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77
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We also have direct investments in privately held companies accounted for under the cost method, which are periodically
assessed for other-than-temporary impairment. If we determine that an other-than-temporary impairment has occurred, we write
down the investment to its fair value. We estimate fair value of our cost method investments considering available information
such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance
and any other readily available market data. During fiscal 2013, we determined there were other-than-temporary impairments of
$7.0 million on certain of our cost method investments and wrote down the investments to fair value. During fiscal 2012, we
determined there were no material other-than-temporary impairments on our cost method investments.
As of November 29, 2013, the carrying value of our lease receivables approximated fair value, based on Level 2 valuation
inputs which include Treasury rates, LIBOR rates and applicable credit spreads. See Note 15 for further details regarding our
investment in lease receivables. The fair value of our long-term debt was approximately $1.6 billion as of November 29, 2013,
based on Level 2 quoted prices in inactive markets. See Note 16 for further details regarding our debt.
NOTE 5. DERIVATIVES AND HEDGING ACTIVITIES
Hedge Accounting
We recognize derivative instruments and hedging activities as either assets or liabilities in our Consolidated Balance Sheets
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
In countries outside the U.S., we transact business in U.S. Dollars and in various other currencies. We may use foreign
exchange option contracts or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign
currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to twelve months. We enter
into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal
course of business and accordingly, they are not speculative in nature.
We recognize these contracts as derivative instruments and they are classified as either assets or liabilities on the balance
sheet and measured on a recurring basis at fair value. Gains and losses resulting from changes in fair value are accounted for
depending on the use of the contract and whether it is designated and qualifies for hedge accounting. 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 in our Consolidated Balance Sheets, until the forecasted transaction occurs.
When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge to revenue. In the event the
underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on
the related cash flow hedge from accumulated other comprehensive income to interest and other income (expense), net in our
Consolidated Statements of Income at that time. If we do not elect hedge accounting, or the contract does not qualify for hedge
accounting treatment, the changes in fair market value from period to period are recorded in interest and other income (expense),
net in our Consolidated Statements of Income. For fiscal 2012 and 2011, there were no such gains or losses recognized in interest
and other income, net relating to hedges of forecasted transactions that did not occur. For fiscal 2013, net gains or losses recognized
in other income relating to hedges of forecasted transactions that did not occur were insignificant.
We evaluate hedge effectiveness at the inception of the hedge prospectively as well as retrospectively and record any
ineffective portion of the hedging instruments in interest and other income, net on our Consolidated Statements of Income. The
net gain (loss) recognized in interest and other income, net for cash flow hedges due to hedge ineffectiveness was insignificant
for all fiscal years presented. The time value of purchased contracts is recorded in interest and other income, net in our Consolidated
Statements of Income.
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)