Adobe 2003 Annual Report Download - page 73

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Guarantees
We adopted FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” at the beginning of
our fiscal 2003. See “Recent Accounting Pronouncements” for further information regarding FIN 45.
The lease agreements for our three office buildings in San Jose, California provide for residual value
guarantees. These lease agreements were in place prior to December 31, 2002 and are disclosed in Note 14.
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.
We have commitments to make certain milestone and/or retention payments typically entered into in
conjunction with various acquisitions, for which we have made accruals in our consolidated financial
statements. In connection with our purchases of technology assets during fiscal 2003, we entered into
employee retention agreements totaling $2.2 million. We are required to make payments upon satisfaction
of certain conditions in the agreements.
As 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 limits 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 behalf of the partnerships. We are unable to
develop an estimate of the maximum potential amount of future payments that could potentially result from
any hypothetical future claim, but believe the risk of having to make any payments under this general
indemnification to be remote.
We accrue for costs associated with future obligations which include costs for undetected bugs that are
discovered only after the product is installed and used by customers. The accrual remaining at the end of
fiscal 2003 primarily relates to new releases of our Creative Suites products during the fourth quarter of
fiscal 2003. The table below summarizes the activity related to the accrual during fiscal 2003:
Balance at
November 29, 2002 Accruals Payments
Balance at
November 28, 2003
$ ― $ 5,554 $ (2,369) $ 3,185
Advertising Expenses
We expense all advertising costs as incurred and classify these costs under sales and marketing
expense. Advertising expenses for fiscal years 2003, 2002, and 2001 were $24.0 million, $26.7 million and
$30.5 million, respectively.
Foreign Currency and Other Hedging Instruments
Statement of Financial Accounting Standards No. 133 (“SFAS No. 133”), “Accounting for Derivative
Instruments and Hedging Activities,” establishes accounting and reporting standards for derivative
instruments and hedging activities and requires us to recognize these as either assets or liabilities on the
balance sheet and measure them at fair value. As described in Note 15, gains and losses resulting from