Blackberry 2009 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 FEBRUARY 28, 2009
44
in Canadian dollars. See “Income Taxes” and “Non-GAAP
Financial Measures”. At February 28, 2009, approximately
36% of cash and cash equivalents, 26% of trade receivables
and 4% of accounts payable are denominated in foreign
currencies (March 1, 2008 – 13%, 35% and 15%, 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
and these contracts have been designated as cash flow
hedges. For a derivative instrument designated as a cash flow
hedge, the effective portion of the derivative’s gain or loss
is initially reported as a component of other comprehensive
income and is subsequently recognized in earnings when
the hedged exposure affects earnings. The ineffective
portion of the gain or loss is recognized in earnings. The cash
flow hedges were fully effective at February 28, 2009. As at
February 28, 2009, the net unrealized loss on these forward
contracts was approximately $2.7 million (March 1, 2008 – net
unrealized gain of $35.0 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.
The Company has entered into forward contracts to
hedge certain monetary assets and liabilities that are
exposed to foreign currency risk. For contracts that are not
subject to hedge accounting, gains and losses on the hedge
instruments are recognized in earnings each period, generally
offsetting the change in the U.S. dollar value of the hedged
asset or liability. As at February 28, 2009, a net unrealized
gain of $16.0 million was recorded in respect of this amount
(March 1, 2008 – net unrealized loss of $6.9 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 February 28, 2009 is
$2.1 million (March 1, 2008 - $2.0 million). While the Company
sells to a variety of customers, one customer comprised 29%
of trade receivables as at February 28, 2009 (March 1, 2008 –
three customers comprised 19%, 14% and 10%). Additionally,
three customers comprised 23%, 14% and 10% of the
Company’s fiscal 2009 annual sales (fiscal 2008 annual sales –
three customers comprised 21%, 15% 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.
The Company mitigates this risk by limiting counterparties
to highly rated financial institutions and by continuously
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 February 28, 2009, 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 60% (March 1, 2008 – 40%).
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