Adobe 2015 Annual Report Download - page 55

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maximum commitment for interest payments under the Notes was $501.1 million for the remaining duration of our Notes. In June
2014, we entered into interest rate swaps that effectively converted the fixed interest rate on our 2020 Notes to a floating interest
rate based on the London Interbank Offered Rate (“LIBOR”) plus a fixed number of basis points through February 1, 2020.
Covenants
Our credit facility and Almaden Tower lease contain a financial covenant requiring us not to exceed a maximum leverage
ratio. As of November 27, 2015, we were in compliance with all of our 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. Our Notes do not contain any financial
covenants.
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. We do not anticipate paying any cash dividends in the foreseeable
future.
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at November 27, 2015 was $258.7 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 within the next 12 months, 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 $10 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.
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 and from time to time, we are subject to claims
by our customers under these indemnification provisions. 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 directors and officers for
certain events or occurrences while the director or officer is or was serving at our request in such capacity. The indemnification
period covers all pertinent events and occurrences during the director’s or officer’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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All market risk sensitive instruments were entered into for non-trading purposes.
Foreign Currency Risk
Foreign Currency Exposures and Hedging Instruments
In countries outside the United States, we transact business in U.S. Dollars and various other currencies which subject us
to exposure from movements in exchange rates. We may use foreign exchange purchased options or forward contracts to hedge
our foreign currency revenue. Additionally, we hedge our net recognized foreign currency assets and liabilities with foreign
exchange forward contracts. We hedge these exposures to reduce the risk that our earnings and cash flows will be adversely affected
by changes in exchange rates.