Stock-based Compensation Expense

Stock Plans

As of October 31, 2012, Autodesk maintained two active stock plans for the purpose of granting equity awards to employees and to non-employee members of Autodesk’s Board of Directors: the 2012 Employee Stock Plan (“2012 Employee Plan”), which is available only to employees, and the Autodesk 2012 Outside Directors’ Plan (“2012 Directors' Plan”), which is available only to non-employee directors. Additionally, there are eight expired or terminated plans with options outstanding. The exercise price of all stock options granted under these plans was equal to the fair market value of the stock on the grant date.

The 2012 Employee Plan was approved by Autodesk's stockholders in January 2012. The 2012 Employee Plan reserves up to 21.2 million shares which includes 15.2 million shares reserved upon the effectiveness of the 2012 Employee Plan as well as up to 6.0 million shares forfeited under certain prior employee stock plans during the life of the 2012 Employee Plan. The 2012 Employee Plan permits the grant of stock options, restricted stock units and restricted stock awards. Each restricted stock unit or restricted stock award granted will be counted against the shares authorized for issuance under the 2012 Employee Plan as 1.79 shares. If a granted option, restricted stock unit or restricted stock award expires or becomes unexercisable for any reason, the unpurchased or forfeited shares that were granted may be returned to the 2012 Employee Plan and may become available for future grant under the 2012 Employee Plan. As of October 31, 2012, 6.3 million options or restricted stock units have been granted under the 2012 Employee Plan. Options and restricted stock units that were granted under the 2012 Stock Plan vest over periods ranging from immediately upon grant to over a three-year period and options expire 10 years from the date of grant. The 2012 Employee Plan will expire on June 30, 2022. At October 31, 2012, 11.8 million shares were available for future issuance under the 2012 Employee Plan.

The 2012 Directors' Plan was approved by Autodesk's stockholders in January 2012. The 2012 Directors' Plan permits the grant of stock options, restricted stock units and restricted stock awards to non-employee members of Autodesk’s Board of Directors. Each restricted stock unit or restricted stock award granted will be counted against the shares authorized for issuance under the 2012 Directors' Plan as 2.11 shares. As of October 31, 2012, 0.2 million restricted stock units have been granted under the 2012 Directors' Plan. Restricted stock units that were granted under the 2012 Directors' Plan vest over one year from the date of grant. The 2012 Directors' Plan reserved 2.6 million shares of Autodesk common stock. The 2012 Directors' Plan will expire on June 30, 2022. At October 31, 2012, 2.4 million shares were available for future issuance under the 2012 Directors' Plan.

The following sections summarize activity under Autodesk’s stock plans.

Stock Options:

A summary of stock option activity for the nine months ended October 31, 2012 is as follows:



	Number of Shares		Weighted average exercise price per share		Weighted average remaining contractual term	Aggregate Intrinsic Value (2)
	(in millions)				(in years)	(in millions)
Options outstanding at January 31, 2012	28.4		$	31.39
Granted	0.1		36.59
Exercised	(5.4	)	25.46
Canceled	(2.5	)	38.12
Options outstanding at October 31, 2012	20.6		$	32.17	3.9	$	92.4
Options exercisable at October 31, 2012	14.6		$	31.12	2.8	$	78.8
Options vested as of October 31, 2012 and expected to vest thereafter (1)	20.4		$	32.10	3.8	$	92.2
Options available for grant at October 31, 2012	14.2

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(1)	Options expected to vest reflect an estimated forfeiture rate.


(2)	Represents the total pre-tax intrinsic value, based on Autodesk’s closing stock price of $31.85 per share as of October 31, 2012, which would have been received by the option holders had all option holders exercised their options as of that date.

As of October 31, 2012, total compensation cost of $44.8 million related to non-vested options is expected to be recognized over a weighted average period of 1.3 years. The following table summarizes information about the pre-tax intrinsic value of options exercised, and the weighted average grant date fair value per share of options granted, during the three and nine months ended October 31, 2012, and 2011.



