Adobe 2002 Annual Report Download - page 127

96
Stock Appreciation Rights
In fiscal 2000 and 1999, 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 1999 Plan also provides for the granting
of stock appreciation rights to employees, although no awards of this type have been made under the 1999 Plan
to 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 did not award any SARs in fiscal 2002 and 2001. We awarded
800 rights in fiscal 2000 with an exercise price of $50.19. We charged approximately $0.009 million, $(0.5) million,
and $23.2 million to expense in fiscal 2002, 2001 and 2000, respectively. We currently do not intend to grant SARs
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 fixed stock option plans and our employee stock purchase 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 Statement
of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”
Years Ended
November 29,
2002
November 30,
2001
December 1,
2000
Net income:
As reported............................................................................... $ 191,399 $ 205,64
4
$287,808
Pro forma.................................................................................. $ 6,646 $ 30,225 $ 196,153
Net income per share:
As reported:
Basic ..................................................................................... $ 0.81 $ 0.8
6
$1.21
Diluted .................................................................................. $ 0.79 $ 0.83 $ 1.13
Pro forma:
Basic ..................................................................................... $ 0.03 $ 0.13 $ 0.8
2
Diluted .................................................................................. $ 0.03 $ 0.1
2
$0.7
7
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:
Years Ended
November 29,
2002
November 30,
2001
December 1,
2000
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 ...................................................... 1.24 years 1.23 years 0.75 years
Volatility.......................................................................................... 69% 80% 68%
Risk-free interest rate....................................................................... 2.1—4.1% 2.9—5.3% 5.7—6.8%
Dividend yield ................................................................................. 0.125% 0.125% 0.125%
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.