Adobe 2001 Annual Report Download - page 91

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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
Note 13. Commitments and Contingencies (Continued)
the lessor. The agreement and lease are subject to standard covenants including liquidity, leverage and
profitability ratios that are reported to the lessor quarterly. As of November 30, 2001, we were in
compliance with all covenants. In case of a default, the lessor may terminate all remaining commitments,
demand payment equal to the lessor’s investment, or require that we purchase, facilitate the sale of the
building to a third party, or surrender the building. The agreement qualifies for operating lease accounting
treatment under SFAS 13, ‘‘Accounting for Leases,’’ and, as such, the building and the related obligation
are not included on our balance sheet, but the future minimum lease payments are reflected in the
schedule of future minimum lease payments. At the end of the lease term, we can either purchase the
building for an amount equal to the lessor’s investment, which will be approximately $117.0 million,
request to extend the maturity date of the lease or remarket the building. If we elect to remarket the
building, we are obligated to arrange the sale of the building to an unrelated party and will be required to
pay the lessor any shortfall between the net remarketing proceeds and the lessor’s investment, up to a
maximum recourse amount as set forth in the lease. The lessor is a multi-asset leasing company with a
substantive net worth, not a special purpose entity.
In August 1999, Adobe entered into a five-year lease agreement for our corporate headquarters office
buildings in San Jose, California. Under the agreement, we have an option to purchase the buildings at any
time during the lease term for $142.5 million, which is the total investment of the lessor. The lease is
subject to standard covenants including liquidity, leverage and profitability ratios that are reported to the
lessor quarterly. As of November 30, 2001, we were in compliance with all covenants. In case of a default,
the lessor may demand payment equal to the lessor’s investment or require that we surrender the
buildings. The agreement qualifies for operating lease accounting treatment under SFAS 13 and, as such,
the buildings and the related obligation is not included on our balance sheet, but the future minimum lease
payments are reflected in the schedule of future minimum lease payments. At the end of the lease term, we
can either purchase the buildings for an amount equal to the lessor’s investment, which is approximately
$142.5 million, or terminate the lease. If we elect to terminate, we are obligated to use our best efforts to
arrange the sale of the buildings to an unrelated party and will be required to pay the lessor any shortfall
between the net remarketing proceeds and the lessor’s investment, up to a maximum guaranteed residual
amount as set forth in the lease. The lessor is a multi-asset leasing company with a substantive net worth,
not a special purpose entity.
Line of Credit
In August 1999, we entered into two unsecured revolving credit facilities, of $100.0 million each, with
a group of banks, for general corporate purposes, subject to certain financial covenants. One of the
facilities expired in August 2001 and was not renewed, and the other $100.0 million facility expires in
August 2002. Outstanding balances accrue interest at London Interbank Offered Rate (‘‘LIBOR’’) plus a
margin that is based on our financial ratios. There were no outstanding balances on the credit facility as of
November 30, 2001. In addition, as of November 30, 2001, we were in compliance with all financial
covenants.
Royalties
We have 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
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