Adobe 2002 Annual Report Download - page 87

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A sensitivity analysis was performed on all of our foreign exchange derivatives as of November 29, 2002. This
sensitivity analysis was based on a modeling technique that measures the hypothetical market value resulting from a
10% and 15% shift in the value of exchange rates relative to the U.S. dollar. A 10% and 15% increase in the value of
the U.S. dollar (and a corresponding decrease in the value of the hedged foreign currency asset) would lead to an
increase in the fair value of our financial hedging instruments by $12.1 million and $18.5 million, respectively.
Conversely, a 10% and 15% decrease in the value of the U.S. dollar would result in a decrease in the fair value of
these financial instruments by $9.0 million and $13.1 million, respectively.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign
currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates.
As a general rule, we do not use financial instruments to hedge local currency denominated operating expenses
in countries where these expenses create a natural hedge against foreign currency receivables. For example, in many
countries revenue from the local currency product licenses substantially offsets the local currency denominated
operating expenses. We assess the need to utilize financial instruments to hedge currency exposures, primarily
related to operating expenses, on an ongoing basis.
We regularly review our hedging program and may as part of this review determine at any time to change our
hedging program.
Equity Investments
We are exposed to equity price risk on our portfolio of marketable equity securities. As of November 29, 2002,
our total equity holdings in publicly traded companies were valued at $14.1 million compared to $37.8 million at
November 30, 2001, a decrease of 63%. We believe that it is reasonably possible that the fair values of these
securities could experience further adverse changes in the near term. It is our policy to review our equity holdings on
a regular basis to evaluate whether or not each security has experienced an other-than-temporary decline in fair
value. Our policy includes, but is not limited to, reviewing each of the companies’ cash position, earnings/revenue
outlook, stock price performance over the past six months, liquidity and management/ownership. If we believe that
an other-than-temporary decline exists in one of our marketable equity securities, it is our policy to write down these
equity investments to the market value and record the related writedown in our consolidated statements of income.
The following table represents the potential decrease in fair values of our marketable equity securities that are
sensitive to changes in the stock market. Fair value deteriorations of 50%, 35%, and 15% were selected based on the
probability of their occurrence.
Fixed Income Investments
At November 29, 2002, we had an investment portfolio of fixed income securities, including those classified as
cash equivalents, of $581.7 million compared to $521.8 million at November 30, 2001, an increase of 11%. 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 29, 2002. 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 securities given X% decrease in each stock’s price
(50%) (35%) (15%)
Fair Value as of
November 29, 2002
Marketable equity securities $ (7.0) $ (4.9) $ (2.1) $14.1