Blackberry 2008 Annual Report Download - page 25

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operating loss carryforwards, net of valuation allowances.
The Company considers both positive evidence and negative
evidence, to determine whether, based upon the weight of
that evidence, a valuation allowance is required. Judgment
is required in considering the relative impact of negative
and positive evidence. The Company records a valuation
allowance to reduce deferred income tax assets to the
amount management considers to be more likely than not
to be realized. If the Company determines that it is more
likely than not that it will not be able to realize all or part
of its deferred income tax assets in future fiscal periods,
the valuation allowance would be increased, resulting in a
decrease to net income in the reporting periods when such
determinations are made.
The Company uses the flow-through method to
account for investment tax credits (“ITCs”) earned on
eligible scientific research and experimental development
(“SR&ED”) expenditures. The Company applies judgement in
determining which expenditures are eligible to be claimed.
Under this method, the ITCs are recognized as a reduction
to income tax expense. If any of the claims submitted by the
Company are denied by the relevant tax authority, income tax
expense would increase.
Significant judgement is required in evaluating the
Company’s uncertain tax positions and provision for income
taxes. Effective March 4, 2007 the Company adopted
Financial Accounting Standards Board (“FASB”) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements
in accordance with SFAS No. 109, Accounting for Income
Taxes, and prescribes a recognition threshold of more likely
than not to be sustained upon examination. In addition,
FIN 48 provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim
periods and disclosure and transitions. For further details,
refer to Note 9 to the Consolidated Financial Statements.
The Company’s provision for income taxes is based on
a number of estimates and assumptions as determined by
management and is calculated in each of the jurisdictions in
which it conducts business. The Company’s consolidated
income tax rates have differed from statutory rates primarily
due to the tax impact of ITCs, manufacturing activities,
foreign exchange differences, the amount of net income
would have resulted in adjustments to warranty expense and
pre-tax earnings of approximately $8.5 million, or 0.7% of
consolidated annual net income.
Investments
All cash equivalents and investments, other than cost method
investments of $5.5 million, are categorized as available-
for-sale under Statement of Financial Accounting Standard
No. 115, Accounting for Certain Investments in Debt and
Equity Securities (“SFAS 115”) and are carried at fair value
with unrealized gains and losses recorded through other
comprehensive income. In the event of a decline in value which
is other than temporary, the cash equivalents and investments
are written down to fair value by a charge to earnings.
The Company assesses declines in the value of individual
investments for impairment to determine whether the
decline is other-than-temporary. The Company makes this
assessment by considering available evidence, including
changes in general market conditions, specific industry
and individual company data, the length of time and the
extent to which the market value has been less than cost,
the financial condition, the near-term prospects of the
individual investment and the Company’s intent to hold the
debt securities to maturity. In the event that a decline in the
fair value of an investment occurs and the decline in value is
considered to be other than temporary, an appropriate write-
down would be recorded.
For further details on the Company’s investments and
fair value conclusions, refer to Note 4 and Note 18 to the
Consolidated Financial Statements.
Income taxes
In accordance with SFAS 109, Accounting for Income Taxes,
the Company uses the liability method of tax allocation to
account for income taxes. Under this method, deferred
income tax assets and liabilities are determined based upon
differences between the financial reporting and tax bases
of assets and liabilities, and are measured using enacted tax
rates and laws that will be in effect when the differences are
expected to reverse. The Company’s deferred income tax
asset balance represents temporary differences between
the financial reporting and tax basis of assets and liabilities,
including research and development costs and incentives,
financing costs, capital assets, non-deductible reserves, and