Adobe 2007 Annual Report Download - page 61

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Our principal commitments as of November 30, 2007, consist of obligations under operating leases, royalty agreements
and various service agreements. See Note 15 of our Notes to Consolidated Financial Statements for additional information
regarding our commitments.
Lease Commitments
Two of our lease agreements are subject to standard financial covenants. As of November 30, 2007, we were in
compliance with all of our financial covenants and we expect to remain in compliance during the next 12 months. We believe
these limitations will not impact our credit or cash in the coming fiscal year or restrict our ability to execute our business
plan.
The following table summarizes our contractual commitments as of November 30, 2007:
Total
Less than
1 year 1-3 years 3-5 years
Over
5 years
Total non-cancellable operating leases . . $ 291.1 $ 55.3 $78.5 $46.1 $ 111.2
Total purchase commitments.......... 140.0 133.2 6.8 — —
Total........................... $431.1 $ 188.5 $85.3 $46.1 $ 111.2
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 revenue.
Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees. Under Financial Accounting
Standards Board (“FASB”) Interpretation No. 45 (“FIN 45”), “Guarantor’ s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others”, the fair value of a residual value guarantee in lease
agreements entered into after December 31, 2002, must be recognized as a liability on our consolidated balance sheet. As
such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East and West Towers and Almaden
Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as
prepaid rent in other assets. The balance will be amortized to the income statement over the life of the leases. As of
November 30, 2007, the unamortized portion of the fair value of the residual value guarantees remaining in other long-term
liabilities and prepaid rent was $4.2 million.
Indemnifications
In the normal course of business, we provide indemnifications of varying scope to customers against claims of
intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to
these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of
these indemnification provisions on our future results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for
certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The
indemnification period covers all pertinent events and occurrences during the officer’ s or director’ s lifetime. The maximum
potential amount of future payments we could be required to make under these indemnification agreements is unlimited;
however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of
any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable
insurance coverage is minimal.
As part of our limited partnership interests in Adobe Ventures, we have provided a general indemnification to Granite
Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences
while Granite Ventures is, or was serving, at our request in such capacity provided that Granite Ventures acts in good faith on