Shutterfly 2010 Annual Report Download - page 46

Liquidity and Capital Resources
Our total capital resources were as follows (in thousands):
As of December 31, 2009, we had access to cash and cash equivalents, totaling $132.8 million. In addition, to supplement our overall
liquidity position, we have a 360-
day revolving credit facility with a financial institution to provide up to $20.0 million in additional capital
resources that expires in June 2010. As of December 31, 2009, no amounts have been drawn against this facility.
At December 31, 2009, we held approximately $47.9 million par value of variable rate bond investments with a fair value of approximately
$41.7 million, classified as short-term investments, with an auction reset feature (“auction rate securities”
or "ARS") whose underlying assets are
student loans which are substantially backed by the federal government. Since February 2008, these auctions have failed. Therefore the ARS
continue to be illiquid and we will not be able to access these funds until a future auction of these investments is successful or a buyer is found
outside of the auction process.
In November 2008, we accepted an offer from UBS AG (“UBS”),
one of our investment providers, entitling us to sell at par value ARS
purchased from UBS at anytime during a two-year period from June 30, 2010 through July 2, 2012 (the "Right"). UBS’
s obligations under the
Right are not secured by its assets and do not require UBS to obtain any financing to support its performance obligations under the Right. UBS
has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Right. If UBS has insufficient
funding to buy back the ARS and the auction process continues to fail, then we may incur further losses on the carrying value of the ARS. We
intend to exercise the Rights on June 30, 2010.
Due to the adverse conditions in the auction rate securities market, we have used a level 3 discounted cash flow valuation model to value the
ARS investments and the Right. We believe there are several significant assumptions that are utilized in our ARS valuation analysis, the two
most critical of which are the discount rate and the average expected term. Holding all other factors constant, if we were to increase the discount
rate utilized in our valuation analysis by 50 basis points, or one-
half of a percentage point, this change would have the effect of reducing the fair
value of our ARS by approximately $0.9 million
as of December 31, 2009. Similarly, holding all other factors constant, if we were to increase
the average expected term utilized in our fair value calculation by one year, this change would have the effect of reducing the fair value of our
ARS by approximately $1.1 million
as of December 31, 2009. We also consider credit ratings with respect to our investments provided by
investment ratings agencies. As of December 31, 2009, all of our investments conformed to the requirements of our investment policy, which
requires that all of our investments meet high credit quality standards as defined by credit ratings of the major investment ratings agencies.
These ratings are subject to change and a downgrade in rating would adversely affect the value of our investments.
Although these investments continue to be illiquid, during 2009 we liquidated $4.3 million (at par value) ARS investments that were called
by the state issuers.
December 31,
2009
2008
Cash and cash equivalents
$
132,812
$
88,164
Auction Rate Securities and Rights
47,925
52,250
Total Capital Resources
$
180,737
$
140,414
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