Adobe 2001 Annual Report Download - page 43

In addition to the April 1999 5.0 million share repurchase program, our Board of Directors authorized
in March 2001, subject to certain business and market conditions, the purchase of up to an additional
5.0 million shares of our common stock over a two-year period. We have not made any purchases under
this 5.0 million share repurchase program.
Combined Programs
Our put and call option contracts provide that we, at our option, can settle with physical delivery or
net shares equal to the difference between the exercise price and the value of the option as determined by
the contract.
For more information on our puts and calls, please see Note 1 of our Notes to Consolidated Financial
Statements.
Commitments
Our principal commitments as of November 30, 2001 consist of obligations under operating leases, a
line of credit agreement, a real estate financing agreement, venture investing activities, royalty agreements,
and various service agreements. We expect to fulfill all of the below commitments from our working
capital.
Lease Commitments
We lease certain of our facilities and some of our equipment under noncancelable operating lease
arrangements that expire at various dates through 2025. Rent expense, net of sublease income, for these
leases aggregated $22.0 million, $25.6 million, and $29.4 million during fiscal 2001, 2000, and 1999,
respectively. As of November 30, 2001, future minimum lease payments under noncancelable operating
leases, net of sublease income, are as follows: 2002—$29.6 million; 2003—$32.3 million; 2004—
$35.7 million; 2005—$28.5 million; 2006—$17.0 million; and $33.2 million thereafter.
In September 2001, we entered into a real estate development agreement for the construction of an
office building in downtown San Jose, California. Under the agreement, the lessor will finance up to
$117.0 million over a two-year period, toward the construction and associated costs of the building. As part
of the agreement, we entered into a five-year lease beginning upon completion of the building. We have an
option to purchase the building at any time during the term for an amount equal to the total investment of
the lessor. The agreement and lease are subject to standard covenants including liquidity, leverage and
profitability ratios that are reported to the lessor quarterly. As of November 30, 2001, we were in
compliance with all covenants. In case of a default, the lessor may terminate all remaining commitments,
demand payment equal to the lessor’s investment, or require that we purchase, facilitate the sale of the
building to a third party, or surrender the building. The agreement qualifies for operating lease accounting
treatment under SFAS 13, and, as such, the building and the related obligation are not included on our
balance sheet, but the lease payments are reflected in the schedule of future minimum lease payments. At
the end of the lease term, we can either purchase the building for an amount equal to the lessor’s
investment, which will be approximately $117.0 million, request to extend the maturity date of the lease or
remarket the building. If we elect to remarket the building, we are obligated to arrange the sale of the
building to an unrelated party and will be required to pay the lessor any shortfall between the net
remarketing proceeds and the lessor’s investment, up to a maximum recourse amount as set forth in the
lease. The lessor is a multi-asset leasing company with a substantive net worth, not a special purpose entity.
In August 1999, Adobe entered into a five-year lease agreement for our corporate headquarters office
buildings in San Jose, California. Under the agreement, we have an option to purchase the buildings at any
time during the lease term for $142.5 million, which is the total investment of the lessor. The lease is
subject to standard covenants including liquidity, leverage and profitability ratios that are reported to the
lessor quarterly. As of November 30, 2001, we were in compliance with all covenants. In case of a default,
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