’s product passes to the distributor or reseller, provided all other criteria for
revenue recognition are met.
Autodesk establishes reserves for product returns based on historical experience of actual product
returns, estimated channel inventory levels, the timing of new product introductions, channel sell-in for
applicable markets and other factors. These reserves are recorded as a direct reduction of revenue and
accounts receivable at the time the related revenue is recognized.
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