6.	*Stock-based Compensation Expense*

Stock Plans

As of July 31, 2011, 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 2008 Employee Stock Plan, as amended and restated (“2008 Plan”), which is available only to employees, and the 2010 Outside Directors’ Option Plan, as amended (“2010 Plan”), which is available only to non-employee directors. 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. Additionally, there are seven expired or terminated plans with options outstanding.

The 2008 Plan was approved by Autodesk’s stockholders in November 2007 and was amended in June 2010. As amended, the 2008 Plan reserves 16.0 million shares of Autodesk common stock for issuance and will expire in June 2013. The 2008 Plan permits the grant of stock options, restricted stock units and restricted stock awards; however, no more than 2.5 million of the shares reserved for issuance under the 2008 Plan may be issued pursuant to awards of restricted stock and restricted stock units. Options and restricted stock units granted under the 2008 Plan vest over periods ranging from immediately upon grant to over a four year period and options expire within seven to ten years from the date of grant. At July 31, 2011, 9.8 million shares were available for future issuance under the 2008 Plan of which 1.3 million shares were available for future grants of restricted stock.

The 2010 Plan which was approved by the stockholders in June 2009, became effective March 2010 and will expire in March 2020. The 2010 Plan permits the grant of stock options and restricted stock awards to non-employee members of Autodesk’s Board of Directors. Options and awards granted under the 2010 Plan vest over periods ranging from one year to four years, and options expire within seven years from the date of grant. The 2010 Plan reserves 3.0 million shares of Autodesk common stock. At July 31, 2011, 2.6 million shares were available for future issuance.

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

Stock Options:

A summary of stock option activity for the six months ended July 31, 2011 is as follows:


	Number of Shares			Weighted average exercise price per share
	(in millions)
Options outstanding at January 31, 2011		30.4		$	28.93
Granted		4.9			41.63
Exercised		(4.1	)		25.43
Cancelled		(0.5	)		32.36

Options outstanding at July 31, 2011		30.7		$	31.36

Options exercisable at July 31, 2011		18.6		$	31.02

Options available for grant at July 31, 2011		12.4

As of July 31, 2011, total compensation cost of $96.4 million related to non-vested options is expected to be recognized over a weighted average period of 2.1 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 six months ended July 31, 2011, and 2010.


	Three Months Ended				Six Months Ended
	July 31, 2011		July 31, 2010		July 31, 2011		July 31, 2010
Pre-tax intrinsic value of options exercised⁽¹⁾	$	13.0	$	4.5	$	72.5	$	16.5
Weighted average grant date fair value per share of stock options granted⁽²⁾	$	11.95	$	8.51	$	14.26	$	9.15

⁽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 July 31, 2011:


	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:
$0.61 — $17.37		4.2			$	12.80				6.3			$	13.51
$17.39 — $29.49		3.2				26.53				6.7				27.67
$29.50 — $37.16		4.6				32.95				6.2				32.65
$37.26 — $41.62		2.2				38.65				6.3				40.49
$41.70 — $49.80		4.4				45.67				5.2				45.43

		18.6		2.5	$	31.02	$	125.0		30.7		4.2	$	31.36	$	191.1

⁽¹⁾	Represents the total pre-tax intrinsic value, based on Autodesk’s closing stock price of $34.40 per share as of July 31, 2011, 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 June 2021.

Restricted Stock:

A summary of restricted stock award and restricted stock unit activity for the six months ended July 31, 2011 is as follows:


	Unreleased Restricted Stock			Weighted average grant date fair value per share
	(in thousands)
Unreleased restricted stock at January 31, 2011		1,426.7		$	30.43
Awarded		716.1			42.77
Released		(139.7	)		35.12
Forfeited		(46.6	)		30.84

Unreleased restricted stock at July 31, 2011		1,956.5		$	34.60

During the six months ended July 31, 2011, Autodesk granted approximately 700,100 restricted stock units under the 2008 Plan. 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 $8.3 million and $13.6 million during three and six months ended July 31, 2011, respectively. Autodesk recorded stock-based compensation related to restricted stock units of $2.2 million and $3.9 million, during the three and six months ended July 31, 2010, respectively. As of July 31, 2011, total compensation cost not yet recognized of $37.5 million related to non-vested restricted stock units, is expected to be recognized over a weighted average period of 1.4 years. At July 31, 2011, the number of restricted stock units granted but unreleased was 1.9 million.

