Adobe 1999 Annual Report Download - page 76

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
75
NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)
and the third quarter of fiscal 1998: 2000—$2.8 million; 2001—$2.6 million; 2002—$2.6 million; 2003—
$2.5 million; 2004—$3.9 million; and $2.4 million thereafter.
In fiscal 1994 and fiscal 1996, the Company entered into real estate development agreements and
operating lease agreements in connection with the construction of two corporate headquarters office
facilities in San Jose, California. The operating lease agreement for the first office building commenced in
1996, and the operating lease agreement for the second facility commenced in 1998. In August 1999, the
Company restructured these two current lease agreements for its corporate headquarters. The amended
and restated agreement replaces the two prior lease agreements commencing in 1996 and 1998, respec-
tively. The lease is for a period of five years and is subject to standard covenants, including financial ratios.
The Company has an option to purchase the buildings at any time during the term for an amount equal to
the total investment of the lessor. At the end of the lease term, the Company may exercise the purchase
option or, with the mutual agreement of the lessor, renew the term of the lease. In addition to these
possibilities, at the end of the term, the Company may elect to have the buildings sold to an unrelated third
party. In such case, the Company is obligated to use its best efforts to arrange for such a sale and is
obligated to pay the lessor the difference between the total investment in the buildings and the net sales
proceeds provided, however, that in no event would the Company be required to pay more than a
maximum guaranteed residual amount as set forth in the lease. In the event of a default by the Company
during the term of the lease, the lessor could require the Company to purchase the buildings for an amount
equal to the Company’s option price. Under the terms of the lease agreements, the Company may pay cash
dividends, unless an event of default has occurred or it does not meet certain financial ratios. As of
December 3, 1999, the Company was in compliance with all financial covenants.
During 1998, the Company entered into a real estate development agreement for the construction of
an office building in Edinburgh, Scotland. During fiscal 1998 and 1999, the Company paid approximately
$34.9 million for land, fees, and construction costs. During fiscal 1999, the Company announced a Board-
approved restructuring, which resulted in the reduction in workforce primarily in its European headquar-
ters in Edinburgh, Scotland. (For further information, see Note 7.) As a result of the restructuring, the
decision was made by management to sell the new facility in Edinburgh, and the sale was completed in
September 1999. Cash received from the sale of the facility was $40.6 million, and the gain realized upon
the sale totaled $5.7 million. As of December 3, 1999, the Company had no commitments related to this
building.
Line of credit
In August 1999, the Company entered into a $200.0 million unsecured revolving line of credit with a
group of 15 banks for general corporate purposes, subject to certain financial covenants. One-half of the
facility expires in August 2000; the other $100.0 million expires in August 2002. Outstanding balances
accrue interest at LIBOR plus a margin that is based on the financial ratios of the Company. Under the
terms of the line of credit agreement, the Company may pay cash dividends, unless an event of default has
occurred or it does not meet certain financial ratios. There were no outstanding balances on the credit
facility as of December 3, 1999. In addition, as of December 3, 1999, the Company was in compliance with
all financial covenants.