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Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
69
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses for fiscal 2015, 2014 and 2013 were $113.6 million, $87.9
million and $88.5 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, we transact business in U.S. Dollars and in various other currencies. We use foreign
exchange option and forward contracts for revenue denominated in Euros, British Pounds and Yen. 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 recognize all derivative instruments 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. 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 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 with gains and losses recorded net of
tax, as a component of other comprehensive income 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, foreign currency and interest rate hedge contracts 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 primarily 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 enter into foreign currency hedge contracts with bank counterparties that could expose us to credit related losses in the
event of their nonperformance. This is largely mitigated with collateral security agreements that provide for collateral to be received
or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. In addition,
we enter into master netting arrangements which have the ability to further limit credit related losses with the same counterparty
by permitting net settlement transactions.
The aggregate fair value of foreign currency contracts in net asset positions as of November 27, 2015 and November 28,
2014 was $19.1 million and $33.0 million respectively. These amounts represent the maximum exposure to loss at the reporting
date as a result of all of the counterparties failing to perform as contracted. These exposures could be reduced by certain immaterial
liabilities included in master netting arrangements with those same counterparties.
Credit risk in receivables is limited to OEMs, dealers and distributors of hardware and software products to the retail market,
customers to whom we license software directly and our SaaS offerings. A credit review is completed for our new distributors,
dealers and OEMs. We also perform ongoing credit evaluations of our customers’ financial condition and require letters of credit
or other guarantees, whenever deemed necessary. The credit limit given to the customer is based on our risk assessment of their
ability to pay, country risk and other factors and is not contingent on the resale of the product or on the collection of payments
from their customers. We also purchase credit insurance to mitigate credit risk in some foreign markets where we believe it is