Adobe 2006 Annual Report Download - page 100

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The following table sets forth the pro forma amounts of net income and net income per share, for fiscal
2005 and 2004, that would have resulted if we had accounted for our employee stock plans under the fair
value recognition provisions of SFAS 123:
2005 2004
Net income:
As reported..................................................................$ 602,839 $ 450,398
Add: Stock-based compensation expense for
employees included in reported net income, net of
related tax effects ........................................................ 255 221
Less: Total stock-based compensation expense for
employees determined under the fair value based
method, net of related tax effects ................................ (88,603) (105,883)
Pro forma ....................................................................$ 514,491 $ 344,736
Basic net income per share:
As reported..................................................................$ 1.23 $ 0.94
Pro forma ....................................................................$ 1.05 $ 0.72
Diluted net income per share:
As reported..................................................................$ 1.19 $ 0.91
Pro forma ....................................................................$ 1.01 $ 0.70
Prior to the adoption of SFAS 123R, we presented all tax benefits for deductions resulting from the
exercise of stock options and disqualifying dispositions as operating cash flows on our consolidated
statement of cash flows. SFAS 123R requires the benefits of tax deductions in excess of recognized
compensation expense to be reported as a financing cash flow, rather than as an operating cash flow. This
requirement will reduce net operating cash flows and increase net financing cash flows in periods after
adoption. Total cash flow will remain unchanged from what would have been reported under prior
accounting rules.
Pursuant to the income tax provisions included in SFAS 123R, we have elected the “long method” of
computing our hypothetical APIC pool. As of December 1, 2006, there was $134.2 million of unrecognized
compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted
to Adobe employees. Total unrecognized compensation cost will be adjusted for future changes in
estimated forfeitures.
Note 12. Stockholders’ Equity
Stockholder Rights Plan
Our Stockholder Rights Plan is intended to protect stockholders from unfair or coercive takeover
practices. In accordance with this plan, the Board of Directors declared a dividend distribution of one
common stock purchase right on each outstanding share of our common stock held as of July 24, 1990 and
on each share of common stock issued by Adobe thereafter. In July 2000, the Stockholder Rights Plan was
amended to extend it for ten years so that each right entitles the holder to purchase one unit of Series A
Preferred Stock, which is equal to 1/1000 share of Series A Preferred Stock, par value $0.0001 per share, at
a price of $700 per unit. As adjusted for our 2000 and 2005 stock splits each in the form of a dividend, each
share of common stock now entitles the holder to one-quarter of such a purchase right. Each whole right
still entitles the registered holder to purchase from Adobe a unit of preferred stock at $700. The rights
become exercisable in certain circumstances, including upon an entity’s acquiring or announcing the
intention to acquire beneficial ownership of 15% or more of our common stock without the approval of the
Board of Directors or upon our being acquired by any person in a merger or business combination