Adobe 1999 Annual Report Download - page 35

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completed in September 1999. We received $40.6 million cash from the sale of the facility and realized a
gain upon the sale of $5.7 million. As of December 3, 1999, we had no commitments related to this
building.
In August 1999, we entered into a $200.0 million unsecured revolving line of credit with a group of 15
banks for general corporate purposes, subject to certain financial covenants. One-half of the facility expires
in August 2000, and the other $100.0 million expires in August 2002. Outstanding balances accrue interest
at London Interbank Offered Rate (‘‘LIBOR’’) plus a margin that is based on our financial ratios. There
were no outstanding balances on the credit facility as of December 3, 1999. In addition, as of December 3,
1999, we were in compliance with all financial covenants.
We believe that if the line of credit is canceled or amounts are not available under the line, there
would not be a material adverse effect on our financial results, liquidity, or capital resources.
Under the terms of the line of credit and the lease agreement, we may pay cash dividends unless an
event of default has occurred or we do not meet certain financial ratios.
Derivatives and Financial Instruments
(Item 7a. Quantitative and Qualitative Disclosures About Market Risk)
Foreign currency hedging instruments
We transact business in various foreign currencies, primarily in certain European countries and Japan.
Accordingly, we are subject to exposure from movements in foreign currency exchange rates. This
exposure is primarily related to yen denominated licenses in Japan and local currency denominated
operating expenses in Europe, where we license primarily in U.S. dollars.
Our Japanese operating expenses are in yen, which mitigates a portion of the exposure related to yen
denominated licenses in Japan. In addition, we hedge firmly committed transactions using primarily
forward contracts. We also hedge a percentage of forecasted international revenue with purchased options.
At December 3, 1999, total outstanding contracts included $17.0 million in foreign currency forward
exchange contracts and purchased Japanese yen put option contracts with a notional value of $64.0 million.
All contracts expire at various times through December 2000. Our hedging policy is designed to reduce the
impact of foreign currency exchange rate movements, and we expect any gain or loss in the hedging
portfolio to be offset by a corresponding gain or loss in the underlying exposure being hedged.
A sensitivity analysis was performed on our hedging portfolio as of December 3, 1999. This sensitivity
analysis was based on a modeling technique that measures the hypothetical market value resulting from a
10% and 15% shift in the value of exchange rates relative to the U.S. dollar. An increase in the value of the
U.S. dollar (and a corresponding decrease in the value of the hedged foreign currency asset) would lead to
an increase in the fair value of our financial hedging instruments by $2.6 million and $4.4 million,
respectively. Conversely, a decrease in the value of the U.S. dollar would result in a decrease in the fair
value of these financial instruments by $2.2 million and $3.3 million, respectively.
Our accounting policies for these instruments are based on our designation of such instruments as
hedging transactions. We recognize gains and losses associated with the mark-to-market of outstanding
foreign exchange forward contracts that are designated and effective as hedges of existing transactions, for
which a firm commitment has been attained, as income in the current period. Corresponding gains and
losses on the foreign currency denominated transactions being hedged are recognized as income in that
same period. In this manner, the gains and losses on foreign currency denominated transactions will be
offset by the gains and losses on the foreign currency contracts. We do not anticipate any material adverse
effect on our consolidated financial position, results of operations, or cash flows as a result of these
instruments. We use yen options to hedge anticipated exposures.
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