Adobe 2005 Annual Report Download - page 56

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56
Equity Investments
We are exposed to equity price risk on our portfolio of marketable equity securities. As of December 2, 2005,
our total equity holdings in publicly traded companies were valued at $1.8 million compared to $2.8 million at
December 3, 2004, a decrease of 34%. The decrease was due to sales of $1.2 million and $0.6 million write-downs
due to an other-than-temporary decline in value of our marketable equity securities offset by an increase of $0.8 in
market value adjustments. 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 .......... $ (0.9) $ (0.6) $ (0.3)
Fixed Income Investments
At December 2, 2005, we had an investment portfolio of fixed income securities, including those classified as
cash equivalents, of $1,657.3 million compared to $1,272.8 million at December 3, 2004, an increase of 30%.
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, based on stated maturities, to show
the approximate exposure to interest rates. A significant proportion of securities classified as “due after three years,”
based on the stated maturity, have structural features that allow us to sell the securities, at par, in less than three
years.
Due within one year ....................... $ 818.6
Due within two years ..................... 315.3
Due within three years ................... 114.1
Due after three years ...................... 409.3
Total............................................... $ 1,657.3
A sensitivity analysis was performed on our investment portfolio as of December 2, 2005. 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. The following table represents the potential decrease to the value of our fixed income securities given a
negative shift in the yield curve used in our sensitivity analysis.
0.5% 1.0% 1.5%
6 month horizon...........................
.
$ (3.7) $ (7.2) $ (10.9)
12 month horizon.........................
.
$ (1.3) $ (2.5) $ (3.8)
We limit our exposure to interest rate and credit risk by establishing and monitoring clear policies and
guidelines for our fixed income portfolios. Our investment policy limits the maximum weighted average duration of
all invested funds to 2.5 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.