Adobe 2012 Annual Report Download - page 106

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106
that we use in the option valuation model on zero-coupon yields implied by U.S. Treasury issues with remaining terms similar to
the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an
expected dividend yield of zero in the option valuation model. We are required to estimate forfeitures at the time of grant and
revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate
pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
The assumptions used to value our option grants were as follows:
Fiscal Years
2012 2011 2010
Expected life (in years) ................................................................. 3.9 - 4.2 3.8 - 4.2 3.8 - 5.1
Volatility........................................................................................ 31 - 34% 30 - 41% 29 - 36%
Risk free interest rate .................................................................... 0.54 - .71% 0.64 - 1.92% 1.04 - 2.66%
The expected term of ESPP shares is the average of the remaining purchase periods under each offering period. The
assumptions used to value employee stock purchase rights were as follows:
Fiscal Years
2012 2011 2010
Expected life (in years) ................................................................. 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0
Volatility........................................................................................ 30 - 36% 30 - 34% 32 - 40%
Risk free interest rate .................................................................... 0.06 - 0.30% 0.10 - 0.61% 0.18 - 1.09%
We recognize the estimated compensation cost of restricted stock awards and restricted stock units, net of estimated
forfeitures, over the vesting term. The estimated compensation cost is based on the fair value of our common stock on the date of
grant.
We recognize the estimated compensation cost of performance shares, net of estimated forfeitures. The awards are earned
upon attainment of identified performance goals, some of which contain discretionary metrics. As such, these awards are re-
measured based on our traded stock price at the end of each reporting period. If the discretion is removed, the award will be
classified as a fixed equity award. The fair value of the awards will be based on the measurement date, which is the date the award
becomes fixed. The awards will be subsequently amortized over the longer of the remaining performance or service period.
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)