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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
93
The investments of limited partnership relate to our interest in Adobe Ventures IV L.P. (“Adobe Ventures”), which are
consolidated in our Consolidated Financial Statements. The Level 1 investments of limited partnership relate to investments
in publicly-traded companies and the Level 3 investments consist of investments in privately-held companies. These
investments are remeasured at fair value each period with any gains or losses recognized in investment gains (losses), net in
our Consolidated Statements of Income. We estimated fair value of the Level 3 investments by considering available
information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent
operational performance and any other readily available market data.
A reconciliation of the beginning and ending balances for investments of limited partnership using significant
unobservable inputs (Level 3) as of November 27, 2009 and November 28, 2008 was as follows (in thousands):
Balance as of November 30, 2007 ......................................................................................................................
$
30,647
Purchases and sales of investments, net ..............................................................................................................
363
Unrealized net investment gains included in earnings ........................................................................................
7,743
Balance as of November 28, 2008 ......................................................................................................................
38,753
Purchases and sales of investments, net ..............................................................................................................
1,921
Unrealized net investment losses included in earnings .......................................................................................
(3,553
)
Balance as of November 27, 2009 ......................................................................................................................
$
37,121
We also have direct investments in privately-held companies accounted for under the cost method, which are
periodically assessed for other-than-temporary impairment. If we determine that an other-than-temporary impairment has
occurred, we write-down the investment to its fair value. We estimated fair value of our cost method investments considering
available information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts,
recent operational performance and any other readily available market data. During fiscal 2009, we determined that certain of
our cost method investments were other-than-temporarily impaired which resulted in a charge of $13.9 million, included in
investment gains (losses), net in our Consolidated Statements of Income. The fair value of cost method investments that
were impaired was estimated using Level 3 inputs.
See Note 8 for further information regarding our limited partnership interest in Adobe Ventures and our cost method
investments.
NOTE 5. FINANCIAL INSTRUMENTS
Hedge Accounting
We recognize derivative instruments and hedging activities as either assets or liabilities in our Consolidated Balance
Sheets and measure them at fair value. 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.
Economic Hedging—Hedges of Forecasted Transactions
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 may use
foreign exchange option contracts or forward contracts to hedge certain operational (“cash flow”) exposures resulting from
changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, may have maturities
between one and twelve months. The maximum original duration of any contract is twelve months. We enter into these
foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal course
of business and accordingly, they are not speculative in nature.
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge,
and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. We record changes
in the intrinsic value of these cash flow hedges in accumulated other comprehensive income in our Consolidated Balance
Sheets, 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 transaction does not occur, or it becomes probable