Blackberry 2008 Annual Report Download - page 46

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 MARCH 1, 2008
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The Company has entered into forward contracts to hedge
certain monetary assets and liabilities that are exposed
to foreign currency risk. These contracts are considered
economic hedges that are not subject to hedge accounting,
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 1, 2008, a net unrealized loss of $6.9 million was
recorded in respect of this amount (March 3, 2007 – net
unrealized gain of $0.5 million). Unrealized gains associated
with these contracts were recorded in Other current assets
and Selling, marketing and administration. Unrealized losses
were recorded in Accrued liabilities and 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 1, 2008 is
$2.0 million (March 3, 2007 - $1.8 million). While the Company
Market Risk of Financial Instruments
The Company is engaged in operating and financing
activities that generate risk in three primary areas:
Foreign Exchange
The Company is exposed to foreign exchange risk as a
result of transactions in currencies other than its functional
currency, the U.S. dollar. The majority of the Company’s
revenues in fiscal 2008 are transacted in U.S. dollars. Portions
of the revenues are denominated in British Pounds, Canadian
dollars and Euros. Purchases of raw materials are primarily
transacted in U.S. dollars. Other expenses, consisting of
the majority of salaries and income taxes, certain operating
costs and manufacturing overhead are incurred primarily in
Canadian dollars. At March 1, 2008, approximately 13% of
cash and cash equivalents, 35% of trade receivables and 15%
of accounts payable and accrued liabilities are denominated
in foreign currencies (March 3, 2007 – 3%, 30% and 14%,
respectively). These foreign currencies primarily include
the British Pound, Canadian dollar, and Euro. As part of
its risk management strategy, the Company maintains net
monetary asset and/or liability balances in foreign currencies
and engages in foreign currency hedging activities using
derivative financial instruments, including currency forward
contracts and 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 1, 2008.
As at March 1, 2008, the net unrealized gain on these forward
contracts was approximately $35.0 million (March 3, 2007 –
net unrealized loss of $7.8 million). Unrealized gains associated
with these contracts were recorded in Other current assets
and Accumulated other comprehensive income. Unrealized
losses were recorded in Accrued liabilities and Accumulated
other comprehensive income.