	Three months Ended				Nine Months Ended
	October 31, 2012		October 31, 2011		October 31, 2012		October 31, 2011
Pre-tax intrinsic value of options exercised (1)	$	7.6	$	4.4	$	73.5	$	76.9
Weighted average grant date fair value per share of stock options granted (2)	$	11.65	$	10.45	$	13.39	$	14.06

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(1)	The intrinsic value of options exercised is calculated as the difference between the exercise price of the option and the market value of the stock on the date of exercise.


(2)	The weighted average grant date fair value of stock options granted is calculated, as of the stock option grant date, using the Black-Scholes-Merton option pricing model.

The following table summarizes information about options outstanding and exercisable at October 31, 2012:



	Options Exercisable						Options Outstanding
	Number of Shares (in millions)	Weighted average contractual life (in years)	Weighted average exercise price		Aggregate intrinsic value (1) (in millions)		Number of Shares (in millions)	Weighted average contractual life (in years)	Weighted average exercise price		Aggregate intrinsic value (1) (in millions)
Range of per-share exercise prices:
$2.28 - $17.53	3.6		$	13.86			4.1		$	14.17
$18.19 - $29.49	2.6		27.38				4.4		28.06
$29.50 - $38.55	3.3		32.72				4.2		32.70
$39.69 - $43.81	1.6		41.71				4.4		41.89
$45.20 - $49.80	3.5		45.70				3.5		45.70
	14.6	2.8	$	31.12	$	78.8	20.6	3.9	$	32.17	$	92.4

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(1)	Represents the total pre-tax intrinsic value, based on Autodesk’s closing stock price of $31.85 per share as of October 31, 2012, which would have been received by the option holders had all option holders exercised their options as of that date.

These options will expire if not exercised at specific dates ranging through September 2022.

Restricted Stock:

A summary of restricted stock unit and restricted stock award activity for the nine months ended October 31, 2012 is as follows:



	Unreleased Restricted Stock		Weighted average grant date fair value per share
	(in thousands)
Unreleased restricted stock at January 31, 2012	2,184.1		$	36.65
Awarded	3,283.2		32.88
Released	(310.2	)	35.36
Forfeited	(141.5	)	35.76
Unreleased restricted stock at October 31, 2012	5,015.6		$	34.29

During the nine months ended October 31, 2012, Autodesk granted 2.7 million restricted stock units. The restricted stock units vest over periods ranging from immediately upon grant to a pre-determined date that is typically within three years from the date of grant. Restricted stock units are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting rights. The fair value of the restricted stock units is expensed ratably over the vesting period. Autodesk recorded stock-based compensation expense related to restricted stock units of $31.8 million and $55.1 million during the three and nine months ended October 31, 2012, respectively. Autodesk recorded stock-based compensation expense related to restricted stock units of $6.9 million and $20.5 million, during the three and nine months ended October 31, 2011, respectively. As of October 31, 2012, total compensation cost not yet recognized of $88.3 million related to non-vested restricted stock units, is expected to be recognized over a weighted average period of 1.8 years. At October 31, 2012, the number of restricted stock units granted but unreleased was 4.5 million.

During the nine months ended October 31, 2012, Autodesk granted 0.5 million performance restricted stock units. Performance restricted stock units vest with the attainment of predetermined goals and requisite service periods. Performance stock units are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting rights. The fair value of the performance restricted stock units is expensed using the accelerated attribution method over the vesting period. Autodesk recorded stock-based compensation expense related to performance restricted stock units of $1.9 million and $5.2 million during the three and nine months ended October 31, 2012, respectively. Autodesk recorded no stock-based compensation related to performance restricted stock units for both the three and nine months ended October 31, 2011, as the Company previously had not granted performance restricted stock units. As of October 31, 2012, total compensation cost not yet recognized of $7.8 million related to non-vested performance restricted stock units, is expected to be recognized over a weighted average period of 1.4 years. At October 31, 2012, the number of performance restricted stock units granted but unreleased was 0.5 million.

