Adobe 2007 Annual Report Download - page 97

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97
Note 15. Commitments and Contingencies
Lease Commitments
We lease certain of our facilities and some of our equipment under non-cancellable operating lease arrangements that
expire at various dates through 2025. We also have one land lease that expires in 2091. Rent expense and sublease income for
these leases for fiscal 2005 through fiscal 2007 were as follows:
2007 2006 2005
Rent expense ................................................................... $ 90,553 $ 74,629 $ 58,215
Less: sublease income ..................................................... 9,406 3,556 4,995
Net rent expense .............................................................. $ 81,147 $ 71,073 $ 53,220
We occupy three office buildings in San Jose, California where our corporate headquarters are located. We reference
these office buildings as the Almaden Tower and the East and West Towers.
In August 2004, we extended the lease agreement for our East and West Towers for an additional five years with an
option to extend for an additional five years solely at our election. In March 2007, the Almaden Tower lease was extended for
five years, with a renewal option for an additional five years solely at our election. As part of the lease extensions, we
purchased the lease receivable from the lessor of the East and West Towers for $126.8 million and a portion of the lease
receivable from the lessor of the Almaden Tower for $80.4 million, both of which are recorded as investments in lease
receivables on our consolidated balance sheet. This purchase may be credited against the residual value guarantee if we
purchase the properties or will be repaid from the sale proceeds if the properties are sold to third parties. Under the agreement
for the East and West Towers and the agreement for the Almaden Tower, we have the option to purchase the buildings at
anytime during the lease term for approximately $143.2 million and $103.6 million, respectively. The residual value
guarantees under the East and West Towers and the Almaden Tower obligations are $126.8 million and $89.4 million,
respectively.
These two leases are both subject to standard covenants including certain financial ratios that are reported to the lessors
quarterly. As of November 30, 2007, we were in compliance with all covenants. In the case of a default, the lessor may
demand we purchase the buildings for an amount equal to the lease balance, or require that we remarket or relinquish the
buildings. Both leases qualify for operating lease accounting treatment under SFAS No. 13, “Accounting for Leases,” and, as
such, the buildings and the related obligations are not included on our consolidated balance sheet. We utilized this type of
financing in order to access bank-provided funding at the most favorable rates and to provide the lowest total cost of
occupancy for the headquarter buildings. At the end of the lease term, we can extend the lease for an additional five year
term, purchase the buildings for the lease balance, remarket or relinquish the buildings. If we choose to remarket or are
required to do so upon relinquishing the buildings, we are bound to arrange the sale of the buildings to an unrelated party and
will be required to pay the lessor any shortfall between the net remarketing proceeds and the lease balance, up to the residual
value guarantee amount.
Following is a table for future minimum lease payments under non-cancellable operating leases and future minimum
sublease income under non-cancellable subleases for each of the next five years and thereafter. The table includes
commitments related to our restructured facilities. See Note 9 for information regarding our restructurings.
Fiscal Year
Future
Minimum
Lease
Payments
Future
Minimum
Sublease
Income
2008................................................................................................... $ 55,304 $ 9,321
2009................................................................................................... 45,640 8,850
2010................................................................................................... 32,896 5,532
2011................................................................................................... 26,562 1,116
2012................................................................................................... 19,558 80
Thereafter .......................................................................................... 111,164 —
Total .............................................................................................. $ 291,124 $ 24,899