Stock-based Compensation Expense

Restricted Stock Units:

A summary of restricted stock activity for the six months ended July 31, 2017 is as follows:



	Unvested Restricted Stock Units		Weighted average grant date fair value per share
	(in thousands)
Unvested restricted stock units at January 31, 2017	7,622.4		$	60.13
Granted	815.8		93.97
Vested	(1,269.2	)	58.17
Canceled/Forfeited	(331.4	)	61.31
Performance Adjustment (1)	24.7		61.79
Unvested restricted stock units at July 31, 2017	6,862.3		$	65.30

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(1)	Based on Autodesk's financial results and relative total stockholder return for the fiscal 2017 performance period. The performance stock units were attained at rates ranging from 99.7% to 114.7% of the target award.

The fair value of the shares vested during the six months ended July 31, 2017 and 2016 was $116.9 million and $93.4 million, respectively.

During the six months ended July 31, 2017, Autodesk granted 0.5 million restricted stock units. Autodesk recorded stock-based compensation expense related to restricted stock units of $52.0 million and $41.5 million during the three months ended July 31, 2017 and 2016, respectively. Autodesk recorded stock-based compensation expense related to restricted stock units of $102.0 million and $80.3 million during the six months ended July 31, 2017 and 2016, respectively. The $52.0 million and $102.0 million of stock-based compensation expense for the three and six months ended July 31, 2017, respectively, includes $5.9 million and $9.1 million, respectively, related to the acceleration of eligible restricted stock awards in conjunction with the Company's CEO transition.

During the six months ended July 31, 2017, Autodesk granted 0.3 million performance stock units for which the ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated service and performance period. During the period, we granted two different types of performance stock units.

The performance criteria for the first performance stock units were based on a mix of net subscription additions, Annualized Recurring Revenue ("ARR"), non-GAAP total spend, and total subscription renewal rate goals adopted by the Compensation and Human Resource Committee, as well as total stockholder return compared against companies in the S&P Computer Software Select Index or the S&P North American Technology Software Index (“Relative TSR”). These performance stock units vest over a three-year period and have the following vesting schedule:


•	Up to one third of the performance stock units may vest following year one, depending upon the achievement of the performance criteria for fiscal 2018 as well as 1-year Relative TSR (covering year one).


•	Up to one third of the performance stock units may vest following year two, depending upon the achievement of the performance criteria for year two as well as 2-year Relative TSR (covering years one and two).


•	Up to one third of the performance stock units may vest following year three, depending upon the achievement of the performance criteria for year three as well as 3-year Relative TSR (covering years one, two and three).

The performance criteria for the second type of performance stock units granted to our Chief Executive Officer during the six months ended July 31, 2017 were based on fiscal 2020 free cash flow per share and ARR goals adopted by the Compensation and Human Resource Committee. These performance stock units vest in March 2020 based on the Company’s fiscal 2020 performance against the performance criteria.

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. Autodesk has determined the grant date fair value for these awards using stock price on the date of grant or if the awards are also subject to a market condition, a Monte Carlo simulation model. The fair value of the performance stock units is expensed using the accelerated attribution over the vesting period. Autodesk recorded stock-based compensation expense related to performance stock units of $9.7 million and $5.9 million for the three months ended July 31, 2017 and 2016, respectively. Autodesk recorded stock-based compensation expense related to performance stock units of $20.6 million and $12.2 million for the six months ended July 31, 2017 and 2016, respectively. The $9.7 million and $20.6 million of stock-based compensation expense for the three and six months ended July 31, 2017, respectively, includes $2.8 million and $7.5 million, respectively, related to the acceleration of eligible performance stock awards in conjunction with the Company's CEO transition.

1998 Employee Qualified Stock Purchase Plan (“ESPP”)

Under Autodesk’s ESPP, 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 85% of the lower of Autodesk's closing price (fair market value) on the offering date or the exercise date. The offering period for ESPP awards consists of four, six-month exercise periods within a 24-month offering period.

