Adobe 2013 Annual Report Download - page 69

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69
Taxes Collected from Customers
We net taxes collected from customers against those remitted to government authorities in our financial statements.
Accordingly, taxes collected from customers are not reported as revenue.
Treasury Stock
We account for treasury stock under the cost method. When treasury stock is re-issued at a price higher than its cost, the
difference is recorded as a component of additional paid-in-capital in our Consolidated Balance Sheets. When treasury stock is
re-issued at a price lower than its cost, the difference is recorded as a component of additional paid-in-capital to the extent that
there are previously recorded gains to offset the losses. If there are no treasury stock gains in additional paid-in-capital, the losses
upon re-issuance of treasury stock are recorded as a component of retained earnings in our Consolidated Balance Sheets.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses for fiscal 2013, 2012 and 2011 were $88.5 million, $99.4
million and $75.1 million, respectively.
Foreign Currency Translation
We translate assets and liabilities of foreign subsidiaries, whose functional currency is their local currency, at exchange
rates in effect at the balance sheet date. We translate revenue and expenses at the monthly average exchange rates. We include
accumulated net translation adjustments in stockholders’ equity as a component of accumulated other comprehensive income.
Foreign Currency and Other Hedging Instruments
In countries outside the United States (“U.S.”), we transact business in U.S. Dollars and in various other currencies. In
Europe and Japan, transactions that are denominated in Euro, Yen and British Pounds are 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 use foreign exchange
option and forward contracts for revenue denominated in Euro, British Pounds and Yen.
We account for our foreign currency hedging instruments 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. Contracts that do not qualify for hedge accounting are adjusted
to fair value through earnings. See Note 5 for information regarding our hedging activities.
Gains and losses from foreign exchange forward contracts which hedge certain balance sheet positions, primarily non-
functional currency denominated assets and liabilities (e.g., trade receivables and accounts payable) are recorded each period as
a component of interest and other income, net in our Consolidated Statements of Income. Foreign exchange option contracts
hedging forecasted foreign currency revenue are designated as cash flow hedges under accounting for derivative instruments and
hedging activities, with gains and losses recorded net of tax, as a component of other comprehensive income (“OCI”) in stockholders’
equity and reclassified into revenue at the time the forecasted transactions occur.
Concentration of Risk
Financial instruments that potentially subject us to concentrations of credit risk are short-term fixed-income investments,
structured repurchase transactions, contracts hedging foreign currency risk, and trade receivables.
Our investment portfolio consists of investment-grade securities diversified among security types, industries and issuers.
Our cash and investments are held and managed by recognized financial institutions that follow our investment policy. Our policy
limits the amount of credit exposure to any one security issue or issuer and we believe no significant concentration of credit risk
exists with respect to these investments.
We mitigate concentration of risk related to foreign currency hedges through a policy that establishes counterparty limits.
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
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)