Support.com 2011 Annual Report Download - page 45

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We determined that the gross unrealized losses on our available-for-sale investments as of December 31, 2011 are temporary in nature. The fair
value of our available-for-sale securities at December 31, 2011 and 2010 reflects a net unrealized loss of $311,000 and $127,000, respectively. We
recognized net realized gains related to available-for-sale securities of $7,000 and $10,000 for the years ended December 31, 2011 and 2010,
respectively. There were no net realized losses on available-for-sale securities in the years ended December 31, 2011 and 2010, respectively. The cost
of securities sold is based on the specific identification method.
At December 31, 2011 and 2010 we had investments in AAA-rated ARS with various state student loan authorities with estimated fair values
of $1.1 million and $2.7 million, respectively. The student loans made by these authorities are substantially guaranteed by the Federal government
through the Federal Family Education Loan Program (FFELP). ARS are long-term floating rate bonds tied to short-term interest rates. After the initial
issuance of the securities, the interest rate on the securities is reset periodically, at intervals established at the time of issuance (e.g., every seven days,
28 days, 35 days, or every six months), based on market demand, if the auctions are successful. ARS are bought and sold in the marketplace through
a competitive bidding process often referred to as a “Dutch auction.” If there is insufficient interest in the securities at the time of an auction, the
auction may not be completed and the ARS then pays a default interest rate. Following such a failed auction, we cannot access our funds that are
invested in the corresponding ARS until a future auction of these investments is successful, new buyers express interest in purchasing these securities
in between reset dates, issuers establish a different form of financing to replace these securities or final payments become due according to contractual
maturities. Commencing in February 2008, conditions in the global credit markets resulted in failed auctions for all of our ARS. In the near term, our
ability to liquidate our investments or fully recover the carrying values may be limited or not exist.
Fair value for non-UBS ARS, classified as available-for-sale, was based on a discounted cash flow valuation that takes into account a number
of factors including the estimated weighted average remaining term (WART) of the underlying securities, the expected return, and the discount rate.
The WART was estimated based on servicing reports and expectations regarding redemptions. The expected return was calculated based on the last
twelve months’ average for the 91 day T-bill plus a spread. This rate is the typical default rate for ARS held by us. The discount rate was calculated
using the 3-month LIBOR rate plus adjustments for the security type. Changes in any of the above estimates, especially the weighted average
remaining term or the discount rate, could result in a material change to the fair value. Presently we have determined the decline in value for the
available-for-sale ARS to be temporary because i) we have no intent to sell the security, and we believe that we will not be required to sell the security
before the recovery of its amortized cost due to our cash reserves; ii) through December 31, 2011 our remaining ARS instrument has maintained a
AAA credit rating; and iii) loans made by the issuers are backed by the Federal government. In accordance with ASC 320, we also conclude that we
do not intend to sell an impaired available-for-sale security and will not be required to sell such a security before the recovery of our amortized cost.
However, if circumstances change, we may be required to record an other-than-temporary impairment charge on the available-for-sale ARS.
We may similarly be required to record other-than-temporary impairment charges if the rating on this security is reduced or if issuer defaults on its
obligations. In addition to impairment charges, any of these events could cause us to lose part or all of our investment in this security. Any of these
events could materially affect our results of operations and our financial condition. We currently believe this security is not significantly impaired for
the reasons described above; however, it could take until the final maturity of the underlying notes (initially up to 30 years) to realize our investment’s
recorded value.
The following table sets forth the unrealized losses for the Company’s available-for-sale investments as of December 31, 2011 and 2010 (in
thousands):
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    
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     
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     
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Commercial Paper $ 4,288 $ (6) $ — $ — $ 4,288 $ (6)
Corporate Bonds 11,392 (14) — — 11,392 (14)
Corporate Notes 1,555 (2) — — 1,555 (2)
U.S. Government Agency Securities 3,805 (1) — — 3,805 (1)
Auction-rate securities — — 1,111 (289) 1,111 (289)
Total $ 21,040 $ (23) $ 1,111 $ (289) $ 22,151 $ (312)
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