Blizzard 2009 Annual Report Download - page 51

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39
Cash,CashEquivalentsandInvestmentSecurities
Weconsiderallmoneymarketfundsandhighlyliquidinvestmentswithmaturitiesofthree
monthsorlesswhenpurchasedtobecashequivalents.
Investmentsdesignatedasavailableforsalesecuritiesarecarriedatfairvaluebasedonquoted
marketpricesorestimatedbasedonquotedmarketpricesoffinancialinstrumentswithsimilar
characteristics.UnrealizedgainsandlossesoftheCompany’savailableforsalesecuritiesareexcluded
fromearningsandreportedasacomponentofothercomprehensiveincome(loss),whencreditlossesare
notexpectedandtheCompanydoesnotintend,oritismorelikelythannotthattheCompanywillnotbe
required,tosellthesecuritypriortorecoveryofthesecurity’samortizedcostbasis.
Ingeneral,investmentswithoriginalmaturitiesgreaterthan90daysandremainingmaturitiesof
lessthanoneyearareclassifiedasshortterminvestments.Inaddition,investmentswithmaturitiesbeyond
oneyearmaybeclassifiedasshorttermbasedontheirhighlyliquidnatureandbecausesuchinvestments
representtheinvestmentofcashthatisavailableforcurrentoperations.
Thespecificidentificationmethodisusedtodeterminethecostofsecuritiesdisposedwith
realizedgainsandlossesreflectedininvestmentandotherincome(loss),netintheconsolidatedstatements
ofoperations.
TheCompany’sinvestmentsincludeauctionratesecurities(“ARS”).TheseARSarevariablerate
bondstiedtoshortterminterestrateswithlongtermmaturities.ARShaveinterestrateswhichreset
throughamodifiedDutchauctionatpredeterminedshorttermintervals,typicallyevery7,28,or35days.
InterestonARSisgenerallypaidattheendofeachauctionprocessandisbasedupontheinterestrate
determinedforthepriorauction.ThemajorityofourARSareAAA/Aaarated,andaretypically
collateralizedbystudentloansguaranteedbytheU.S.governmentundertheFederalFamilyEducation
LoanProgramorbackedbymonolinebondinsurancecompanies.
OurARSheldthroughUBSAG(“UBS”)areclassifiedastradingsecurities.Investments
designatedastradingsecuritiesarereportedatfairvalue,withunrealizedgainsandlossesrecognizedin
earnings.
OnNovember14,2008,weacceptedanofferfromUBS,providinguswithrightsrelatedtoour
ARSheldthroughUBS(the“Rights”).TheRightspermitustorequireUBStopurchaseourARSheld
throughUBSatparvalue,whichisdefinedasthepriceequaltotheliquidationpreferenceoftheARSplus
accruedbutunpaiddividendsorinterest,atanytimeduringtheperiodbetweenJune30,2010andJuly2,
2012.Conversely,UBShastheright,initsdiscretion,topurchaseorsellourARSatanytimeuntilJuly2,
2012,solongaswereceivepaymentatparvalueuponanysaleordisposition.Ifauctionscontinuetofail,
weexpecttosellourARSundertheRights.However,iftheRightsarenotexercisedbeforeJuly2,2012
theywillexpireandUBSwillhavenofurtherrightsorobligationtobuyourARS.Solongasweholdour
ARS,theywillcontinuetoaccrueinterestasdeterminedbytheauctionprocessorbythetermsofthe
Rightsiftheauctionprocesscontinuestofail.
UBS’sobligationsundertheRightsarenotsecuredbyitsassetsanddonotrequireUBStoobtain
anyfinancingtosupportitsperformanceobligationsundertheRights.UBShasdisclaimedanyassurance
thatitwillhavesufficientfinancialresourcestosatisfyitsobligationsundertheRights.
TheRightsrepresentafirmagreementinaccordancewiththeFinancialAccountingStandards
Board(“FASB”)AccountingStandardsCodification(“ASC”)Topic815,regardingderivativesand
hedging(“ASCTopic815”),whichdefinesafirmagreementasanagreementbindingonbothpartiesand
usuallylegallyenforceable,withthefollowingcharacteristics:(a)theagreementspecifiesallsignificant
terms,includingthequantitytobeexchanged,thefixedprice,andthetimingofthetransaction,and(b)the
agreementincludesadisincentivefornonperformancethatissufficientlylargetomakeperformance
probable.TheenforceabilityoftheRightsshouldberecognizedasafreestandingassetseparatefromthe
ARS.TheRightsdonotmeetthedefinitionofaderivativeinstrumentunderASCTopic815,becausethe
underlyingsecuritiesarenotreadilyconvertibletocash.Therefore,wehaveelectedtomeasuretheRights