Adobe 2008 Annual Report Download - page 103

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103
The following table sets forth the computation of basic and diluted net income per share for fiscal 2008, 2007 and 2006:
2008
2007
2006
Net income ...........................................
$
871,814
$
723,807
$
505,809
Shares used to compute basic net income per share ...........
539,373
584,203
593,750
Dilutive potential common shares:
Unvested restricted stock ..............................
1,107
13
85
Stock options .......................................
8,073
14,559
18,387
Shares used to compute diluted net income per share .........
548,553
598,775
612,222
Basic net income per share ..............................
$
1.62
$
1.24
$
0.85
Diluted net income per share .............................
$
1.59
$
1.21
$
0.83
For fiscal 2008, 2007 and 2006, options to purchase approximately 16.5 million, 10.4 million and 17.7 million shares,
respectively, of common stock with exercise prices greater than the annual average fair market value of our stock of $37.07,
$41.77 and $35.32, respectively, were not included in the calculation because the effect would have been anti-dilutive.
Note 15. Commitments and Contingencies
Lease Commitments
We lease certain of our facilities and some of our equipment under non-cancellable operating lease arrangements that
expire at various dates through 2028. We also have one land lease that expires in 2091. Rent expense includes base
contractual rent and variable costs such as building expenses, utilities, taxes, insurance and equipment rental. Rent expense
and sublease income for these leases for fiscal 2006 through fiscal 2008 were as follows:
2008
2007
2006
Rent expense ...................................
$
101,202
$
90,553
$
74,629
Less: sublease income ...........................
11,421
9,406
3,556
Net rent expense ................................
$
89,781
$
81,147
$
71,073
We occupy three office buildings in San Jose, California where our corporate headquarters are located. We reference
these office buildings as the Almaden Tower and the East and West Towers.
In August 2004, we extended the lease agreement for our East and West Towers for an additional five years with an
option to extend for an additional five years solely at our election. In March 2007, the Almaden Tower lease was extended for
five years, with a renewal option for an additional five years solely at our election. As part of the lease extensions, we
purchased the lease receivable from the lessor of the East and West Towers for $126.8 million and a portion of the lease
receivable from the lessor of the Almaden Tower for $80.4 million, both of which are recorded as investments in lease
receivables on our consolidated balance sheet. This purchase may be credited against the residual value guarantee if we
purchase the properties or will be repaid from the sale proceeds if the properties are sold to third parties. Under the agreement
for the East and West Towers and the agreement for the Almaden Tower, we have the option to purchase the buildings at
anytime during the lease term for approximately $143.2 million and $103.6 million, respectively. The residual value
guarantees under the East and West Towers and the Almaden Tower obligations are $126.8 million and $89.4 million,
respectively.
These two leases are both subject to standard covenants including certain financial ratios that are reported to the lessors
quarterly. As of November 28, 2008, we were in compliance with all covenants. In the case of a default, the lessor may
demand we purchase the buildings for an amount equal to the lease balance, or require that we remarket or relinquish the
buildings. Both leases qualify for operating lease accounting treatment under SFAS No. 13, “Accounting for Leases” and, as
such, the buildings and the related obligations are not included on our consolidated balance sheet. We utilized this type of
financing in order to access bank-provided funding at the most favorable rates and to provide the lowest total cost of
occupancy for the headquarter buildings. At the end of the lease term, we can extend the lease for an additional five year
term, purchase the buildings for the lease balance, remarket or relinquish the buildings. If we choose to remarket or are
required to do so upon relinquishing the buildings, we are bound to arrange the sale of the buildings to an unrelated party and