Adobe 2007 Annual Report Download - page 73

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73
Revenue Reserve
Revenue reserve rollforward:
Beginning
Balance
Amount
Charged To
Revenue Actual Returns Ending Balance
Year Ended:
November 30, 2007................. $ 55,526 $156,761 $(168,755 ) $ 43,532
December 1, 2006 .................. $ 25,204 $ 97,566 $ (67,244 ) $ 55,526
December 2, 2005 .................. $ 18,624 $ 92,754 $ (86,174 ) $ 25,204
Taxes Collected From Customers
Pursuant to Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How Taxes Collected from Customers and Remitted
to Governmental Authorities Should Be Presented in the Income Statement”, we elected to net taxes collected from
customers against those remitted to government authorities in our financial statements consistent with our historical
presentation of this information.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses for fiscal 2007, 2006 and 2005 were $45.3 million,
$27.8 million and $39.0 million, respectively.
Foreign Currency and Other Hedging Instruments
In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. In Europe and Japan,
transactions that are denominated in Euro and Yen are subject to exposure from movements in exchange rates. We hedge our
net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that our
earnings and cash flows will be adversely affected by changes in exchange rates. We have foreign exchange option and
forward contracts for Yen- and Euro-denominated revenue.
We account for our derivative instruments as either assets or liabilities on the balance sheet and measure them at fair
value. Derivatives that are not defined as hedges in SFAS No. 133 (“SFAS 133”), “Accounting for Derivative Instruments
and Hedging Activities,” must be adjusted to fair value through earnings. Gains and losses resulting from changes in fair
value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge
accounting. See Note 17 for information regarding our hedging activities.
Gains and losses from foreign exchange forward contracts which hedge certain balance sheet positions, primarily non-
functional currency denominated assets and liabilities (e.g., trade receivables and accounts payable) are recorded each period
as a component of other income in the consolidated statements of operations. Foreign exchange forward contracts hedging
forecasted non-functional currency denominated forecasted product licensing revenue, are designated as cash flow hedges
under SFAS 133, with gains and losses recorded net of tax, as a component of other comprehensive income in stockholders’
equity and reclassified into revenue at the time the forecasted transactions occur.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is
recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities
are recognized for expected future tax consequences of temporary differences between the financial reporting and tax bases
of assets and liabilities, and for operating losses and tax credit carryforwards. We record a valuation allowance to reduce
deferred tax assets to an amount for which realization is more likely than not.