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46
Research฀In฀Motion฀Limited฀฀|฀฀Incorporated฀Under฀the฀Laws฀of฀Ontario฀(United฀States฀dollars,฀in฀thousands฀except฀per฀share฀data฀or฀as฀otherwise฀indicated)
47
For฀the฀years฀ended฀March฀1,฀2003,฀March฀2,฀2002฀and฀February฀28,฀2001
18.฀Financial฀Instruments
The฀Company฀is฀exposed฀to฀foreign฀exchange฀risk฀as฀a฀result฀of฀transactions฀in฀currencies฀other฀than฀its฀
functional฀currency฀of฀U.S.฀dollars.฀The฀majority฀of฀the฀Company’s฀revenues฀in฀scal฀2003฀are฀transacted฀
in฀U.S.฀dollars,฀Euro฀and฀British฀pounds.฀Purchases฀of฀raw฀materials฀are฀primarily฀transacted฀in฀U.S.฀dollars.฀
Other฀expenses,฀consisting฀of฀the฀majority฀of฀salaries,฀certain฀operating฀costs฀and฀all฀manufacturing฀
overhead,฀are฀incurred฀primarily฀in฀Canadian฀dollars.฀At฀March฀1,฀2003,฀approximately฀14%฀of฀cash฀and฀
cash฀equivalents,฀13%฀of฀trade฀receivables฀and฀8%฀of฀accounts฀payable฀and฀accrued฀liabilities฀are฀
denominated฀in฀foreign฀currencies฀(2002฀–฀nil%,฀24%,฀and฀25%,฀respectively).฀These฀foreign฀currencies฀
include฀the฀Canadian฀Dollar,฀British฀Pound,฀Euro,฀Australian฀dollar,฀Hong฀Kong฀dollar,฀and฀Japanese฀Yen.฀
To฀mitigate฀the฀risks฀relating฀to฀foreign฀exchange฀uctuations,฀the฀Company฀maintains฀net฀monetary฀
asset฀and/or฀liability฀balances฀in฀foreign฀currencies฀and฀engages฀in฀foreign฀currency฀hedging฀activities฀
through฀the฀utilization฀of฀derivative฀nancial฀instruments.฀The฀Company฀does฀not฀purchase฀or฀hold฀any฀
derivative฀instruments฀for฀speculative฀purposes.
To฀hedge฀exposures฀relating฀to฀foreign฀currency฀anticipated฀transactions,฀the฀Company฀has฀
entered฀into฀forward฀foreign฀exchange฀contracts฀to฀sell฀U.S.฀dollars฀and฀purchase฀Canadian฀dollars฀
with฀an฀aggregate฀notional฀value฀of฀U.S.฀$58.1฀million฀as฀at฀March฀1,฀2003฀(2002฀–฀$87.5฀million,฀2001฀–฀
$44.5฀million).฀These฀contracts฀carry฀a฀weighted฀average฀rate฀of฀U.S.฀$1.00฀equals฀Canadian฀$1.5831,฀
and฀mature฀at฀various฀dates,฀with฀the฀latest฀being฀December฀1,฀2003.฀These฀contracts฀have฀been฀
designated฀as฀cash฀ow฀hedges,฀with฀gains฀and฀losses฀on฀the฀hedge฀instruments฀being฀recognized฀
in฀the฀same฀period฀as,฀and฀as฀part฀of,฀the฀hedged฀transaction.฀As฀at฀March฀1,฀2003,฀the฀notional฀gain฀
on฀these฀forward฀contracts฀was฀approximately฀$3,439฀(2002฀–฀notional฀loss฀of฀$1,478,฀2001฀–฀$nil).฀
To฀hedge฀exposure฀relating฀to฀foreign฀currency฀denominated฀long-term฀debt,฀the฀Company฀has฀
entered฀into฀forward฀foreign฀exchange฀contracts฀to฀sell฀U.S.฀dollars฀and฀purchase฀Canadian฀dollars฀with฀
an฀aggregate฀notional฀value฀of฀U.S.฀$10.0฀million฀(2002฀–฀$nil,฀2001฀–฀$nil).฀These฀contracts฀carry฀a฀weighted฀
average฀exchange฀rate฀of฀U.S.฀$1.00฀equals฀Canadian฀$1.5706,฀and฀mature฀on฀December฀1,฀2003.฀These฀
contracts฀have฀been฀designated฀as฀fair฀value฀hedges,฀with฀gains฀and฀losses฀on฀the฀hedge฀instruments฀
being฀recognized฀in฀earnings฀each฀period,฀offsetting฀the฀change฀in฀the฀U.S.฀dollar฀value฀of฀the฀hedged฀
liability.฀As฀at฀March฀1,฀2003,฀the฀notional฀gain฀on฀these฀forward฀contracts฀was฀approximately฀$419฀(2002฀–฀
n/a,฀2001฀–฀n/a).
