Adobe 2005 Annual Report Download - page 87

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As of December 2, 2005, future minimum lease payments under noncancelable operating leases and
future minimum sublease income under noncancelable subleases are as follows:
Fiscal Year
Future
Minimum
Lease
Payments
Future
Minimum
Sublease
Income
2006..................... $ 35,265 $ 5,328
2007..................... 26,616 3,250
2008..................... 23,155 1,678
2009..................... 19,824 1,719
2010..................... 10,221 1,093
Thereafter ............ 58,398 —
Total .................. $ 173,479 $ 13,068
Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees. Under FIN
45, the fair value of a residual value guarantee in lease agreements entered into after December 31, 2002,
must be recognized as a liability on our consolidated balance sheet. As such, we recognized a $5.2 million
liability related to the East and West tower lease that was extended in August 2004. This liability is
recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The
balance will be amortized to the income statement over the life of the lease. As of December 2, 2005, the
unamortized portion of the fair value of the residual value guarantee remaining in other long-term liabilities
and prepaid rent was $3.8 million.
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, which was recorded under our cost of products revenue on our consolidated
statements of income, was approximately $17.8 million, $15.9 million and $14.5 million in fiscal 2005,
2004 and 2003, respectively.
Indemnifications
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.
To the extent 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.