1998 Employee Qualified Stock Purchase Plan (“ESP Plan”)

Under Autodesk’s ESP Plan, which was approved by stockholders in 1998, eligible employees may purchase shares of Autodesk’s common stock at their discretion using up to 15% of their eligible compensation subject to certain limitations, at not less than 85% of fair market value as defined in the ESP Plan. At October 31, 2012, a total of 31.5 million shares were available for future issuance. This amount automatically increases on the first trading day of each fiscal year by an amount equal to the lesser of 10.0 million shares or 2% of the total of (1) outstanding shares plus (2) any shares repurchased by Autodesk during the prior fiscal year. Under the ESP Plan, the Company issues shares on the first trading day following March 31 and September 30 of each fiscal year. The ESP Plan expires during fiscal 2018.

Autodesk issued 1.3 million and 2.9 million shares under the ESP Plan during the three and nine months ended October 31, 2012, respectively, with an average price of $21.98 and $21.79 per share, respectively. During the three and nine months ended October 31, 2011, Autodesk issued 1.0 million and 2.8 million shares, respectively, under the ESP Plan, at average prices of $23.52 and $18.26 per share, respectively. The weighted average grant date fair value of awards granted under the ESP Plan during the three and nine months ended October 31, 2012, calculated as of the award grant date using the Black-Scholes-Merton option pricing model, was $11.57 and $11.02 per share, respectively. The weighted average grant date fair value of awards granted under the ESP Plan during the three and nine months ended October 31, 2011, calculated as of the award grant date using the Black-Scholes-Merton option pricing model, was $8.32 and $9.95 per share, respectively.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the three and nine months ended October 31, 2012 and 2011, respectively, as follows:



	Three Months Ended October 31, 2012			Three Months Ended October 31, 2011
Cost of license and other revenue	$	1.3		$	0.9
Marketing and sales	16.7			11.7
Research and development	28.1			8.9
General and administrative	5.8			4.1
Stock-based compensation expense related to stock awards and ESP Plan purchases	51.9			25.6
Tax benefit	(10.7		)	(5.9		)
Stock-based compensation expense related to stock awards and ESP Plan purchases, net of tax	$	41.2		$	19.7
	Nine Months Ended October 31, 2012			Nine Months Ended October 31, 2011
Cost of license and other revenue	$	3.8		$	2.8
Marketing and sales	47.4			34.8
Research and development	49.6			27.6
General and administrative	18.0			13.6
Stock-based compensation expense related to stock awards and ESP Plan purchases	118.8			78.8
Tax benefit	(26.7		)	(19.3		)
Stock-based compensation expense related to stock awards and ESP Plan purchases, net of tax	$	92.1		$	59.5

Autodesk uses the Black-Scholes-Merton option-pricing model to estimate the fair value of stock-based awards based on the following assumptions:



	Three Months Ended October 31, 2012		Three Months Ended October 31, 2011
	Stock Option Plans	ESP Plan	Stock Option Plans	ESP Plan
Range of expected volatilities	42 - 45%	42 - 44%	43 - 45%	40 - 44%
Range of expected lives (in years)	3.6 - 4.2	0.5 - 2.0	3.6 - 4.8	0.5 - 2.0
Expected dividends	—%	—%	—%	—%
Range of risk-free interest rates	0.5%	0.1 - 0.3%	0.5 - 0.9%	0.1 - 0.3%
Expected forfeitures	7.7%	7.7%	7.8%	7.8%
	Nine Months Ended October 31, 2012		Nine Months Ended October 31, 2011
	Stock Option Plans	ESP Plan	Stock Option Plans	ESP Plan
Range of expected volatilities	41 - 45%	41 - 44%	40 - 45%	34 - 44%
Range of expected lives (in years)	3.6 - 4.6	0.5 - 2.0	2.6 - 4.8	0.5 - 2.0
Expected dividends	—%	—%	—%	—%
Range of risk-free interest rates	0.5 - 0.8%	0.1 - 0.3%	0.5 - 1.9%	0.1 - 0.8%
Expected forfeitures	7.7 - 7.8%	7.7 - 7.8%	7.8 - 10.5%	7.8 - 10.5%

Autodesk estimates expected volatility for stock-based awards based on the average of the following 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 stock-based awards using both exercise behavior and post-vesting termination behavior as well as consideration of outstanding options.

Autodesk does not currently pay, 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 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.