Adobe 1998 Annual Report Download - page 65

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
NOTE 13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$4.0 million; 2000—$2.1 million; 2001—$2.2 million; 2002—$2.3 million; 2003—$2.3 million and $7.3 mil-
lion thereafter. These amounts, net of anticipated sublease income, are included in accrued restructuring
costs at November 27, 1998.
Real estate development agreement
During 1994, the Company entered into a real estate development agreement and an operating lease
agreement in connection with the construction of a headquarters office facility. In August 1996, the
construction was completed, and the operating lease commenced. The Company will have the option to
purchase the facility at the end of the lease term in October 2001. In the event the Company chooses not to
exercise this option, the Company is obligated to arrange for the sale of the facility to an unrelated party
and is required to pay the lessor any difference between the net sales proceeds and the lessor’s net
investment in the facility, in an amount not to exceed that which would preclude classification of the lease
as an operating lease, approximately $57.3 million. Pursuant to the agreement, the Company was required
to pledge certain interest-bearing instruments to the lessor as collateral to secure the performance of its
obligations under the lease. As of November 27, 1998, the Company’s collateral under this agreement
totaled $66.0 million in money market mutual funds. These funds are included in ‘‘Other assets’’ on the
Consolidated Balance Sheet.
In 1996, the Company exercised its option under the development agreement to begin a second phase
of development for an additional office facility. In August 1996, the Company entered into a construction
agreement and an operating lease agreement for this facility. The construction was completed and the
operating lease commenced in August 1998. The Company will have the option to purchase the facility at
the end of the lease term in August 2003. In the event the Company chooses not to exercise this option, the
Company is obligated to arrange for the sale of the facility to an unrelated party and is required to pay the
lessor any difference between the net sales proceeds and the lessor’s net investment in the facility, in an
amount not to exceed that which would preclude classification of the lease as an operating lease,
approximately $64.3 million. The Company was required to deposit funds with the lessor as an interest-
bearing security deposit pursuant to its obligations under the lease. As of November 27, 1998, the
Company’s deposits under this agreement totaled approximately $64.3 million. These deposits are included
in ‘‘Other assets’’ on the Consolidated Balance Sheet.
During 1998, the Company entered into a real estate development agreement for the construction of
an office building in Edinburgh, Scotland. As of November 27, 1998, the Company has paid $11.5 million
for land, fees, and construction costs. The expected completion date of the building is August 1999.
Royalties
The Company has certain royalty commitments associated with the shipment and licensing of certain
products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the
underlying revenue. Royalty expense was approximately $25.3 million, $25.0 million, and $19.8 million in
fiscal 1998, 1997, and 1996, respectively.
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