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17. DERIVATIVE FINANCIAL INSTRUMENTS
Values of financial instruments outstanding were as follows:
Notional
Amount
Carrying
Amount
Estimated
Fair Value
February 27, 2010
Assets (Liabilities)
Currency forward contracts — asset .................................................................................................. $2,630,304 $97,261 $97,261
Currency forward contracts — liability ............................................................................................... $ 574,776 $ (6,164) $ (6,164)
Notional
Amount
Carrying
Amount
Estimated
Fair Value
February 28, 2009
Assets (Liabilities)
Currency forward contracts — asset .................................................................................................... $1,147,709 $ 70,100 $ 70,100
Currency forward contracts — liability ........................ .......................... ............................................... $ 975,543 $(56,827) $(56,827)
The Company uses derivative instruments to manage exposures to foreign exchange risk resulting from transactions in
currencies other than its functional currency, the U.S. dollar. The Company’s risk management objective in holding
derivative instruments is to reduce the volatility of current and future income as a result of changes in foreign currency. To
limit its exposure to adverse movements in foreign currency exchange rates, the Company enters into foreign currency
forward and option contracts.
The majority of the Company’s revenues in fiscal 2010 are transacted in U.S. dollars. However, portions of the revenues are
denominated in, Canadian dollars, Euros, 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 manufacturing overhead are
incurred primarily in Canadian dollars. The Company enters into forward contracts to hedge portions of these anticipated
transactions to reduce the volatility on income associated with the foreign currency exposures. The Company also enters
into forward contracts to reduce the effects of foreign exchange gains and losses resulting from the revaluation of certain
foreign currency monetary assets and liabilities. At February 27, 2010 approximately 38% of cash and cash equivalents,
22% of accounts receivables and 7% of accounts payable and accrued liabilities are denominated in foreign currencies
(February 28, 2009 — 36%, 26% and 4%, respectively).
The Company enters 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 accumulated other comprehensive income and subsequently reclassified to income in the period in which the
cash flows from the associated hedged transactions affect income. Any ineffective portion of the change in fair value of
the cash flow hedge is recognized in current period income. As at February 27, 2010 and February 28, 2009, 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 2010 to December 2012. As at February 27, 2010, the
net unrealized gains on these forward contracts was $62.2 million (February 28, 2009 — net unrealized losses of $2.7 million;
March 1, 2008 — net unrealized gains of $34.6 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. In fiscal 2011, $59.5 million of net unrealized gains on these forward
contracts will be reclassified to income.
The following table shows the fair values of derivative instruments designated as cash flow hedges in the consolidated
balance sheets:
Balance Sheet
Classification Fair Value
Balance Sheet
Classification Fair Value
February 27, 2010 February 28, 2009
As at
Currency forward contracts — asset Other current assets $66,246 Other current assets $48,074
Currency forward contracts — liability Accrued liabilities $ 4,039 Accrued liabilities $ 50,756
NOTE 17
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