Adobe 2010 Annual Report Download - page 77

77
Contractual Obligations
The following table summarizes our contractual obligations as of December 3, 2010 (in millions):
Payment Due by Period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Notes ..................................................................
$
1,993.9
$
62.3
$
124.5
$
714.8
$
1,092.3
Operating leases .................................................
273.8
61.7
85.6
45.5
81.0
Capital lease obligations ....................................
30.6
9.9
19.9
0.8
—
Purchase obligations ..........................................
214.5
175.1
16.0
8.3
15.1
Total ...............................................................
$
2,512.8
$
309.0
$
246.0
$
769.4
$
1,188.4
In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 and $900.0 million of 4.75%
senior notes due February 1, 2020. As of November 27, 2009, we had an outstanding credit facility of $1.0 billion which we
repaid on February 1, 2010 using the proceeds from the Notes. Interest on the Notes is payable semi-annually, in arrears on
February 1 and August 1, commencing on August 1, 2010. In August 2010, we made our first semi-annual interest of $31.1
million.
In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling $32.2 million and leaseback the
same equipment over a period of 43 months. This transaction was classified as a capital lease obligation and recorded at fair
value.
Our credit facility contains a financial covenant requiring us not to exceed a certain maximum leverage ratio. Our leases
for the East and West Towers and the Almaden Tower are both subject to standard covenants including certain financial
ratios as defined in the lease agreements that are reported to the lessors quarterly. As of December 3, 2010, we were in
compliance with all of our covenants. Our Notes do not contain any financial covenants. 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.
The gross liability for unrecognized tax benefits at December 3, 2010 was $156.9 million, exclusive of interest and
penalties.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax
payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet
classification of current and non-current assets and liabilities. We believe that before the end of fiscal 2011, it is reasonably
possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will
expire, or both. Given the uncertainties described above, we can only determine a range of estimated potential decreases in
underlying unrecognized tax benefits ranging from $0 to approximately $5 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.
Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees. 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 Sheets. 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 our Consolidated Statements of
Income over the life of the leases. As of December 3, 2010 and November 27, 2009, the unamortized portion of the fair value
of the residual value guarantees remaining in other long-term liabilities and prepaid rent was $0.7 million and $1.3 million,
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