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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
94
that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive
income to interest and other income, net in our Consolidated Statements of Income at that time. For fiscal 2009, 2008 and
2007 there were no such gains or losses recognized in interest and other income, net relating to hedges of forecasted
transactions that did not occur.
We evaluate hedge effectiveness at the inception of the hedge prospectively as well as retrospectively and record any
ineffective portion of the hedging instruments in interest and other income, net on our Consolidated Statements of Income.
The net gain (loss) recognized in interest and other income, net for cash flow hedges due to hedge ineffectiveness was
insignificant for fiscal 2009, 2008 and 2007. The time value of purchased derivative instruments is recorded in interest and
other income, net in our Consolidated Statements of Income.
The effect of derivative instruments designated as cash flow hedges and of derivative instruments not designated as
hedges in our Consolidated Statements of Income for fiscal 2009 was as follows (in thousands):
2009
Foreign
Exchange
Option
Contracts
Foreign
Exchange
Forward
Contracts
Derivatives in cash flow hedging relationships:
Net gain (loss) recognized in OCI, net of tax(1) .....................................
$
(14,618
)
$
—
Net gain (loss) reclassified from accumulated OCI into income, net
of tax(2) ................................................................
...............................
$ 27,138
$ —
Net gain (loss) recognized in income(3) .................................................
$
(18,027
)
$
—
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income(4) .................................................
$
—
$
(14,407
)
_________________________________________
(1) Net change in the fair value of the effective portion classified in other comprehensive income (“OCI”).
(2) Effective portion classified as revenue.
(3) Ineffective portion and amount excluded from effectiveness testing classified in interest and other income, net.
(4) Classified in interest and other income, net.
Balance Sheet Hedging - Hedging of Foreign Currency Assets and Liabilities
We also 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. These derivative
instruments hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value with changes
in the fair value recorded to interest and other income, net in our Consolidated Statements of Income. These derivative
instruments do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on
these derivatives are intended to offset gains and losses on the assets and liabilities being hedged. As of November 27, 2009,
total notional amounts of outstanding contracts were $154.9 million which included the notional equivalent of $87.6 million
in Euro, $22.9 million in Yen and $44.4 million in other foreign currencies. At November 27, 2009, the outstanding balance
sheet hedging derivatives had maturities of 90 days or less.