Adobe 2005 Annual Report Download - page 69

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or become free of trading restrictions within one year as “available-for-sale.” We carry these investments at
fair value, based on quoted market prices. Unrealized gains and losses, net of taxes, are included in
accumulated other comprehensive income (loss), which is reflected as a separate component of
stockholders’ equity. Gains are recognized when realized in our consolidated statements of income. Losses
are recognized as realized or when we have determined that an other-than-temporary decline in fair value
has occurred.
It is our policy to review our marketable equity securities classified as short-term investments on a
regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in
fair value. Our policy includes, but is not limited to, reviewing the cash position, earnings/revenue outlook,
stock price performance over the past six months, liquidity and management/ownership of each company
we invest in. 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
write-down as an investment loss on our consolidated statements of income.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts to reserve for potentially uncollectible trade
receivables. We review our trade receivable by aging category to identify significant customers with known
disputes or collection issues. For accounts not specifically identified, we provide reserves based on the age
of the receivable. In determining the reserve, we make judgments about the creditworthiness of significant
customers based on ongoing credit evaluations. We also consider our historical level of credit losses and
current economic trends that might impact the level of future credit losses.
Beginning
Balance
Charged/
(Credited) to
Operating
Expenses Deductions(*)
Ending
Balance
Allowance for doubtful accounts:
Year Ended:
December 2, 2005 ....................
.
$ 6,191 $ 394 $ (1,209) $ 5,376
December 3, 2004 ....................
.
7,903 (443) (1,269) 6,191
November 28, 2003..................
.
7,531 2,038 (1,666) 7,903
(*) Deductions related to the allowance for doubtful accounts represent amounts written off against the allowance,
less recoveries.
Foreign Currency Translation
We translate assets and liabilities of foreign subsidiaries, whose functional currency is the local
currency, at exchange rates in effect at the balance sheet date. We translate revenues and expenses at the
monthly average rates of exchange prevailing during the year. We include the adjustment resulting from
translating the financial statements of such foreign subsidiaries in accumulated other comprehensive
income (loss), which is reflected as a separate component of stockholders’ equity.
Property and Equipment
We record property and equipment at cost. Depreciation and amortization are calculated using the
straight-line method over the shorter of the estimated useful lives (thirty-five years for buildings; two to
seven years for furniture and equipment) or lease terms (five to ten years for leasehold improvements) of
the respective assets. Additionally, it is our policy to capitalize certain costs for internal-use software
incurred during the application development stage, in accordance with Statement of Position 98-1,
“Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Amortization
begins once the software is ready for its intended use.
Goodwill and Purchased and Other Intangibles
In accordance with Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill
and Other Intangible Assets,” we review our goodwill for impairment annually, or more frequently, if facts
and circumstances warrant a review. The provisions of SFAS 142 require that a two-step test be performed
to assess goodwill for impairment. First, the fair value of each reporting unit is compared to its carrying