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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
101
insignificant for fiscal 2010, 2009 and 2008. The time value of purchased derivative instruments is recorded in interest and
other income, net in our Consolidated Statements of Income.
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 (expense), 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 December
3, 2010, total notional amounts of outstanding contracts were $536.5 million which included the notional equivalent of
$305.1 million in Euro, $52.0 million in Yen and $179.4 million in other foreign currencies. 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 December 3, 2010 and November 27, 2009, the
outstanding balance sheet hedging derivatives had maturities of 90 days or less.
The fair value of derivative instruments on our Consolidated Balance Sheets as of December 3, 2010 and November 27,
2009 were as follows (in thousands):
2010
2009
Fair Value
Asset
Derivatives
(1)
Fair Value
Liability
Derivatives
(2)
Fair Value
Asset
Derivatives
(1)
Fair Value
Liability
Derivatives
(2)
Derivatives designated as hedging instruments:
Foreign exchange option contracts(3) ........................
$
6,092
$
—
$
4,175
$
—
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts ........................
12,729
1,945
132
1,589
Total derivatives ............................................................
$
18,821
$
1,945
$
4,307
$
1,589
_________________________________________
(1) Included in prepaid expenses and other current assets on our Consolidated Balance Sheets.
(2) Included in accrued expenses on our Consolidated Balance Sheets.
(3) Hedging effectiveness expected to be recognized to income within the next twelve months.
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 2010 and 2009 was as follows (in thousands):
2010
2009
Foreign
Exchange
Option
Contracts
Foreign
Exchange
Forward
Contracts
Foreign
Exchange
Option
Contracts
Foreign
Exchange
Forward
Contracts
Derivatives in cash flow hedging relationships:
Net gain (loss) recognized in OCI, net of tax(1) .....
$
20,325
$
—
$
(14,618
)
$
—
Net gain (loss) reclassified from accumulated
OCI into income, net of tax(2)
............................
$
20,169
$ — $
27,138
$ —
Net gain (loss) recognized in income(3) .................
$
(23,285
)
$
—
$
(18,027
)
$
—
Derivatives not designated as hedging
relationships:
Net gain (loss) recognized in income(4) .................
$
—
$
(34,168)
$
—
$
(14,407
)
_________________________________________
(1) Net change in the fair value of the effective portion classified in OCI.
(2) Effective portion classified as revenue.
(3) Ineffective portion and amount excluded from effectiveness testing classified in interest and other income (expense),
net.
(4) Classified in interest and other income (expense), net.