Adobe 2000 Annual Report Download - page 72

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Line of Credit In August 1999, we 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 expired in August 2000, and the other
$100.0 million expires in August 2002. We renewed, for one year, the $100.0 million un-
secured revolving line of credit that expired in August 2000. Outstanding balances accrue
interest at London Interbank Offered Rate (“LIBOR”) plus a margin that is based on our
financial ratios. The terms, covenants, and margins of the new facility are substantially
the same as the expired facility. There were no outstanding balances on either credit facil-
ity as of December 1, 2000. In addition, as of December 1, 2000, 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 revenue. Royalty expense was approximately
$20.8 million, $24.5 million, and $25.3 million in fiscal 2000, 1999, and 1998, respectively.
Legal Actions We are engaged in certain legal actions arising in the ordinary course of busi-
ness. We believe that we have adequate legal defenses and that the ultimate outcome of these
actions will not have a material effect on our financial position and results of operations.
NOTE 14. RELATED PARTY TRANSACTIONS
During fiscal 1999, we entered into two separate loan agreements with one of Adobe’s
executive officers to assist with his relocation to San Jose, California. The first loan in the
amount of $550,000 was repaid 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 over the next five years, beginning December 2000. The first such payment was made
in December 2000. In addition, the loan must be repaid in full within thirty days of any
termination of the executive’s employment.
NOTE 15. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments Our cash equivalents, short-term investments, and mar-
ketable equity securities are carried at fair value, based on quoted market prices for these
or similar investments. Our portfolio of equity securities had a cost basis of $92.5 million
and a fair market value of $90.2 million. (For further information, see Note 3.)
Our portfolio of equity investments included in Other Assets at December 1, 2000 had a
cost basis of $84.1 million and an estimated fair market value of $72.5 million. (For further
information, see Note 5.)
Foreign Currency Hedging Instruments We enter into forward exchange contracts to hedge
foreign currency exposures on a continuing basis for periods consistent with our committed
exposures. These transactions do subject us to risk of accounting gains and losses; how-
ever, the gains and losses on these contracts offset gains and losses on the assets, liabilities,
and transactions being hedged. We are exposed to credit-related losses in the event of
nonperformance by the counterparties in these contracts. The amounts of unrealized
gains and losses are immaterial. As of December 1, 2000 and December 3, 1999, we held
$23.2 million and $17.0 million, respectively, of aggregate foreign currency forward
exchange contracts. As of December 1, 2000 and December 3, 1999, we held $43.3 million
and $64.0 million, respectively, in foreign currency option contracts.
Equity Hedging Instruments We have a policy that allows us to hedge our equity holdings
in publicly traded companies. From time to time, we have entered into forward contracts
to sell portions of our equity holdings in future periods. We account for these forward
contracts at fair market value offsetting changes in the value of the equities being hedged.
As of December 1, 2000, the value of our forward contracts hedging equity securities was
$10.8 million.
Concentration of Risk Financial instruments that potentially subject us to concentra-
tions of credit risk are primarily cash, cash equivalents, short-term investments, and
accounts receivable.