During the six months ended July 31, 2011, Autodesk granted 16,000 restricted stock awards under the 2010 Plan. Restricted stock awards granted under the 2010 Plan vest on the date of the next annual meeting. Restricted stock awards are considered outstanding at the time of grant, as the stock award holders are entitled to many of the rights of a stockholder, including voting rights. The fair value of the restricted stock awards is expensed ratably over the vesting period. Autodesk recorded stock-based compensation expense related to restricted stock awards of $0.2 million and $0.3 million during the three and six months ended July 31, 2011, respectively. Autodesk recorded stock-based compensation expense related to restricted stock awards of $0.3 million and $0.4 million during the three and six months ended July 31, 2010, respectively. As of July 31, 2011, total compensation cost not yet recognized of $0.5 million related to non-vested restricted stock awards, is expected to be recognized over a weighted average period of 0.9 years. At July 31, 2011, the number of restricted stock awards granted but unreleased was 16,000.

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 July 31, 2011, a total of 30.7 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 2.0% 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 1.8 million shares and 1.7 million shares under the ESP Plan during the six months ended July 31, 2011 and 2010, respectively, at average prices of $15.28 and $14.65 per share, respectively. The weighted average grant date fair value of awards granted under the ESP Plan during the six months ended July 31, 2011, and 2010, calculated as of the award grant date using the Black-Scholes-Merton option pricing model, was $8.12 and $6.90 per share, respectively.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the three and six months ended July 31, 2011 and 2010, respectively, as follows:


	Three Months Ended July 31, 2011			Three Months Ended July 31, 2010
Cost of license and other revenue	$	1.0		$	0.7
Marketing and sales		11.3			9.2
Research and development		9.8			7.2
General and administrative		5.2			3.9

Stock-based compensation expense related to stock awards and ESP Plan purchases		27.3			21.0
Tax benefit		(5.8	)		(5.3	)

Stock-based compensation expense related to stock awards and ESP Plan purchases, net of tax	$	21.5		$	15.7


	Six Months Ended July 31, 2011			Six Months Ended July 31, 2010
Cost of license and other revenue	$	1.9		$	1.5
Marketing and sales		23.1			19.8
Research and development		18.7			15.5
General and administrative		9.5			8.5

Stock-based compensation expense related to stock awards and ESP Plan purchases		53.2			45.3
Tax benefit		(13.4	)		(12.1	)

Stock-based compensation expense related to stock awards and ESP Plan purchases, net of tax	$	39.8		$	33.2

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 July 31, 2011		Three Months Ended July 31, 2010
	Stock Option Plans	ESP Plan	Stock Option Plans	ESP Plan
Range of expected volatilities	40 - 42%	34 - 37%	41 - 44%	33 - 45%
Range of expected lives (in years)	3.6 - 4.6	0.5 - 2.0	2.7 - 3.8	0.5 - 2.0
Expected dividends	0%	0%	0%	0%
Range of risk-free interest rates	0.9 - 1.4%	0.2 - 0.8%	1.0 - 1.6%	0.2 - 1.1%
Expected forfeitures	7.8%	7.8%	10.5%	10.5%

	Six Months Ended July 31, 2011		Six Months Ended July 31, 2010
	Stock Option Plans	ESP Plan	Stock Option Plans	ESP Plan
Range of expected volatilities	40 - 43%	34 - 37%	40 - 44%	33 - 45%
Range of expected lives (in years)	2.6 - 4.6	0.5 - 2.0	2.7 - 3.8	0.5 - 2.0
Expected dividends	0%	0%	0%	0%
Range of risk-free interest rates	0.9 - 1.9%	0.2 - 0.8%	1.0 - 1.9%	0.2 - 1.1%
Expected forfeitures	7.8 - 10.5%	7.8 - 10.5%	10.5 - 13.5%	10.5 - 13.5%

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.