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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
76
NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)
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 $24.5 million, $25.3 million, and $25.0 million in
fiscal 1999, 1998, and 1997, respectively.
Legal actions
The Company is engaged in certain legal actions arising in the ordinary course of business. The
Company believes it has adequate legal defenses and that the ultimate outcome of these actions will not
have a material effect on the Company’s financial position and results of operations.
NOTE 14. RELATED PARTY TRANSACTIONS
During fiscal 1999, the Company entered into two separate loan agreements with an executive officer
of the Company to assist with his relocation to San Jose, California. The first loan in the amount of
$550,000 was repaid to the Company on December 31, 1999. The second loan, in the amount of
$1.0 million, is interest-free and is secured by the executive’s principal residence. Under the terms of the
agreement, the executive is required to repay this loan at $200,000 per year for the next five years,
beginning December 2000. In addition, the loan must be repaid in full within thirty days of any termination
of the executive’s employment.
At November 28, 1997, the Company held a 13% equity interest in McQueen International Limited
(‘‘McQueen’’) and accounted for the investment using the cost method. During fiscal 1994, the Company
entered into various agreements with McQueen, whereby the Company contracted with McQueen to
perform product localization and technical support functions and to provide printing, assembly, and
warehousing services.
Effective December 31, 1997, McQueen was acquired by Sykes Enterprises, Incorporated (‘‘Sykes’’), a
publicly traded company. In connection with the acquisition, the Company exchanged its shares of
McQueen for 486,676 shares of Sykes’ restricted common stock and recorded a gain on the exchange of
$6.7 million in fiscal 1998. Later in fiscal 1998, these shares were sold at a minimal gain. The Company
made minimum annual payments to Sykes/McQueen for certain services, which amounted to $2.4 million
and $5.2 million in fiscal 1998 and 1997, respectively. Purchases from Sykes/McQueen, during the period in
which it was an affiliate of the Company, amounted to $15.7 million and $35.0 million for fiscal 1998 and
1997, respectively.
NOTE 15. FINANCIAL INSTRUMENTS
Fair value of financial instruments
The Company’s cash equivalents, short-term investments, and marketable equity securities are carried
at fair value, based on quoted market prices for these or similar investments. (For further information, see
Note 3.)