Adobe 2001 Annual Report Download - page 93

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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
Note 14. Related Party Transactions (Continued)
target compensation (base pay and management incentive plan bonuses) for twelve (12) months, (ii) pay
for his COBRA premiums until the earlier of November 1, 2002 or the date he receives coverage under
another group health insurance plan, and (iii) allow him to keep his laptop computer. We also amended his
loan agreement with us, as described in the previous paragraph. In addition, he remained eligible for any
bonuses earned through his resignation date, although no bonuses were earned or paid.
Note 15. Financial Instruments
Fair Value of Financial Instruments
Our cash equivalents, short-term investments, and marketable equity securities, are carried at fair
value, based on quoted market prices for these or similar investments. Our total cash equivalents,
short-term investments, and marketable equity securities had a cost basis of $567.5 million and a fair
market value of $581.6 million. Our portfolio of marketable equity securities included in our short-term
investments had a cost basis of $26.3 million and a fair market value of $37.8 million. (For further
information, see Note 3.)
Our portfolio of investments included in Other Assets at November 30, 2001, which includes our
direct investments, as well as indirect investments through Adobe Ventures, had an estimated fair market
value of $31.7 million. (For further information, see Note 5.)
Foreign Currency Hedging Instruments
We enter into forward exchange contracts to hedge foreign currency exposures on a continuing basis
for periods consistent with our committed exposures. These transactions do subject us 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 bank counterparties in these contracts expose us to credit-
related losses in the event of their nonperformance. However, to mitigate that risk we only contract with
high quality counterparties with specific minimum rating requirements. In addition, our hedging policy
establishes maximum limits for each counterparty. As of November 30, 2001 and December 1, 2000, we
held $98.3 million and $23.2 million, respectively, of aggregate foreign currency forward exchange
contracts. As of November 30, 2001 and December 1, 2000, we held $82.3 million and $43.3 million,
respectively, in foreign currency option contracts.
Economic Hedging—Hedges of Forecasted Transactions
We use option and forward foreign exchange contracts to hedge certain operational (‘‘cash flow’’)
exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts,
carried at fair value, have a duration between three to twelve months. Such cash flow exposures result from
portions of our forecasted revenues denominated in currencies other than the U.S. dollar (‘‘USD’’),
primarily the Japanese yen and the euro. We enter into these foreign exchange contracts to hedge
forecasted product licensing revenue in the normal course of business, and accordingly, they are not
speculative in nature.
We record changes in the fair value of these cash flow hedges in accumulated other comprehensive
income (loss), until the forecasted transaction occurs. When the forecasted transaction occurs, we
reclassify the related gain or loss on the cash flow hedge to revenue. In the event the underlying forecasted
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