Adobe 2007 Annual Report Download - page 101

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101
included the notional equivalent of $440.3 million in Euro, $154.3 million in Yen and $78.4 million in other foreign
currencies. At November 30, 2007, the outstanding balance sheet hedging derivatives had maturities of 90 days or less.
Net gains (losses) recognized in other income relating to balance sheet hedging for fiscal 2007, 2006 and 2005 were as
follows:
2007 2006 2005
Gain (loss) on foreign currency assets and liabilities:
Net realized gain (loss) recognized in other income . . $ 13,388 $ 11,046 $ (9,604 )
Net (loss) gain recognized in other income related to
instruments outstanding....................... (4,035) 4,721 (4,088 )
9,353 15,767 (13,692 )
(Loss) gain on hedges of foreign currency assets and
liabilities:
Net realized (loss) gain recognized in other income . . (8,394) (4,179 ) 9,893
Net unrealized gain (loss) recognized in other income 1,887 (6,879 ) 5,747
(6,507) (11,058 ) 15,640
Net gain recognized in other income ............ $ 2,846 $ 4,709 $ 1,948
Concentration of Risk
Financial instruments that potentially subject us to concentrations of credit risk are short-term investments, primarily
fixed-income securities, derivatives, hedging foreign currency and interest rate risk, and accounts receivable.
Our investment portfolio consists of investment-grade securities diversified among security types, industries and issuers.
Our cash and investments are held and managed by recognized financial institutions that follow our investment policy. Our
policy limits the amount of credit exposure to any one security issue or issuer, and we believe no significant concentration of
credit risk exists with respect to these investments.
We mitigate concentration of risk related to foreign currency hedges as well as interest rate hedges through a policy that
establishes counterparty limits. We also have minimum rating requirements for all bank counterparties.
Credit risk in receivables is limited to OEM partners, dealers and distributors of hardware and software products to the
retail market, and to customers whereby we license software directly. Management believes that any risk of loss is reduced
due to the diversity of our customers and geographic sales areas. A credit review is completed for our new distributors,
dealers and OEM partners. We also perform ongoing credit evaluations of our customers’ financial condition and require
letters of credit or other guarantees, whenever deemed necessary. The credit limit given to the customer is based on our risk
assessment of their ability to pay, country risk and other factors and is not contingent on the resale of the product or on the
collection of payments from their customers. We also purchase credit insurance to mitigate credit risk in some foreign
markets where we believe it is warranted. If we license our software to a customer where we have a reason to believe the
customer’ s ability to pay is not probable, due to country risk or credit risk, we will not recognize the revenue. We will revert
to recognizing the revenue on a cash basis, assuming all other criteria for revenue recognition has been met. See Note 19 for
information regarding our significant customers.
We derive a significant portion of our OEM PostScript and Other licensing revenue from a small number of OEM
partners. Our OEM partners on occasion seek to renegotiate their royalty arrangements. We evaluate these requests on a
case-by-case basis. If an agreement is not reached, a customer may decide to pursue other options, which could result in
lower licensing revenue for us.