Autodesk issued 1.1 million and 1.2 million shares under the ESPP during the six months ended July 31, 2017 and 2016, respectively, with an average price of $38.34 and $36.67 per share. The weighted average grant date fair value of awards granted under the ESPP was $25.13 and $17.88 during the six months ended July 31, 2017 and 2016, respectively, calculated as of the award grant date using the Black-Scholes Merton (“BSM") option pricing model.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the six months ended July 31, 2017 and 2016, respectively, as follows:



	Three Months Ended July 31,					Six Months Ended July 31,
	2017			2016		2017			2016
Cost of maintenance and subscription revenue (1)	$	2.9		$	2.0	$	5.7		$	4.0
Cost of license and other revenue (1)	1.0			1.4		2.1			2.8
Marketing and sales	26.0			23.3		52.4			44.8
Research and development	20.4			20.2		41.6			39.1
General and administrative	17.3			7.4		32.6			15.2
Stock-based compensation expense related to stock awards and ESPP purchases	67.6			54.3		134.4			105.9
Tax benefit	(0.3		)	—		(0.3		)	—
Stock-based compensation expense related to stock awards and ESPP purchases, net of tax	$	67.3		$	54.3	$	134.1		$	105.9

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(1)	Prior periods have been adjusted to conform with the current period's presentation. See Note 1, "Basis of Presentation," for additional information.

Stock-based Compensation Expense Assumptions

Autodesk determines the grant date fair value of its share-based payment awards using a BSM option pricing model or the quoted stock price on the date of grant, unless the awards are subject to market conditions, in which case Autodesk uses a binomial-lattice model (e.g., Monte Carlo simulation model). The Monte Carlo simulation model uses multiple input variables to estimate the probability that market conditions will be achieved. Autodesk uses the following assumptions to estimate the fair value of stock-based awards:



	Three Months Ended July 31, 2017		Three Months Ended July 31, 2016
	Performance Stock Unit	ESPP (1)	Performance Stock Unit (2)	ESPP (1)
Range of expected volatilities	31.8%	N/A	N/A	N/A
Range of expected lives (in years)	N/A	N/A	N/A	N/A
Expected dividends	—%	N/A	N/A	N/A
Range of risk-free interest rates	1.2%	N/A	N/A	N/A
	Six Months Ended July 31, 2017		Six Months Ended July 31, 2016
	Performance Stock Unit	ESPP	Performance Stock Unit	ESPP
Range of expected volatilities	31.8%	31.4 - 33.7%	38.4 - 38.6%	35.0 - 40.2%
Range of expected lives (in years)	N/A	0.5 - 2.0	N/A	0.5 - 2.0
Expected dividends	—%	—%	—%	—%
Range of risk-free interest rates	1.0 - 1.2%	0.9 - 1.3%	0.6 - 0.7%	0.5 - 0.9%

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(1)	Autodesk does not issue any shares under its ESPP in the second or fourth quarter.


(2)	Autodesk did not grant PSUs in the three months ended July 31, 2016 that were subject to market conditions.

Autodesk estimates expected volatility for stock-based awards based on the average of the following two measures: (1) a measure of historical volatility in the trading market for the Company’s common stock, and (2) the implied volatility of traded forward call options to purchase shares of the Company’s common stock. The expected volatility for performance stock units subject to market conditions includes the expected volatility of Autodesk's peer companies within the S&P Computer Software Select Index or S&P North American Technology Software Index with a market capitalization over $2.00 billion, depending on the award type.

The range of expected lives of ESPP awards are based upon the four, six-month exercise periods within a 24-month offering period.

Autodesk does not currently pay, and does not anticipate paying in the foreseeable future, any cash dividends. Consequently, an expected dividend yield of zero is used in the BSM option pricing model and the Monte Carlo simulation model.

The risk-free interest rate used in the BSM option pricing model and the Monte Carlo simulation 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 ultimately vest. As permitted by ASU 2016-09, Autodesk accounts for forfeitures of our stock-based awards as those forfeitures occur.