Blackberry 2008 Annual Report Download - page 84

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RESEARCH IN MOTION LIMITED
notes to the consolidated financial statements continued
In thousands of United States dollars, except share and per share data, and except as otherwise indicated
monitoring their creditworthiness. The Company’s exposure
to credit loss and market risk will vary over time as a function
of currency exchange rates. The Company measures its
counterparty credit exposure as a percentage of the total
fair value of the applicable derivative instruments. Where the
net fair value of derivative instruments with any counterparty
is negative, the Company deems the credit exposure to that
counterparty to be nil. As at March 1, 2008, the maximum
credit exposure to a single counterparty, measured as a
percentage of the total fair value of derivative instruments
with net unrealized gains was 40% (March 3, 2007 – nil;
March 4, 2006 – 46%).
The Company is exposed to market and credit risk on
its investment portfolio. The Company reduces this risk by
investing in liquid, investment grade securities and by limiting
exposure to any one entity or group of related entities. As at
March 1, 2008, no single issuer represented more than 9% of
the total cash, cash equivalents and investments (March 3, 2007
- no single issuer represented more than 9% of the total cash,
cash equivalents and investments).
Cash and 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
utilize interest rate derivative instruments in its investment
portfolio.
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 allowance for doubtful
accounts as at March 1, 2008 is $2,016 (March 3, 2007- $1,824).
While the Company sells its products and services to
a variety of customers, three customers comprised 19%,
14% and 10% of trade receivables as at March 1, 2008
(March 3, 2007 - two customers comprised 23% and 13%).
Additionally, three customers comprised 21%, 15% and 12%
of the Company’s revenue (March 3, 2007 - four customers
comprised 19%, 14%, 11% and 11%; March 4, 2006 - four
customers comprised 19%, 16%, 12% and 12%).
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 effective portion of the change in fair
value initially 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. Any ineffective portion of the change in
fair value of the cash flow hedges is recognized in current
period earnings. For fiscal years ending 2008, 2007 and
2006, the derivatives designated as cash flow hedges were
considered to be fully effective with no resulting portions
being designated as ineffective. The maturity dates of these
instruments range from March 2008 to November 2010. As
at March 1, 2008, the net unrealized gain on these forward
contracts was approximately $34,593 (March 3, 2007 – net
unrealized loss of $7,834; March 4, 2006 – net unrealized gain
of $24,868). 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. These derivative gains or losses are reclassified to
earnings in the same period that the forecasted transaction
affects earnings. In fiscal 2009, $24,545 of the net unrealized
gain on the forward contracts will be reclassified to earnings.
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 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.
The maturity dates of these instruments are in March 2008. As
at March 1, 2008, a net unrealized loss of $6,880 was recorded
in respect of this amount (March 3, 2007 – unrealized gain
of $542; March 4, 2006 – unrealized loss of $386). 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.
The Company is exposed to credit risk on derivative
financial instruments arising from the potential for
counterparties to default on their contractual obligations.
The Company mitigates this risk by limiting counterparties
to highly rated financial institutions and by continuously