Blackberry 2009 Annual Report Download - page 44

RESEARCH IN MOTION LIMITED
management’s discussion and analysis of financial
condition and results of operations continued
FOR THE THREE MONTHS AND FISCAL YEAR ENDED FEBRUARY 28, 2009
42
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 February 28, 2009, the Company held $40.5 million
in face value of investment grade auction rate securities
which 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 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 $7.7 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 February 28, 2009, the Company does not consider these
investments to be other-than-temporarily impaired.
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. Beginning in late
2007, widespread illiquidity in the market has prevented
many SIVs from accessing necessary funding for ongoing
operations.
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.
The SIV holdings have 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. During fiscal 2009, the Company received a total of
$4.5 million in principal and interest payments from the SIV.
As of February 28, 2009, the Company held $22.5 million
face value of SIV securities that were negatively impacted by
changes in market conditions.
During fiscal 2009, the Company did not record any
other-than-temporary impairment charges associated with
these investments. In fiscal 2008, the Company recorded
an other-than-temporary impairment charge of $3.8 million
on these investment 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 recognize
additional impairment charges on these securities if the
restructuring is unsuccessful or there is an other-than
temporary deterioration in the value of the underlying assets.
Other
Since March 1, 2005, the Company has maintained an
investment account with Lehman Brothers International
(Europe) (“LBIE”). As of September 30, 2008, the date of
the last account statement received by the Company, the
Company held in the account $81.1 million in combined cash
and aggregate principal amount of fixed-income securities
issued by third parties unrelated to LBIE or any other
affiliate of Lehman Brothers Holdings Inc (“LBHI”). The face
value, including accrued interest, as of February 28, 2009 is
$84.5 million. Due to the insolvency proceedings instituted
by LBHI and its affiliates, including LBIE, commencing on
September 15, 2008, the Company’s regular access to
information regarding the account has been disrupted.
Following the appointment of the Administrators to LBIE the
Company has asserted a trust claim in specie over the assets
held for it by LBIE for the return of those assets in accordance
with the insolvency procedure in the United Kingdom. The
Company will take all actions it deems appropriate to defend
its rights to these holdings and as a result, no impairment has
been recognized against these holdings in fiscal 2009.