Adobe 2003 Annual Report Download - page 91

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Japanese yen and the euro. We enter into these foreign exchange contracts to hedge forecasted product
licensing revenue in the normal course of business, and accordingly, they are not speculative in nature.
We record changes in the intrinsic value of these cash flow hedges in accumulated other
comprehensive income (loss), 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 that it will not occur, we reclassify the gain or
loss on the related cash flow hedge from accumulated other comprehensive income (loss) to interest and
other income (loss) on the consolidated statement of income at that time. For the fiscal year ended
November 28, 2003, there were no such net gains or losses recognized in other income relating to hedges of
forecasted transactions that did not occur.
The critical terms of the cash flow hedging instruments are the same as the underlying forecasted
transactions. The changes in fair value of the derivatives are intended to offset changes in the expected cash
flows from the forecasted transactions. We record any ineffective portion of the hedging instruments in
other income (loss) on the consolidated statement of income. The time value of purchased derivative
instruments is deemed to be ineffective and is recorded in other income (loss) over the life of the contract.
Gain (Loss) on Hedges of Forecasted Transactions:
Balance Sheet Income Statement
As o
f
Years Ended
November 28, 2003 November 28, 2003 November 29, 2002 November 30, 2001
Other
Comprehensive
Income (Loss)
Revenue
Other
Income
(Loss) Revenue
Other
Income
(Loss)
Revenue
Other
Income
(Loss)
Realized – Closed Transactions:
Realized net loss reclassified from other
comprehensive income (loss) to
revenue.............................................. $ ―
$ (3,489) $ ― $ (463) $ ― $ 7,848 $ ―
Realized net loss from the cost of
purchased options and gains or
losses from any ineffective portion
of hedges........................................... ― ― (5,047) ― (5,251) ― (4,786)
Recognized but Unrealized – Open
Transactions:
Unrealized net loss remaining in other
comprehensive income (loss) ...........
(867)
― ― ― ―
Unrealized net loss from time value
degradation and any ineffective
portion of hedges .............................. ―
― (1,078) ― (29) ― (730)
$ (867) $ (3,489) $ (6,125) $ (463) $ (5,280) $ 7,848 $ (5,516)
Balance Sheet Hedging - Hedging of Foreign Currency Assets and Liabilities
We hedge our net recognized foreign currency assets and liabilities with forward foreign exchange
contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in
foreign currency 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 as
other income (loss). 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. At November 28, 2003, the outstanding balance sheet
hedging derivatives had maturities of 90 days or less.