Adobe 2000 Annual Report Download - page 69

Cash Incentive Awards We grant Cash Incentive Awards (“CIAs”), a form of phantom
stock, to designated key employees to reward them based on their contributions to a
project. The cash value of the CIA is structured to mirror our Restricted Stock Plan. We
grant CIAs to designated employees that generally vest annually over a three-year period.
Upon each vest date, the employee is paid the market value of the stock on the date of
vest multiplied by the number of vested shares. We charged approximately $12.8 million,
$7.9 million, and $2.3 million to expense for shares vested in fiscal 2000, 1999, and 1998.
We currently do not intend to grant cash incentive awards in the future.
Stock Appreciation Rights In fiscal 2000, 1999, and 1998, we granted Stock Appreciation
Rights (“SARs”), a form of phantom stock, to designated key employees based on their
performance. Additionally, we grant SARs to employees in certain countries outside of
the U.S. in lieu of stock options, generally with similar vesting schedules to our
option-vesting schedule; these SARs generally expire eight years after the grant date. The
performance-based SARs generally vest four years from the date of grant but contain an
acceleration feature that allows for a two-year vesting period based on Adobe achieving
predetermined performance goals. These performance-based SARs expire five years from
the date of grant. Under our SAR plan, designated employees are awarded rights that are
equal to one share of Adobe’s common stock for each right awarded with an exercise
price based on the fair market value on the grant date. When the award vests, employees
generally have the right to exercise the award and receive the then-current value in cash of
the appreciation from the exercise price of the exercised number of rights of our common
stock. We awarded 800 rights in fiscal 2000 with an exercise price of $50.19; 28,200 rights
in fiscal 1999 with an exercise price of $35.69; and 965,320 rights in fiscal 1998 with
exercise prices ranging from $8.46 to $8.75. We charged $23.2 million, $9.8 million, and
$0.3 million to expense in fiscal 2000, 1999, and 1998, respectively. We currently do not
intend to grant stock appreciation rights in the future, except to certain employees
outside of the U.S. in lieu of stock options.
Pro Forma Fair Value Disclosures We account for our 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
we accounted for our employee stock plans under the fair value recognition provisions of
SFAS 123, “Accounting for Stock-Based Compensation.”
DECEMBER 1 DECEMBER 3 NOVEMBER 27
YEARS ENDED 2000 1999 1998
Net income:
As reported $ 287,808 $ 237,751 $ 105,144
Pro forma $ 196,153 $ 198,787 $ 54,435
Net income per share:
As reported:
Basic $ 1.21 $ 0.98 $ 0.40
Diluted $ 1.13 $ 0.92 $ 0.39
Pro forma:
Basic $ 0.82 $ 0.82 $ 0.20
Diluted $ 0.77 $ 0.78 $ 0.20
For purposes of computing pro forma net income, we estimate the fair value of each
option grant, restricted stock grant, and Employee Stock Purchase Plan purchase right 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:
DECEMBER 1 DECEMBER 3 NOVEMBER 27
YEARS ENDED 2000 1999 1998
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 0.75 years 1.25 years
Volatility
68% 51% 53%
Risk-free interest rate 5.7–6.8% 4.5–5.9% 4.2–5.7%
Dividend yield 0.125% 0.125% 0.125%