Adobe 1999 Annual Report Download - page 72

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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
71
NOTE 10. EMPLOYEE STOCK PLANS (Continued)
Pro forma fair value disclosures
The Company accounts for its employee stock plans, consisting of fixed stock option plans, an
employee stock purchase plan, and a performance and restricted stock plan, using the intrinsic value
method. The following table sets forth the pro forma amounts of net income and net income per share that
would have resulted if the Company accounted for its employee stock plans under the fair value
recognition provisions of SFAS 123, ‘‘Accounting for Stock-Based Compensation’’.
Years Ended
December 3 November 27 November 28
1999 1998 1997
Net income:
As reported ........................ $237,751 $105,144 $186,837
Pro forma ......................... $198,787 $ 54,435 $161,790
Net income per share:
As reported:
Basic ........................... $ 1.97 $ 0.79 $ 1.30
Diluted .......................... $ 1.84 $ 0.77 $ 1.26
Pro forma:
Basic ........................... $ 1.64 $ 0.41 $ 1.12
Diluted .......................... $ 1.56 $ 0.41 $ 1.10
For purposes of computing pro forma net income, the fair value of each option grant, restricted stock
grant, and Employee Stock Purchase Plan purchase right is estimated on the date of grant using the Black-
Scholes option pricing model. The assumptions used to value the option grants and purchase rights are
stated as follows:
Years Ended
December 3 November 27 November 28
1999 1998 1997
Expected life of options ................. 3 years 3 years 3 years
Expected life of restricted stock ........... 3 years 3 years 3 years
Expected life of purchase rights ........... 0.75 years 1.25 years 1.25 years
Volatility ............................ 51% 53% 50%
Risk-free interest rate .................. 4.5-5.9% 4.2-5.7% 5.0-6.6%
Dividend yield ....................... 0.25% 0.5% 0.5%
Options and restricted stock grants vest over several years, and new option and restricted stock grants
are generally made each year. Because of this, the pro forma amounts shown above may not be
representative of the pro forma effect on reported net income in future years.