Adobe 2009 Annual Report Download - page 86

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
86
NOTE 2. ACQUISITIONS
Fiscal 2009 Acquisitions
On October 23, 2009, we completed the acquisition of Omniture, Inc. (“Omniture”), an industry leader in Web analytics
and online business optimization based in Orem, Utah, for approximately $1.8 billion. Under the terms of the agreement, we
completed our tender offer to acquire all of the outstanding shares of Omniture common stock at a price of $21.50 per share,
net to the seller in cash, without interest. Acquiring Omniture accelerates our strategy of delivering more effective solutions
for assembling, delivering, targeting and optimizing Web content and applications. The transaction was accounted for using
the purchase method of accounting. We have included the financial results of Omniture in our Consolidated Financial
Statements beginning on the acquisition date. Following the closing, we integrated Omniture as a new reportable segment for
financial reporting purposes.
Assets acquired and liabilities assumed were recorded at their fair values as of October 23, 2009. The total $1.8 billion
purchase price was comprised of the following (in thousands):
Acquisition of approximately 79 million shares of outstanding common stock of Omniture at $21.50
per share in cash ....................................................................
$
1,698,926
Estimated fair value of earned stock options and restricted stock units assumed and converted ......
84,968
Estimated direct transaction costs ........................................................
13,964
Total purchase price .................................................................
$
1,797,858
In connection with the acquisition, each Omniture stock option that was outstanding and unexercised was assumed and
converted into an option to purchase Adobe common stock based on one of two conversion ratios, dependent on which plan
the award was granted under. The conversion ratio was either 0.6182, which was calculated as the consideration price of
$21.50 divided by the closing price on the date of acquisition, or 0.6083 calculated as the consideration price of $21.50
divided by the average closing price from October 16, 2009 to October 22, 2009. We assumed the stock options in
accordance with the terms of the applicable Omniture stock option plan and terms of the stock option agreement relating to
that Omniture stock option. Based on Omniture’s stock options outstanding at October 23, 2009, we converted options to
purchase approximately 8.9 million shares of Omniture common stock into options to purchase approximately 5.5 million
shares of Adobe common stock. We also assumed and converted approximately 2.5 million shares of outstanding Omniture
restricted stock units into approximately 1.6 million shares of Adobe restricted stock units, using the same conversion ratios
stated above. The estimated value of the stock options and restricted stock units assumed and converted that is included in the
preliminary purchase price equals the fair value of the options to purchase approximately 5.5 million of Adobe common
stock and the 1.6 million shares of Adobe restricted stock units, reduced by the portion of the respective values considered
unearned compensation.
The estimated fair value of the stock options assumed was determined to be approximately $97.1 million using a
Binomial option valuation model with the following assumptions: volatility of 33.6-35.4%; weighted average risk-free
interest rate of 0.20-3.64%; dividend yield of 0%; early exercise threshold of $14.20; and post vesting cancellation rate of
1.89%. The underlying stock price used in valuing the options was $34.33, which was the average of closing prices for a
range of trading days from September 11, 2009 through September 17, 2009, comprising two days before through two days
after the date the acquisition was announced. The value of stock options considered unearned compensation was determined
to be approximately $34.9 million, net of estimated forfeitures, also using a Binomial option valuation model with the
following assumptions: volatility of 36.5-37.0%; weighted average risk-free interest rate of 0.24%-3.25%; dividend yield of
0%; early exercise threshold of $14.20; and post vesting cancellation rate of 1.89%. The underlying stock price used in
valuing the options for which a portion was considered unearned compensation was $34.78, which was the closing price on
October 23, 2009. The fair value of the converted restricted stock units was determined to be approximately $55.6 million
based on Adobe’s average stock price of $34.33, as discussed above. This amount was reduced by the fair value of the
restricted stock units considered unearned compensation of approximately $32.8 million, net of estimated forfeitures, based
on the $34.78 stock price referred to above. $67.7 million in unearned compensation will be recorded as an expense on a
straight-line basis over the remaining service periods of the respective awards. The recognition of expense associated with the
portion of the assumed and converted stock options and restricted stock units that are subject to future service requirements,
which are not included in the purchase accounting, have not been included in the pro forma statements of income.