Blizzard 2009 Annual Report Download - page 79
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Level3
Auctionrate
securities
(a)
ARSrights
fromUBS
(b)
Total
financial
assetsat
fair
value
Otherfinancial
liabilities
BalanceatJanuary1,2008................................................................
$—
$—
$—
$—
Totalgainsor(losses)(realized/unrealized)
Includedinearnings......................................................................................
(6)
10
4
—
Includedinothercomprehensiveincome......................................................
(4)
—
(4)
—
Purchasesoracquiredsales,issuancesandsettlements................................
—
—
—
(1)
PurchasesviatheBusinessCombination...........................................................
88
—
88
(30)
BalanceatDecember31,2008................................................................
$78
$10
$88
$(31)
Theamountoftotalgainsor(losses)fortheperiodincludedin
earningsattributabletothechangeinunrealizedgainsorlosses
relatingtoassetsstillheldatDecember31,2008................................
$(6)
$10
$4
$—
(a) Liquidityfortheseauctionratesecuritiesistypicallyprovidedbyanauctionprocesswhichallows
holderstoselltheirnotesandresetstheapplicableinterestrateatpredeterminedintervals,usually
every7to35days.Onanindustrywidebasis,manyauctionshavefailed,andthereis,asyet,no
meaningfulsecondarymarketfortheseinstruments.Eachoftheauctionratesecuritiesinour
investmentportfolioatDecember31,2009hasexperiencedafailedauctionandthereisno
assurancethatfutureauctionsforthesesecuritieswillsucceed.Anauctionfailuremeansthatthe
partieswishingtoselltheirsecuritiescouldnotbematchedwithanadequatevolumeofbuyers.In
theeventthatthereisafailedauction,theindenturegoverningthesecurityrequirestheissuerto
payinterestatacontractuallydefinedratethatisgenerallyabovemarketratesforothertypesof
similarinstruments.Thesecuritiesforwhichauctionshavefailedwillcontinuetoearninterestat
thecontractualrateandbeauctionedevery7to35daysuntiltheauctionsucceeds,theissuercalls
thesecuritiesortheymature.Asaresult,ourabilitytoliquidateandfullyrecoverthecarrying
valueofourauctionratesecuritiesintheneartermmaybelimitedornonexistent.
Consequently,fairvaluemeasurementshavebeenestimatedusinganincomeapproachmodel
(discountedcashflowanalysis).Whenestimatingthefairvalue,weconsiderbothobservable
marketdataandnonobservablefactors,includingcreditquality,duration,insurancewraps,
collateralcomposition,maximumrateformulas,comparabletradinginstruments,andlikelihoodof
redemption.Significantassumptionsusedintheanalysisincludeestimatesforinterestrates,
spreads,cashflowtimingandamounts,andholdingperiodsofthesecurities.Assetsmeasuredat
fairvalueusingsignificantunobservableinputs(Level3)represent3%ofourfinancialassets
measuredatfairvalueonarecurringbasis.
(b) ARSrightsfromUBSrepresentanofferfromUBSprovidinguswiththerighttorequireUBSto
purchaseourARSheldthroughUBSatparvalue.TovaluetheARSrights,weconsideredthe
intrinsicvalue,timevalueofmoney,andourassessmentofthecreditworthinessofUBS.