Adobe 2010 Annual Report Download - page 78

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these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of
these indemnification provisions on our future results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our directors and officers for
certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The
indemnification period covers all pertinent events and occurrences during the director’ s or officer’ s lifetime. The maximum
potential amount of future payments we could be required to make under these indemnification agreements is unlimited;
however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any
future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable
insurance coverage is minimal.
During fiscal 2010, our limited partnership interest in Adobe Ventures was dissolved and all remaining assets were
distributed to the partners. As part of this limited partnership interest, we provided a general indemnification to Granite
Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences
while Granite Ventures was serving at our request in such capacity provided that Granite Ventures acted in good faith on
behalf of the partnership.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All market risk sensitive instruments were entered into for non-trading purposes.
Foreign Currency Risk
Foreign Currency Hedging Instruments
In countries outside the U.S., we transact business in U.S. dollars and various other currencies. Transactions
denominated in Euro, Yen and British Pounds subject to exposure from movements in exchange rates. We 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. We may use foreign exchange option or forward
contracts for Euro- , Yen-, or British Pound-denominated revenue.
In fiscal 2010, 2009 and 2008, our revenue exposures were 542.9 million Euro, 504.3 million Euro and 628.2 million
Euro, respectively. In fiscal 2010, 2009 and 2008, our revenue exposures were 35.6 billion Yen, 30.3 billion Yen and 36.8
billion Yen, respectively. We began hedging British Pound transactions in 2010. Revenue exposures were 123.9 million
British Pounds for fiscal 2010.
Our European operating expenses are primarily in Euro and our Japanese operating expenses are in Yen, which
mitigates a portion of the exposure related to Euro and Yen denominated product revenue. In addition, we hedge firmly
committed transactions using forward contracts. These contracts do subject us to risk of accounting gains and losses;
however, the gains and losses on these contracts largely offset gains and losses on the assets, liabilities and transactions being
hedged. We also hedge a percentage of forecasted international revenue with purchased option contracts and forward
contracts. Our revenue hedging policy is intended to help mitigate the impact on our forecasted revenue due to foreign
currency exchange rate movements. As of December 3, 2010, the total absolute value of outstanding contracts was $1,035.8
million which included the notional equivalent of $570.1 million in Euro, $222.6 million in Yen and $243.1 million in other
foreign currencies. These hedges are foreign currency forward exchange contracts which hedged our balance sheet exposures
and purchased put option contracts which hedged our forecasted revenue. As of December 3, 2010, all contracts were set to
expire at various times through June 2011. The bank counterparties in these contracts expose us to credit-related losses in the
event of their nonperformance. However, to mitigate that risk, we only contract with counterparties who meet our minimum
requirements under our counterparty risk assessment process. In addition, our hedging policy establishes maximum limits for
each counterparty.
In addition, we also have long-term investment exposures consisting of the capitalization and retained earnings in our
non-USD functional currency foreign subsidiaries. As of December 3, 2010 and November 27, 2009, this long-term
investment exposure totaled a notional equivalent of $387.6 million and $228.8 million, respectively. At this time, we do not
hedge these long-term investment exposures.
Economic Hedging—Hedges of Forecasted Transactions
We may use foreign exchange option contracts or forward contracts to hedge certain operational (“cash flow”)
exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value,
may have maturities between one and twelve months. Such cash flow exposures result from portions of our forecasted