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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
NOTE 13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Legal actions
The Company is engaged in certain legal actions arising in the ordinary course of business. The
Company believes it has adequate legal defenses and that the ultimate outcome of these actions will not
have a material effect on the Company’s financial position and results of operations.
NOTE 14. TRANSACTIONS WITH AFFILIATE
At November 28, 1997, the Company held a 13% equity interest in McQueen International Limited
(‘‘McQueen’’) and accounted for the investment using the cost method. During 1994, the Company
entered into various agreements with McQueen, whereby the Company contracted with McQueen to
perform product localization and technical support functions and to provide printing, assembly, and
warehousing services.
Effective December 31, 1997, McQueen was acquired by Sykes Enterprises, Incorporated (‘‘Sykes’’), a
publicly traded company. In connection with the acquisition, the Company exchanged its shares of
McQueen for 486,676 shares of Sykes’ restricted common stock and recorded a gain on the exchange of
$6.7 million in fiscal 1998. Later in fiscal 1998, these shares were sold at a minimal gain. The Company
makes minimum annual payments to Sykes/McQueen for certain services, which amounted to $2.4 million,
$5.2 million, and $4.8 million in fiscal 1998, 1997, and 1996, respectively. Purchases from Sykes/McQueen,
during the period in which they were an affiliate of the Company, amounted to $15.7 million, $35.0 million,
and $34.3 million for fiscal 1998, 1997, and 1996, respectively.
NOTE 15. FINANCIAL INSTRUMENTS
Fair value of financial instruments
The Company’s cash equivalents, short-term investments, restricted funds, and marketable equity
securities are carried at fair value, based on quoted market prices for these or similar investments (see
Note 3).
The Company’s portfolio of equity investments at November 27, 1998 had a cost basis of $65.9 million
and a fair market value of $56.3 million (see Note 5).
Foreign currency hedging instruments
The Company enters into forward exchange contracts to hedge foreign currency exposures on a
continuing basis for periods consistent with its committed exposures. These transactions do subject the
Company to risk of accounting gains and losses; however, the gains and losses on these contracts offset
gains and losses on the assets, liabilities, and transactions being hedged. The Company is exposed to credit-
related losses in the event of nonperformance by the counterparties in these contracts. These contracts
generally have maturities of less than three months, and the amounts of unrealized gains and losses are
immaterial. As of November 27, 1998 and November 28, 1997, the Company held $19.8 million and
$1.9 million, respectively, of aggregate foreign currency forward exchange contracts for the sale of the
Japanese yen. As of November 27, 1998 the Company held $12.5 million in option contracts also for the
sale of Japanese yen.
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