Adobe 2001 Annual Report Download - page 47

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Potential decrease to the value of securities given X% decrease in each stock’s price
Fair Value as of
(50%) (35%) (15%) November 30, 2001
Marketable equity securities ........... $(18.9) $(13.2) $(5.7) $37.8
Equity Forward Contracts
We also have a policy to hedge a certain portion of our equity holdings in publicly traded companies.
From time to time, we have entered into forward contracts to sell portions of our equity holdings in future
periods. We account for these forward contracts as ‘‘Fair Value Hedges,’’ in accordance with SFAS 133 and
mark them to market at the end of each period, offsetting changes in the fair market value of the equities
being hedged. An increase (decrease) in the market value of the underlying equities will result in a
corresponding decrease (increase) in the value of the forward contract. We have no outstanding forward
contracts hedging marketable equity securities remaining as of November 30, 2001. As of December 1,
2000, the value of our forward contracts hedging equity securities was $10.7 million.
Fixed Income Investments
At November 30, 2001, we had an investment portfolio of fixed income securities, including those
classified as cash equivalents, of $404.1 million compared to $369.7 million at December 1, 2000, an
increase of 9%. These securities are subject to interest rate fluctuations. Changes in interest rates could
adversely affect the market value of our fixed income investments.
A sensitivity analysis was performed on our investment portfolio as of November 30, 2001. This
sensitivity analysis was based on a modeling technique that measures the hypothetical market value
changes that would result from a parallel shift in the yield curve of plus 50, 100, or 150 basis points over
six-month and twelve-month time horizons.
Potential decrease to the value of fixed income securities given X% increase in interest rates.
0.5% 1.0% 1.5%
6-month horizon ............................... $(2.3) $(4.5) $(6.8)
12-month horizon .............................. $(2.1) $(4.1) $(6.2)
We do not currently have any derivative financial instruments outstanding to manage interest rate
risks. However, we have established policies and procedures to allow entering into derivative financial
instruments to hedge interest rate risk if appropriate. We also limit our exposure to interest rate and credit
risk by establishing and strictly monitoring clear policies and guidelines for our fixed income portfolios. At
the present time, the maximum duration of all portfolios is limited to 2.3 years. The guidelines also
establish credit quality standards, limits on exposure to any one security issue, limits on exposure to any
one issuer, and limits on exposure to the type of instrument. Due to the limited duration and credit risk
criteria established in our guidelines, we do not expect the exposure to interest rate risk and credit risk to
be material.
Privately Held Investments
We have direct investments, as well as indirect investments through Adobe Ventures, in several
privately held companies, many of which can still be considered in the start-up or development stages.
These investments are inherently risky, as the technologies or products they have under development are
typically in the early stages and may never materialize, and we could lose a substantial part of our entire
initial investment in these companies.
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