To฀satisfy฀short-term฀anticipated฀cash฀requirements,฀the฀Company฀has฀entered฀into฀a฀forward฀
foreign฀exchange฀contract฀to฀purchase฀U.S.฀dollars฀and฀sell฀Canadian฀dollars฀with฀a฀notional฀value฀of฀
U.S.฀$1.3฀million฀(2002฀–฀$nil,฀2001฀–฀$nil).฀This฀contract฀carries฀an฀exchange฀rate฀of฀U.S.฀$1.00฀equals฀
Canadian฀$1.5313,฀and฀matures฀on฀March฀3,฀2003.฀Due฀to฀the฀short-term฀nature฀of฀the฀contract,฀it฀was฀
not฀designated฀for฀hedge฀accounting฀and฀is฀carried฀on฀the฀balance฀sheet฀at฀fair฀value.฀As฀at฀March฀1,฀2003,฀
the฀notional฀loss฀on฀this฀forward฀contract฀was฀approximately฀$42฀(2002฀–฀n/a,฀2001฀–฀n/a).
The฀Company฀is฀exposed฀to฀credit฀risk฀on฀derivative฀nancial฀instruments฀arising฀from฀the฀potential฀for฀
counter-parties฀to฀default฀on฀their฀contractual฀obligations฀to฀the฀Company.฀The฀Company฀limits฀this฀risk฀
by฀dealing฀with฀nancially฀sound฀counter-parties฀and฀by฀continuously฀monitoring฀the฀creditworthiness฀
of฀all฀counter-parties.฀As฀at฀March฀1,฀2003,฀the฀maximum฀exposure฀to฀a฀single฀counter-party฀was฀37%฀of฀
outstanding฀derivative฀instruments฀(2002฀–฀50%).฀
The฀Company฀is฀exposed฀to฀market฀and฀credit฀risk฀on฀its฀investment฀portfolio.฀The฀Company฀limits฀this฀
risk฀by฀investing฀only฀in฀highly฀liquid,฀investment฀grade฀securities฀and฀by฀limiting฀exposure฀to฀any฀one฀
entity฀or฀group฀of฀entities.฀As฀at฀March฀1,฀2003,฀no฀single฀issuer฀represented฀more฀than฀5%฀of฀the฀total฀
cash,฀cash฀equivalents,฀marketable฀securities,฀and฀long-term฀portfolio฀investments฀(2002฀–฀no฀single฀
issuer฀represented฀more฀than฀5%฀of฀the฀total฀cash,฀cash฀equivalents฀and฀marketable฀securities).฀
The฀Company฀is฀exposed฀to฀interest฀rate฀risk฀as฀a฀result฀of฀holding฀investments฀of฀varying฀maturities.฀
The฀fair฀value฀of฀short-term฀investments,฀marketable฀securities,฀and฀long-term฀portfolio฀investments,฀
as฀well฀as฀the฀investment฀income฀derived฀from฀the฀investment฀portfolio,฀will฀uctuate฀with฀changes฀