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78
Balance Sheet Hedging—Hedging of Foreign Currency Assets and Liabilities
We also hedge our net recognized foreign currency denominated assets and liabilities with foreign exchange forward
contracts to reduce the risk that the value of these assets and liabilities will be adversely affected by changes in exchange rates.
These contracts 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 contracts
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 November 29, 2013, total notional amounts of
outstanding contracts were $282.8 million which included the notional equivalent of $99.0 million in Euro, $33.8 million in British
Pounds and $150.0 million in other foreign currencies. As of November 30, 2012, total notional amounts of outstanding contracts
were $422.9 million which included the notional equivalent of $209.8 million in Euro, $44.2 million in Yen and $168.9 million
in other foreign currencies. At November 29, 2013 and November 30, 2012, the outstanding balance sheet hedging derivatives
had maturities of 180 days or less.
The fair value of derivative instruments on our Consolidated Balance Sheets as of November 29, 2013 and November 30,
2012 was as follows (in thousands):
2013 2012
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) $ 8,913 $ — $ 10,897 $ —
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts 2,978 1,067 2,616 998
Total derivatives $ 11,891 $ 1,067 $ 13,513 $ 998
_________________________________________
(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 2013, 2012 and 2011 were as follows (in thousands):
2013 2012 2011
Foreign
Exchange
Option
Contracts
Foreign
Exchange
Forward
Contracts
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) $ 34,677 $ — $ 23,922 $ — $ 16,952 $ —
Net gain (loss) reclassified from accumulated
OCI into income, net of tax(2) $ 35,914 $ — $ 30,672 $ — $ 3,749 $ —
Net gain (loss) recognized in income(3) $ (21,098) $ — $ (29,554) $ — $ (28,796) $ —
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income(4) $ — $ 2,129 $ — $ 8,742 $ — $ (3,973)
_________________________________________
(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.
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)