Adobe 2001 Annual Report Download - page 44

the lessor may demand payment equal to the lessor’s investment or 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 are not included on our balance sheet, but the 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, Adobe 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 would 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.
We believe that if our line of credit is canceled or amounts are not available under the line, our
financial results, liquidity, or capital resources would not be adversely impacted.
Under the terms of the line of credit agreement, corporate headquarters lease agreement, and real
estate financing agreement, we may pay cash dividends unless an event of default has occurred or we do
not meet certain financial ratios.
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 $14.1 million, $20.8 million, and $24.5 million in fiscal 2001,
2000, and 1999, respectively.
Adobe Ventures
We have commitments to the Adobe Venture limited partnerships. The following table shows the
capital commitments and the capital contributed as of November 30, 2001:
Capital Commitment Capital Contributed
Adobe Ventures L.P. ................. $ 40,000,000 $40,475,757
Adobe Ventures II, L.P. ............... $ 40,000,000 $36,947,363
Adobe Ventures III, L.P. .............. $ 60,000,000 $56,162,222
Adobe Ventures IV, L.P. ............... $100,000,000 $18,292,333
The capital commitment is the amount that Adobe has agreed to contribute to the Partnership. The
capital commitment amount is contributed over the term of each Partnership, which is ten years. We can
cease funding at any time after the earlier of: a) two years after the effective date of the Partnership or
b) the date on which the Company has made capital contributions to the Partnership in an amount in
excess of $10.0 million, $10.0 million, $20.0 million, and $33.0 million for Adobe Ventures L.P., Adobe
Ventures II, L.P., Adobe Ventures III, L.P., and Adobe Ventures IV, L.P., respectively.
In addition to these venture partnerships, we have direct investments in public and privately-held
companies. In total, as of November 30, 2001, we have invested $194.9 million through our venture
partnerships and direct investments. As of November 30, 2001, net returns were $354.3 million, including
stock dividends and net gains in market value of investments.
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