Adobe 2008 Annual Report Download - page 63

63
Contractual Commitments
The following table summarizes our contractual commitments as of November 28, 2008:
Total
Less than
1 year
1-3 years
3-5 years
Over
5 years
Total non-cancellable operating leases ...
$
229.2
$
49.2
$
60.9
$
34.7
$
84.4
Total purchase commitments ..........
145.9
111.1
15.7
4.6
14.5
Total debt ..........................
350.0
—
—
350.0
—
Total ............................
$
725.1
$
160.3
$
76.6
$
389.3
$
98.9
As of November 28, 2008, the principal outstanding under the credit agreement was $350.0 million which is due in full
no later than February 16, 2013. Interest associated with this agreement cannot be estimated with certainty by period
throughout the term since it is based on a fluctuating interest rate calculation.
As a result of adopting FIN 48, we reclassified $197.7 million from current income taxes payable to long-term income
taxes payable related to unrecognized tax benefits.
The gross liability for unrecognized tax benefits at November 28, 2008 was $139.5 million, exclusive of interest and
penalties. The timing of the resolution of income tax examinations is highly uncertain and the amounts ultimately paid, if
any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each
year. While it is reasonably possible that some issues with the IRS and other examinations could be resolved within the next
12 months, based upon the current facts and circumstances, we cannot estimate the timing of such resolution or range of
potential changes as it relates to the unrecognized tax benefits that are recorded as part of our financial statements. We do not
expect any material settlements in fiscal 2009 but it is inherently uncertain to determine.
Two of our lease agreements and our credit agreement are subject to financial covenants. As of November 28, 2008, we
were in compliance with all of our financial covenants and we expect to remain in compliance during the next 12 months. We
believe these covenants will not impact our credit or cash in the coming fiscal year or restrict our ability to execute our
business plan.
Under the terms of our credit agreement and lease agreements, we are not prohibited from paying cash dividends unless
payment would trigger an event of default or one currently exists.
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.
Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees. Under Financial Accounting
Standards Board (“FASB”) Interpretation No. 45 (“FIN 45”), “Guarantor’ s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others,” 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 $5.2 million and $3.0 million in liabilities, related to the extended East and West Towers and Almaden
Tower leases, respectively. These liabilities are 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 leases. As of
November 28, 2008, the unamortized portion of the fair value of the residual value guarantees remaining in other long-term
liabilities and prepaid rent was $2.6 million.
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.