Adobe 2006 Annual Report Download - page 60

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Equity Investments
We are exposed to equity price risk on our portfolio of marketable equity securities. As of December 1, 2006,
our total equity holdings in publicly traded companies were valued at $11.9 million compared to $1.8 million at
December 2, 2005. The increase was due to distributions from Adobe Ventures of the fair value of two previously
private companies that went public during fiscal 2006. The investments were reclassified from long-term to short-
term. 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 for
illustrative purposes because none is more likely to occur than another.
50% 35% 15%
Marketable equity securities........... $ (5.9) $ (4.2) $ (1.8)
Fixed Income Investments
At December 1, 2006, we had an investment portfolio of fixed income securities, including those classified as
cash equivalents, of $2,220.0 million compared to $1,657.3 million at December 2, 2005, an increase of 34%.
Changes in interest rates could adversely affect the market value of our fixed income investments. The table
below separates the remaining maturities of our fixed income securities into segments, based on stated maturities,
to show the approximate exposure to interest rates. A significant proportion of securities classified as “due after
three years,” based on the stated maturity, have structural features that allow us to sell the securities, at par, in less
than three years.
Due within one year .......................$ 1,505.0
Due within two years...................... 409.7
Due within three years.................... 175.3
Due after three years ...................... 130.0
Total ...............................................$ 2,220.0
A sensitivity analysis was performed on our investment portfolio as of December 1, 2006. 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........................... $ (5.5) $(11.1) $ (16.6)
12 month horizon......................... $ (2.9) $ (5.9) $ (8.8)
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.