Adobe 2006 Annual Report Download - page 81

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for a range of trading days (April 14, 2005 through April 20, 2005) around the announcement date (April
18, 2005) of the proposed transaction. The risk-free interest rate used in the valuation was the zero-coupon
yield implied from U.S. Treasury securities with equivalent remaining terms. We do not anticipate paying
any cash dividends in the foreseeable future and therefore an expected dividend yield of zero was used in
the valuation. For fully vested options, the expected term used was one year. We estimated the expected
term of unvested options by taking the average of the vesting term remaining and the contractual term of
the option, as illustrated in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107
(“SAB 107”). The implied volatility of Adobe traded stock options was used for volatility.
Direct transaction costs of $29.1 million include investment banking, legal and accounting fees, and
other external costs directly related to the acquisition. As of December 1, 2006, substantially all costs for
accounting, legal, and other professional services have been paid.
Restructuring costs of $72.7 million relate primarily to costs for severance, associated benefits,
outplacement services, and excess facilities. See Note 9 for further details of the amounts accrued and
payments made during 2006.
Purchase Price Allocation
In accordance with SFAS No. 141 the total preliminary purchase price was allocated to Macromedia’s
net tangible and intangible assets based upon their estimated fair values as of December 3, 2005. The
excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as
goodwill. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are
based on estimates and assumptions of management. During the fourth quarter of fiscal 2006, we revised
our estimate of certain costs associated with our acquisition of Macromedia, resulting in a decrease to
goodwill of approximately $0.2 million. The adjustment primarily reflected costs related to closing
redundant facilities.
The following represents the allocation of the purchase price to the acquired net assets of Macromedia
and the associated estimated useful lives:
Amount
Estimated
Useful Life
Net tangible assets................................................. $ 713,164 N/A
Identifiable intangible assets:
Acquired product rights ..................................... 365,500 4 years
Customer contracts and relationships ................ 183,800 6 years
Non-competition agreements............................. 500 2 years
Trademarks......................................................... 130,700 5 years
Goodwill................................................................ 2,022,715 N/A
Deferred stock-based compensation..................... 122,134 2.18 years†
Total preliminary estimated purchase price ......... $ 3,538,513
† Estimated weighted-average remaining vesting period.
Net tangible assets – Macromedia’s tangible assets and liabilities as of December 3, 2005 were
reviewed and adjusted to their fair value as necessary, including an increase to market value of
$18.4 million related to owned land and a building, $11.5 million related to an investment, and $21.5
million for receivables related to future payments from existing customers. We also assumed $488.4
million in cash and cash equivalents, $109.8 million in property, plant, and equipment, $103.2 million in
accrued expenses, and $186.9 million in deferred tax liabilities.
Deferred revenues – Macromedia’s deferred revenue was derived from licenses, maintenance and
support, hosting, and consulting contracts. We estimated our obligation related to the deferred revenue
using the cost build-up approach. The cost build-up approach determines fair value by estimating the costs