Adobe 2012 Annual Report Download - page 75

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Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees. The fair value of a residual
value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our Consolidated
Balance Sheets. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East and West Towers
and Almaden Tower leases, respectively. The balance was amortized to our Consolidated Statements of Income over the life of
the original leases. As of November 30, 2012 there was no remaining balance of the unamortized portion of the fair value of the
residual value guarantees, for either lease, remaining on our Consolidated Balance Sheets.
Indemnifications
In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual
property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims
by our customers under these indemnification provisions. Historically, costs related to 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.
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 which subject us 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.
Additionally, we may use foreign exchange option or forward contracts to hedge our Euro- , Yen-, or British Pound-denominated
revenue.
Our revenue exposures for fiscal 2012, 2011 and 2010 were as follows (in millions, except Yen):
Fiscal
2012 Fiscal 2011 Fiscal 2010
Euro........................................................................................................... € 530.7 € 557.6 € 542.9
Yen (in billions)......................................................................................... ¥ 34.8 ¥ 34.7 ¥ 35.6
British Pounds........................................................................................... £ 145.1 £ 144.8 £ 123.9
Our European operating expenses are primarily in Euro and our Japanese operating expenses are primarily in Yen, which
naturally mitigates a portion of the exposure related to our Euro- and Yen-denominated product revenue. We hedge a percentage
of forecasted international revenue with purchased option contracts and/or forward contracts. Our revenue hedging policy is
intended to help mitigate the impact on our forecasted revenue due to foreign currency exchange rate movements. In addition, we
hedge our net monetary assets and liabilities using forward contracts. These contracts 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. As of November 30, 2012, the total absolute value of outstanding contracts was $937.2 million which included the
notional equivalent of $476.5 million in Euro, $220.7 million in Yen and $240.0 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 November 30, 2012, all contracts were set to expire at various times through June
2013. 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.
We also have long-term investment exposures consisting of the capitalization and retained earnings in our non-USD
functional currency foreign subsidiaries. As of November 30, 2012 and December 2, 2011, this long-term investment exposure
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