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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
99
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 2028. We also have one land lease that expires in 2091. Rent expense includes base contractual rent and
variable costs such as building expenses, utilities, taxes, insurance and equipment rental. Rent expense and sublease income for
these leases for fiscal 2014, 2013 and 2012 were as follows (in thousands):
2014 2013 2012
Rent expense............................................................................................................ $ 111,149 $ 118,976 $ 105,809
Less: sublease income ............................................................................................. 1,412 3,057 2,330
Net rent expense .................................................................................................... $ 109,737 $ 115,919 $ 103,479
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 2014, we exercised our option to purchase the East and West Towers for a total purchase price of $143.2 million.
Upon purchase, our investment in the lease receivable of $126.8 million was credited against the total purchase price and we were
no longer required to maintain a standby letter of credit as stipulated in the East and West Towers lease agreement. We capitalized
the East and West Towers as property and equipment on our Consolidated Balance Sheets at $144.1 million, the lesser of cost or
fair value, which represented the total purchase price plus other direct costs associated with the purchase. See Note 6 for discussion
of our East and West Towers purchase.
The lease agreement for the Almaden Tower is effective through March 2017. We are the investors in the lease receivable
related to the Almaden Tower lease in the amount of $80.4 million, which is recorded as investment in lease receivable on our
Consolidated Balance Sheets. As of November 28, 2014, the carrying value of the lease receivable related to the Almaden Tower
approximated fair value. Under the agreement for the Almaden Tower, we have the option to purchase the building at any time
during the lease term for $103.6 million. If we purchase the building, the investment in the lease receivable may be credited against
the purchase price. The residual value guarantee under the Almaden Tower obligation is $89.4 million.
The Almaden Tower lease is subject to standard covenants including certain financial ratios that are reported to the lessor
quarterly. As of November 28, 2014, we were in compliance with all of the covenants. In the case of a default, the lessor may
demand we purchase the building for an amount equal to the lease balance, or require that we remarket or relinquish the building.
If we choose to remarket or are required to do so upon relinquishing the building, we are bound 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 lease balance,
up to the residual value guarantee amount less our investment in lease receivable. The Almaden Tower lease qualifies for operating
lease accounting treatment and, as such, the building and the related obligation are not included in our Consolidated Balance
Sheets. See Note 16 for discussion of our capital lease obligation.
Unconditional Purchase Obligations
Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.