Also, the Company has an Employee and Director Stock Option Plan ("ESOP"). The exercise price is no lower than the closing market price on the trading day immediately preceding the date of grant. Options granted under the ESOP expire within a period of six years of granting, with vesting periods determined by the Human Resources Committee.
The Company employs a fair value method of accounting for all options issued to employees and directors on or after April 27, 2002. The fair value of options issued in the quarter was calculated using the Black-Scholes option pricing model and the following assumptions:
Quarter Ended Quarter Ended
April 30 April 30
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2011 2010
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Risk free interest rate 2.5% 2.4%
Expected life in years 5.0 5.5
Expected dividend yield 3.2% 4.1%
Volatility 36.96% 41.51%
For the quarter ended April 30, 2011, the Company did not issue Deferred Share Units in lieu of options to directors and officers of the Company under its Deferred Share Unit Plan. Deferred share units vest evenly over a four year period. Deferred share units do not have an exercise price and can only be settled using cash consideration.
During the quarter ended April 30, 2011, the Company did not issue Restricted Share Units. The RSUs vest over three years. RSUs do not have an exercise price and are settled using common shares of the Company. The Company recognizes compensation expense equal to the stock price on the grant date, over the vesting period.
7. Financial Instruments
The Company has exposure to the following risks from its use of financial instruments: credit risk, market risk 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 extended payment terms to some 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 licensee financial status.
Many of the Company's current licensees' operations are focused in the semiconductor industry. The semiconductor industry, particularly the DRAM and Flash memory segment, tends to be cyclical and, from time to time, suffers from economic difficulties due to pricing pressure as a result of an oversupply of memory devices.
Due to the long-term nature of many 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 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 credit risk from counter-parties 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, each with a maturity date not exceeding 12 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 credit exposure to credit risk at the reporting date was:
April 30, 2011 April 30, 2010
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Cash and cash equivalents $ 97,809 $ 70,732
Marketable securities 17,021 30,096
Accounts receivable 13,301 4,880
Other asset 1,136 2,053
Other liability - (992)
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$129,267 $106,769
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The aging of accounts receivable at the reporting date was:
April 30, 2011 April 30, 2010
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Current $10,661 $1,367
Past due 2,640 3,513
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$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.
