Adaptec 2011 Annual Report Download - page 42

Table of Contents
We have recorded income tax liabilities based on our interpretation of tax regulations for the countries in which we operate. We believe that the tax
return positions we have taken are fully supportable. However, our estimates are subject to review and assessment by the local tax authorities. Our tax expense
and related reserve for unrecognized tax benefits reflect amounts that we believe will be adequate if challenged or subject to income tax assessment.
Management uses judgment and estimates in determining tax expense for these challenges in accordance with guidance for accounting for uncertainty in
income taxes. Currently, our reserve for uncertain tax positions is attributable primarily to uncertainties related to allocation of income among different
jurisdictions.
The timing of any such review and final assessment of our liabilities is substantially out of our control and is dependent on the actions by those local tax
authorities. Any re-assessment of our tax liabilities may result in adjustments of the income taxes we pay, with a resulting impact on our tax expense, net
income and cash flows. We review our reserves quarterly, and we may adjust such reserves because of changes in facts and circumstances, changes in tax
regulations, negotiations between tax authorities and associated proposed tax assessments, the resolution of audits and the expiration of statutes of limitations.
We must also assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for
taxes by recording a reserve in the form of a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable.
Investment in Cash Equivalents, Short-Term Investments and Long-Term Investment Securities
Our cash equivalents, short-term investments and long-term investment securities are comprised of money market funds, United States Treasury and
Government Agency notes, Federal Deposit Insurance Corporation ("FDIC")-insured corporate notes, United States State and Municipal Securities, foreign
government and agency notes and corporate bonds and notes with minimum ratings of P-1 or A3 by Moody's, or A-1 or A- by Standard and Poor's, or
equivalent at the date of purchase. At December 31, 2011, these securities had an estimated fair value of $385.6 million. See Item 8. Financial Statements and
Supplementary Data, the Notes to the Consolidated Financial Statements, Note 7. Investment Securities for details.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion regarding our risk management activities contains "forward-looking statements" that involve risks and uncertainties. Actual
results may differ materially from those projected in the forward-looking statements.
Cash, Cash Equivalents, Short-term Investments and Long-term Investment Securities
We regularly maintain a portfolio of short and long-term investments comprised of various types of money market funds, United States Treasury and
Government Agency notes, FDIC-insured corporate notes, United States State and Municipal Securities, foreign government and agency notes and corporate
bonds and notes. Our investments are made in accordance with an investment policy approved by our Board of Directors. All investments have maturities of
36 months or less. To minimize credit risk, we diversify our investments and select minimum ratings of P-1 or A3 by Moody's, or A-1 or A- by Standard and
Poor's or equivalent at the time of purchase. We classify these securities as available-for-sale and they are carried at fair market value. Our corporate policies
prevent us from holding material amounts of asset-backed commercial paper.
Investments in instruments with both fixed and floating rates carry a degree of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted because of a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to
these factors, our future investment income may fall short of expectations because of changes in interest rates, or we may suffer losses in principal if we were
to sell securities that have declined in market value because of changes in interest rates.
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