Adobe 2007 Annual Report Download - page 99

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From time to time, in addition to those identified above, Adobe is subject to legal proceedings, claims, investigations
and proceedings in the ordinary course of business, including claims of alleged infringement of third-party patents and other
intellectual property rights, commercial, employment and other matters. In accordance with accounting principles generally
accepted in the United States of America, Adobe makes a provision for a liability when it is both probable that a liability has
been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and
adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events
pertaining to a particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses with
respect to the legal matters pending against Adobe. It is possible, nevertheless, that our consolidated financial position, cash
flows or results of operations could be affected by the resolution of one or more of such contingencies.
Note 16. Credit Agreement
In August 2007, we entered into the Amendment to our Credit Agreement dated February 2007 (the “Amendment”),
which increased the total senior unsecured revolving facility from $500.0 million to $1.0 billion. The Amendment also
permits us to request one-year extensions effective on each anniversary of the closing date of the original agreement, subject
to the majority consent of the lenders. Also, we retain an option to request an additional $500.0 million in commitments, for
a maximum aggregate facility of $1.5 billion. The facility contains a financial covenant requiring us not to exceed a certain
maximum leverage ratio. Borrowings under the facility accrue interest based on a pricing grid tied to this financial covenant.
Commitment fees are payable on the facility at rates between 0.05% and 0.15% per year based on the same pricing grid. The
facility terminates on February 16, 2012 if no extensions have been requested and is available to provide loans to us and
certain of our subsidiaries for general corporate purposes. As of November 30, 2007, we had no outstanding borrowings
under this credit facility and were in compliance with all covenants. In January 2008, we drew down $450.0 million under
this facility.
Note 17. Financial Instruments
In accordance with SFAS 133 we recognize derivative instruments and hedging activities as either assets or liabilities on
the balance sheet 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
We use foreign exchange option contracts to hedge certain operational (“cash flow”) exposures resulting from changes
in foreign currency exchange rates. Such cash flow exposures result from portions of our forecasted revenue denominated in
currencies other than the U.S. dollar, primarily the Japanese Yen and the Euro. These foreign exchange contracts, carried at
fair value, may have maturities between one and twelve months. The maximum original duration of any option contract is
twelve months. 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.
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 until the forecasted transaction
occurs.