Adaptec 2010 Annual Report Download - page 74

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As of December 26, 2010 and December 27, 2009, the fair value of certain of the Company’s available-for-sale securities was
less than their cost basis. Management reviewed various factors in determining whether to recognize an impairment charge related to
these unrealized losses, including the current financial and credit market environment, the financial condition and near-term prospects
of the issuer of the investment security, the magnitude of the unrealized loss compared to the cost of the investment, length of time
the investment has been in a loss position and the Company’s intent and ability to hold the investment for a period of time sufficient
to allow for any anticipated recovery of market value. As of December 26, 2010, the Company determined that the unrealized losses
are temporary in nature and recorded them as a component of accumulated other comprehensive income (loss).
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. The Company assessed the fair value of its money market funds, including by consideration of
Level 2 and Level 3 inputs (see Note 4. Fair Value Measurements) for the Reserve Funds and their underlying securities. Based on
this assessment, the Company 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, the Company reclassified its 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, the Company changed the valuation method from a market
approach to an income approach. In addition, in 2008, due to the status of the Reserve Funds, the Company 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 the Company 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, the Company 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 of 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.
73
* Gross unrealized gains include accrued interest on investments of $2.1 million. The remainder of the gross unrealized gains and
losses is included in the consolidated balance sheet as other com
p
rehensive income.