Blackberry 2012 Annual Report Download - page 233

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In December 2011, the Company was served with four purported class actions relating to third party (Carrier IQ) recording software
allegedly installed on smartphones. The Company believes that a class action proceeding in these circumstances is without merit and
intends to vigorously defend itself. Two of the four actions have already been dismissed and the Company is in discussions with
counsel for the other two representative plaintiffs to seek the dismissal of those cases as well
Also in December 2011, a purported class action was filed against the Company relating to promotional activities in respect of the
BlackBerry PlayBook tablet. The Company believes that a class action proceeding in these circumstances is without merit and intends
to vigorously defend itself.
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 2012 were transacted in U.S. dollars. Portions of 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.
At March 3, 2012, approximately 38% of cash and cash equivalents, 30% of accounts receivables and 11% of accounts payable are
denominated in foreign currencies (February 26, 2011 – 59%, 25% and 8%, respectively). These foreign currencies primarily include
the Canadian dollar, Euro and British Pound. As part of its risk mitigation 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 Canadian dollar, Euro and British Pound.
The Company enters into forward and option 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 when the hedged exposure affects income. Any
ineffective portion of the derivative’s gain or loss is recognized in current period income. The cash flow hedges were fully effective at
March 3, 2012. As at March 3, 2012, the net unrealized gains on these forward contracts was approximately $51 million (February 26,
2011 – net unrealized losses of $21 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 enters into forward and option contracts to hedge certain monetary assets and liabilities that are exposed to foreign
currency risk. The principal currencies hedged include the Canadian dollar, Euro and British Pound. These contracts are not subject to
hedge accounting; as a result, gains or losses are recognized in income each period, generally offsetting the change in the U.S. dollar
value of the hedged asset or liability. As at March 3, 2012, net unrealized losses of $14 million were recorded in respect of this
amount (February 26, 2011 – net unrealized losses of $46 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.
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