Adobe 2004 Annual Report Download - page 56

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to the spot rates of the currency. 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 $14.8 million and $27.7 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
$9.4 million and $14.1 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 a natural hedge exists. 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.
See also Note 16 in our Notes to Consolidated Financial Statements.
Equity Investments
We are exposed to equity price risk on our portfolio of marketable equity securities. As of December 3, 2004,
our total equity holdings in publicly traded companies were valued at $2.8 million compared to $7.2 million at
November 28, 2003, a decrease of 61%. The decrease was due to sales of $2.4 million and a $2.0 million decrease in
market value adjustment. We believe that it is reasonably possible that the fair values of these securities could
adversely change in the near term. We have a policy in place 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 company’s 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 in value 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 write-down 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.
50% 35% 15%
Marketable equity securities .......... $ (1.4) $ (1.0) $ (0.4)
Fixed Income Investments
At December 3, 2004, we had an investment portfolio of fixed income securities, including those classified as
cash equivalents, of $1,272.8 million compared to $1,069.0 million at November 28, 2003, an increase of 19%.
These securities are subject to interest rate fluctuations. Changes in interest rates could adversely affect the market
value of our fixed income investments. The table below separates the remaining maturities of our fixed income
securities into segments to show the approximate exposure to interest rates.
Less than one year.......................... $ 773.8
One year to two years..................... 315.2
Greater than two years ................... 183.8
Total............................................... $ 1,272.8
A sensitivity analysis was performed on our investment portfolio as of December 3, 2004. 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