Adaptec 2010 Annual Report Download - page 46

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Beginning in the first quarter of fiscal 2008, the assessment of fair value is based on the provisions of ASC Topic 820, the Fair
Value Measurements and Disclosure Topic. We determined the fair value of our investment securities, which include money market
funds, United States Treasury and Government Agency notes, Federal FDIC-insured corporate notes, United States State and
Municipal Securities, foreign government and agency notes and corporate bonds and notes, using quoted prices from active markets,
quoted prices for similar assets from third-party sources and by performing valuation analyses. In determining if and when a decline
in market value below the carrying value of our investment securities is other-than-temporary, we evaluate on an ongoing basis the
market conditions, trends of earnings, financial condition and other key measures for our investments. We assess impairment of our
investment securities in accordance with GAAP.
The investments in Reserve Funds, classified as cash and cash equivalents on the consolidated balance sheet, net of provision,
totaling $22.4 million at December 26, 2010 (2009—$23.2 million) relate to shares of the Reserve International Liquidity Fund, Ltd.
(the “International Fund”) and the Reserve Primary Fund (the “Primary Fund”, together the “Reserve Funds”). The Reserve Funds
were AAA-rated money market funds which announced redemption delays and suspended trading in September 2008, during the
severe disruption in financial markets. We assessed the fair value of its money market funds, including by consideration of Level 2
and Level 3 inputs (see Item 8. Financial Statements and Supplementary Data, the Notes to the Consolidated Financial Statements,
N
ote 4. Fair Value Measurements) for the Reserve Funds and their underlying securities. Based on this assessment, we recorded an
impairment of the Reserve Funds of $11.8 million during the third quarter of 2008, incorporating the Reserve Funds’ valuation at zero
for debt securities of Lehman Brothers held, and a net asset value of $0.97 per share as communicated by the Primary Fund. In 2008,
we reclassified our investment in shares of the Reserve Funds from Level 1 to Level 3 of the fair value hierarchy due to the inherent
subjectivity and significant judgment related to the fair value of the shares of the Reserve Funds and their underlying securities.
Accordingly, we changed the valuation method from a market approach to an income approach. In addition, in 2008, due to the status
of the Reserve Funds, we reclassified a portion of these shares from cash and cash equivalents to short-term investments and long-
term investment securities, based on the maturity dates of the underlying securities in the Reserve Funds.
As at December 26, 2010, all the underlying investments held in the Reserve Funds have matured or were sold, and securities
are held only in overnight notes. Partial distributions received in 2010 from the Reserve Funds totaled $4.6 million.
During 2010, the Reserve Primary Fund entered into liquidation proceedings which were supervised by the U.S. Securities and
Exchange Commission, and we received partial distributions of its holdings. During the fourth quarter of 2010, the U.S. District Court
for the Southern District of New York entered into final judgment accepting a proposed settlement agreement with respect to the
Reserve International Liquidity Fund, Ltd. Subsequent to the year-ended December 26, 2010, that judgment became final, as a result,
we recognized recovery of impairment on investment securities of $3.8 million, based on partial distributions received based on these
settlements. The courts set aside certain amounts cash held by the Reserve Funds for legal and administrative costs, and if the cash is
not all consumed, we could potentially receive a further distribution.
Accordingly, we received $22.4 million on December 31, 2010. We continue to hold $8 million in shares of the Reserve
International Liquidity Fund, which is fully reserved for on the balance sheet. As a result of the subsequent ruling on the Reserve
International Liquidity Fund, the investments in the Reserve Funds were reclassified on the consolidated balance sheet from short-
term investments to cash and cash equivalents during the fourth quarter of 2010.
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