Blackberry 2007 Annual Report Download - page 55

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53
currency options. The Company does not use derivative
instruments for speculative purposes. The principal
currencies hedged include the British Pound, Canadian
dollar, and Euro.
The Company has entered into forward contracts to
hedge exposures relating to foreign currency anticipated
transactions. These contracts have been designated as
cash flow hedges, with the resulting changes in fair value
recorded in other comprehensive income, and subsequently
reclassified to earnings in the period in which the cash flows
from the associated hedged transactions affect earnings.
These cash flow hedges were fully effective at March 3, 2007.
As at March 3, 2007, the unrealized loss on these forward
contracts was approximately $7.8 million (March 4, 2006
– unrealized gain of $24.9 million). These amounts were
included in Other current liabilities and Accumulated other
comprehensive income.
The Company has entered into forward contracts to hedge
certain monetary assets and liabilities that are exposed to
foreign currency risk. 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
asset or liability. As at March 3, 2007, an unrealized gain of
$0.5 million was recorded in respect of this amount (March
4, 2006 – unrealized loss of $0.4 million). This amount was
included in Selling, marketing and administration.
Interest Rate
Cash, cash equivalents and investments are invested in
certain instruments of varying maturities. Consequently,
the Company is exposed to interest rate risk as a result of
holding investments of varying maturities. The fair value
of investments, as well as the investment income derived
from the investment portfolio, will fluctuate with changes in
prevailing interest rates. The Company does not currently
use interest rate derivative financial instruments in its
investment portfolio.
Credit and Customer Concentration
The Company has historically been dependent on an
increasing number of significant telecommunication carriers
and on larger more complex contracts with respect to sales
of the majority of its products and services. The Company is
experiencing significant sales growth in North America and
internationally, resulting in the growth in its carrier customer
base in terms of numbers, sales and trade receivables
volumes and in some instances new or significantly increased
credit limits. The Company, in the normal course of
business, monitors the financial condition of its customers
and reviews the credit history of each new customer. The
Company establishes an allowance for doubtful accounts
that corresponds to the specific credit risk of its customers,
historical trends, and economic circumstances. The Company
also places insurance coverage for a portion of its foreign
trade receivables. The allowance as at March 3, 2007 is $1.8
million (March 4, 2006 - $1.6 million). While the Company sells
to a variety of customers, two customers comprised 23% and
13% of trade receivables as at March 3, 2007 (March 4, 2006 –
three customers comprised 18%, 13% and 13%). Additionally,
four customers comprised 19%, 14%, 11% and 11% of the
Company’s fiscal 2007 annual sales (fiscal 2006 annual sales -
four customers comprised 19%, 16%, 12% and 12%).
The Company is exposed to credit risk on derivative
financial instruments arising from the potential for
counterparties to default on their contractual obligations
to the Company. The Company mitigates some of this risk
by limiting counterparties to major financial institutions
and by continuously monitoring their creditworthiness. As
at March 3, 2007, the maximum credit exposure to a single
counterparty, measured as a percentage of the total fair value
of the applicable derivative instruments was nil (March 4,
2006 – 46%).
The Company is exposed to market and credit risk on
its investment portfolio. The Company mitigates this risk
by investing only in liquid, investment grade securities and
by limiting exposure to any one entity or group of related
entities. As at March 3, 2007, no single issuer represented
more than 9% of the total cash, cash equivalents and
investments (March 4, 2006 - no single issuer represented
more than 12% of the total cash, cash equivalents and
investments).
Impact of Accounting Pronouncements Not Yet
Implemented
Accounting for Certain Hybrid Financial Instruments
In February 2006, the FASB issued SFAS 155 Accounting
for Certain Hybrid Financial Instruments. SFAS 155 amends
SFAS 133 and among other things, permits fair value
remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would
require bifurcation. SFAS 155 is in effect for fiscal years