Adobe 2006 Annual Report Download - page 99

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99
at each reporting date. As such, these awards are re-valued based on Adobe’s traded stock price at the end
of each reporting period. If the discretion is removed, then the treatment stops and 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 remaining
performance period.
In addition to estimating expense for grants to Adobe employees, we also estimated deferred stock-
based compensation related to unvested options assumed in the acquisition of Macromedia (see Note 2 for
further information). In accordance with SFAS 123R, deferred compensation expense is classified by
functional area on our consolidated statement of income.
The assumptions used to value the option grants are as follows:
Fiscal Years
2006 2005 2004
Expected life (in years) .........................
.
3.7 3.0 – 3.9 2.5
Volatility ...............................................
.
30.29 – 36.95% 30 – 37% 34 – 40%
Risk free interest rate ............................
.
4.30 – 5.15% 3.38 – 4.49% 2.18 – 3.11%
Dividend yield.......................................
.
— — 0.093 – 0.125%
The assumptions used to value employee stock purchase rights are as follows:
Fiscal Years
2006 2005 2004
Expected life (in years) .........................
.
1.25 1.25 1.25
Volatility ...............................................
.
30.30 – 35.02% 32 – 37% 34 – 40%
Risk free interest rate ............................
.
4.32 – 5.26% 3.03 – 3.58% 1.24 – 1.76%
Dividend yield.......................................
.
— — 0.093 – 0.125%
See Note 2 for the assumptions used to value Macromedia deferred compensation. As of December 1,
2006, there was $57.4 million of unamortized deferred compensation, related to the acquisition of
Macromedia, which will be recognized over a weighted average period of 1.22 years.
Total stock-based compensation recognized on our consolidated statement of income for fiscal 2006 is
as follows:
Income Statement Classifications
Option Grants
and Stock
Purchase Rights
Restricted
Stock and
Performance
Shares
Macromedia
Deferred
Stock-Based
Compensation
Cost of revenue – services and support..... $ 2,499 $ — $ 5,681
Research and development ....................... 45,635 1,678 18,315
Sales and marketing.................................. 34,309 1,500 32,483
General and administrative....................... 19,913 1,313 7,208
Total ......................................................... $ 102,356 $ 4,491 $ 63,687