Blackberry 2008 Annual Report Download - page 43

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41
Auction Rate Securities
Auction rate securities are debt instruments with long-term
nominal maturity dates for which the interest rates are reset
through a dutch auction process, typically every 7, 28 or 35
days. Interest is paid at the end of each auction period, and
the auction normally serves as the mechanism for securities
holders to sell their existing positions to interested buyers.
As at March 1, 2008, the Company held $55.0 million in face
value of auction rate securities, all of which carry AAA/Aaa
ratings. Included in this amount are $40.5 million in face value
of auction rate securities that are experiencing failed auctions
as a result of more sell orders than buy orders, and these
auctions have not yet returned to normal operations. The
interest rate for these securities has been set at the maximum
rate specified in the program documents (a predetermined
basis points spread over LIBOR), and interest continues to
be paid every 28 days as scheduled. As a result of the lack
of continuing liquidity in these securities, the Company has
adjusted the reported value to reflect an unrealized loss of
$3.2 million, which the Company considers temporary and is
reflected in other comprehensive income. In valuing these
securities, the Company used a multi-year investment horizon
and considered the underlying risk of the securities and the
current market interest rate environment. The Company has
the ability and intent to hold these securities until such time
that market liquidity returns to normal levels, and does not
consider the principal or interest amounts on these securities
to be materially at risk at this time. As there is uncertainty as
to when market liquidity for auction rate securities will return
to normal, the Company has classified the failing auction
rate securities as long-term investments on the balance sheet.
As at March 1, 2008, the Company does not consider these
investments to be other-than-temporarily impaired.
The majority of the Company’s cash and cash equivalents,
short-term investments and long-term investments are
denominated in U.S. dollars as at March 1, 2008.
A comparative summary of cash and cash equivalents,
short-term investments and long-term investments is set
out below.
Financial Condition
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and long-
term investments increased by $931.1 million to $2.34 billion
as at March 1, 2008 from $1.41 billion as at March 3, 2007.
As at
March 1, 2008 March 3, 2007 Change - Fiscal
2008/2007
Cash and cash equivalents $ 1,184,398 $ 677,144 $ 507,254
Short-term investments 420,709 310,082 110,627
Long-term investments 738,889 425,652 313,237
Cash and cash equivalents, short-term investments and long-term investments $ 2,343,996 $ 1,412,878 $ 931,118
Structured Investment Vehicle
A Structured Investment Vehicle (“SIV”) is a fund that seeks
to generate investment returns by purchasing high grade
long-term fixed income instruments and funding those
purchases by issuing short-term debt instruments. In late 2007,
widespread illiquidity in the market has prevented many SIVs
from accessing necessary funding for ongoing operations. As
at March 1, 2008, the Company held $40.0 million face value of
SIV securities that were negatively impacted by the changes
in market conditions and has recognized through net income
an other-than temporary impairment charge of $5.6 million on
these securities for the year ended March 1, 2008.
In determining the value for these securities, the Company
has considered available evidence including changes in
general market conditions, specific industry and individual
company data, the length of time and the extent to which
the fair value has been less than cost, the financial condition,
the near-term prospects of the individual investment and the
Company’s intent and ability to hold the debt securities.
One of the programs with a $25.0 million face amount
included in the total $40.0 million of SIV holdings has been
placed with an enforcement manager to be restructured or
sold at the election of each senior note holder. The Company
has elected to participate in the restructuring of the securities.
The Company believes that the anticipated restructuring
will likely result in extended maturities and/or a pro-rata
distribution of proceeds from the income and principal
payments on the assets underlying the securities. Given the
uncertainty of the restructuring at this time, the Company
cannot determine the potential impact that a restructuring
will have on the value of these securities and has classified
these securities as long-term investments. The Company may