The Company has exposure to the following risks from its use of financial instruments: credit risk, market and liquidity risk.
Credit Risk
Credit risk is the risk of financial loss to the Company if a licensee or counter-party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's accounts receivable and its foreign exchange contracts.
The Company provides credit to certain licensees in the normal course of its operations. The Company's credit risk review includes performing periodic credit evaluations of its most significant licensees. In certain circumstances, the Company may utilize letters of guarantee or credit insurance to mitigate certain credit risks. Many of the Company's licensees are large national and international public companies. Due to the nature of the Company's operations, provisions for doubtful accounts are made on a licensee-by-licensee basis, based upon on-going review of licensees' financial status.
Many of the Company's current licensees' operations are focused in the semiconductor industry. The semiconductor industry, particularly the dynamic random access memory (DRAM) segment, can suffer from economic difficulties due to pricing pressure as a result of oversupply of memory devices.
Due to the long-term nature of the Company's licensing arrangements, in certain circumstances, the Company may not be able to obtain, at reasonable cost, credit insurance or other forms of credit risk mitigation instruments. A default of the remaining payments by one of the Company's major licensees could have a materially adverse impact on the Company's future revenues, earnings, cash flow and financial position.
The Company limits its exposure to counter-party credit risk with respect to derivative instruments by dealing only with major financial institutions. Management does not expect any counter-parties to fail to meet their obligations.
The Company invests its excess cash in investment grade securities with a maturity date not exceeding twelve months. The Company relies upon the credit rating of the counter-party to limit its credit risk. The Company does not invest in asset-backed commercial paper.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
October 31, 2011 April 30, 2011 May 1, 2010
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Cash and cash
equivalents $106,999 $97,809 $70,732
Marketable securities 8,940 17,021 30,096
Accounts receivable 7,232 13,301 4,880
Other asset - 1,136 2,053
Other liability (724) - (992)
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$122,447 $129,267 $106,769
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The aging of accounts receivable at the reporting date was:
October 31, 2011 April 30, 2011 May 1, 2010
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Current $4,459 $10,661 $1,367
Past due 0-30 days 221 190 204
Over 31 days past due 2,592 2,450 3,382
Less: allowance for
doubtful accounts (40) - (73)
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$7,232 $13,301 $4,880
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Of the amount past due, the Company expects to collect a portion of the amount under a credit insurance policy.
Marketable securities comprise the following:
October 31, 2011 April 30, 2011 May 1, 2010
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Bonds and debentures $3,221 $ 720 $27,087
Discount notes 5,719 16,301 3,009
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$8,940 $17,021 $30,096
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The carrying values of bonds and debentures and discount notes include accrued interest and approximate market value. Investments in bonds and debentures and discount notes represent holdings in corporate and government short-term marketable securities as at October 31, 2011 and April 30, 2011 and have a maturity date of one year or less.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company's income or the value of its holding of financial instruments.
Foreign Exchange Risk
The Company's revenues are denominated primarily in U.S. dollars, giving rise to exposure to market risks from changes in foreign exchange rates. The Company is exposed to foreign currency fluctuations on its accounts receivable and future cash flows related to licensing arrangements denominated in U.S. dollars, as well as certain operating expenses and its other long-term liabilities obligations.
The Company's foreign exchange risk management includes the use of foreign exchange forward contracts to fix the exchange rates on certain foreign currency exposures. The Company's objective is to manage and control exposures and secure the Company's profitability on existing contracts and anticipated future cash flows. The Company does not utilize derivative instruments for trading or speculative purposes. The Company formally documents all relationships between derivative instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific firm contractually related commitments or anticipated transactions.
