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Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
88
On January 24, 2014, our Executive Compensation Committee approved the 2014 Performance Share Program, including
the award calculation methodology, under the terms of our 2003 Equity Incentive Plan. Under our 2014 Performance Share Program
(“2014 Program”), shares may be earned based on the achievement of an objective relative total stockholder return measured over
a three-year performance period. The purpose of the 2014 Program is to help focus key employees on building stockholder value,
provide significant award potential for achieving outstanding company performance and enhance the ability of Adobe to attract
and retain highly talented and competent individuals. Performance share awards will be awarded and fully vest at the later of the
three-year anniversary of the grant date on January 24, 2017 or the Executive Compensation Committee’s certification of the level
of achievement. Participants in the 2014 Program generally have the ability to receive up to 200% of the target number of shares
originally granted.
Effective January 24, 2013, our Executive Compensation Committee modified our Performance Share Program by
eliminating the use of qualitative performance objectives, with 100% of shares to be earned based on the achievement of an
objective relative total stockholder return measured over a three-year performance period. Performance awards were granted under
the 2013 Performance Share Program (“2013 Program”) pursuant to the terms of our 2003 Equity Incentive Plan. The purpose of
the 2013 Program is to align key management and senior leadership with stockholders’ interests over the long term and to retain
key employees. Performance share awards will be awarded and fully vest at the later of the three-year anniversary of the grant
date on January 24, 2016 or the Executive Compensation Committee's certification of the level of achievement. Participants in
the 2013 Program generally have the ability to receive up to 200% of the target number of shares originally granted.
Issuance of Shares
Upon exercise of stock options, vesting of restricted stock and performance shares, and purchases of shares under the ESPP,
we will issue treasury stock. If treasury stock is not available, common stock will be issued. In order to minimize the impact of
on-going dilution from exercises of stock options and vesting of restricted stock and performance shares, we instituted a stock
repurchase program. See Note 13 for information regarding our stock repurchase programs.
Valuation of Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award. We are required to estimate
forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.
We use historical data to estimate forfeitures and record stock-based compensation expense only for those awards that are expected
to vest.
We use the Black-Scholes option pricing model to determine the fair value of ESPP shares and stock options. The
determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by
our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our
expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors,
a risk-free interest rate and any expected dividends.
We estimate the expected term of options granted by calculating the average term from our historical stock option exercise
experience. We estimate the volatility of our common stock by using implied volatility in market traded options. Our decision to
use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that
implied volatility is more representative of future stock price trends than historical volatility. We base the risk-free interest rate
that we use in the option valuation model on zero-coupon yields implied by U.S. Treasury issues with remaining terms similar to
the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an
expected dividend yield of zero in the option valuation model.
We eliminated the use of stock option grants for all employees effective fiscal 2012, and for all of the non-employee directors
effective fiscal 2014.