Adobe 2006 Annual Report Download - page 101

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transaction. The rights are redeemable by Adobe prior to exercise at $0.01 per right and expire on July 23,
2010.
Stock Repurchase Program – On-going Dilution Coverage
To facilitate our stock repurchase program, designed to return value to our stockholders and minimize
dilution from stock issuances, we repurchase shares in the open market and from time to time enter into
structured repurchase agreements with third parties.
Authorization to repurchase shares to cover on-going dilution is not subject to expiration. However,
this repurchase program is limited to covering net dilution from stock issuances and is subject to business
conditions and cash flow requirements as determined by our Board of Directors from time to time.
As part of this program, on April 17, 2005, the Board of Directors approved the use of an additional
$1.0 billion for stock repurchase commencing upon the close of the Macromedia acquisition. This
additional $1.0 billion in stock repurchases was completed by the third quarter of fiscal 2006.
During fiscal 2006 and 2005, we entered into several structured repurchase agreements with large
financial institutions, whereupon we provided the financial institutions with prepayments of $1.3 billion
and $600 million, respectively. We entered into these agreements in order to take advantage of
repurchasing shares at a guaranteed discount to the Volume Weighted Average Price (“VWAP”) of our
stock. We only enter into such transactions when the discount that we receive is higher than the foregone
return on our cash prepayments to the financial institutions. There were no explicit commissions or fees on
these structured repurchases. Under the terms of the agreements, there is no requirement for the financial
institutions to return any portion of the prepayment to us.
The financial institutions agree to deliver shares to us at monthly intervals during the contract term.
The parameters used to calculate the number of shares deliverable are: the total notional amount of the
contract, the number of trading days in the contract, the number of trading days in the interval, and the
average VWAP of our stock during the interval less the agreed upon discount. During the fiscal 2006, we
repurchased 1.7 million shares at an average price of $36.04 through open market repurchases and 36.8
million shares at an average price of $34.00 through structured repurchase agreements which included
prepayments from fiscal 2005. During fiscal 2005, we repurchased 18.7 million shares at an average price
of $30.61 through structured repurchase agreements which included prepayments remaining from fiscal
2004.
For fiscal 2006, the $1.3 billion in prepayments was classified as treasury stock on our balance sheet at
the payment date, though only shares physically delivered to us by December 1, 2006 are excluded from
the denominator in the computation of earnings per share. All outstanding structured repurchase
agreements as of December 1, 2006 will expire on or before July 19, 2007. As of December 1, 2006 and
December 2, 2005, approximately $204.0 million and $154.9 million respectively, of up-front payments
remained under the agreements.
Note 13. Comprehensive Income
Statement of Financial Accounting Standards No. 130 (“SFAS 130”), “Reporting Comprehensive
Income,” establishes standards for the reporting and display of comprehensive income and its components
in the financial statements. Items of comprehensive income that we currently report are unrealized gains
and losses on marketable securities categorized as available-for-sale and foreign currency translation
adjustments. We also report unrealized gains and losses on derivative instruments qualifying as cash flow
hedges.