Blackberry 2013 Annual Report Download - page 228

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 2013 are transacted in U.S. dollars. 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 mainly of salaries, certain operating costs and manufacturing overhead are incurred primarily in Canadian
dollars. At March 2, 2013, approximately 19% of cash and cash equivalents, 29% of accounts receivables and 5% of accounts payable
are denominated in foreign currencies (March 3, 2012 – 38%, 30% and 11%, respectively). These foreign currencies primarily include
the Canadian dollar, Euro and British Pound. 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 Canadian dollar, Euro and British Pound.
The Company enters into forward and option contracts to hedge exposures relating to anticipated foreign currency 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. For the fiscal year ended March 2, 2013,
there was $8 million in realized gains on forward contracts which were ineffective upon maturity (March 3, 2012 – nil). As at
March 2, 2013 and March 3, 2012, the outstanding derivatives designated as cash flow hedges were considered to be fully effective.
As at March 2, 2013, the net unrealized losses on these forward and option contracts were approximately $8 million (March 3, 2012 –
net unrealized gains of $51 million) and 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 2, 2013, net unrealized gains of $29 million were recorded (March 3, 2012 – net
unrealized losses of $14 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.
I
nterest 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.
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