Blackberry 2009 Annual Report Download - page 33

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Income Taxes
For fiscal 2009, the Company’s income tax expense was
$907.7 million, resulting in an effective tax rate of 32.4%
compared to income tax expense of $516.7 million and an
effective tax rate of 28.5% for the same period last year.
The Company’s effective tax rate reflects the geographic
mix of earnings in jurisdictions with different tax rates. The
Company’s effective tax rate was approximately 3% higher
than management’s estimate of 29%-30% for the fiscal
year primarily due to the significant depreciation of the
Canadian dollar relative to the U.S. dollar in the third quarter
of fiscal 2009 and its effect on the Company’s U.S. dollar
denominated assets and liabilities held by the Company’s
Canadian operating companies that are subject to tax in
Canadian dollars. The incremental tax expense in fiscal 2009
resulting from the significant depreciation of the Canadian
dollar relative to the U.S. dollar was $99.7 million resulting in
an adjusted tax rate of 28.9%. The lower effective tax rate in
fiscal 2008 was primarily due to the favorable impact of the
depreciation of the U.S. dollar relative to the Canadian dollar.
On December 14, 2007, the Government of Canada
enacted legislation that would allow the Company the option
to determine its Canadian tax results based on its functional
currency (the U.S. dollar) rather than the Canadian dollar.
Amending legislation was proposed on November 10, 2008,
which included an extension of the deadline to elect, on an
annual basis, to use these rules as well as certain clarifications
to the rules. In order to utilize the functional currency option
for fiscal 2009, the Company filed an election pursuant
to the draft legislation in the third quarter of fiscal 2009.
Management believes that functional currency tax reporting
should significantly reduce the distortion that exchange rate
volatility could have on the Company’s income tax expense in
the future.
On March 12, 2009, subsequent to the Company’s fiscal
year end, the Government of Canada enacted the amending
legislation. As such, the Company will be able to calculate
its fiscal 2009 Canadian income tax provision based on its
functional currency, the U.S. dollar. While the Company
elected for Canadian tax purposes to adopt these rules in the
third quarter of fiscal 2009, the Company cannot recognize
the related tax benefit of electing to adopt these rules for
U.S. GAAP financial reporting purposes until the quarter in
which they are enacted resulting in a $99.7 million higher
provision for income taxes in fiscal 2009. In the first quarter
of fiscal 2010, the Company will record an incremental, one
time net benefit of approximately $70 - $100 million to net
income relating to the adoption of the amending legislation.
In addition, future volatility in the Company’s tax rate will
be reduced. For more details, please see the Company’s
“Non-GAAP Financial Measures” and refer to Note 19 to the
Consolidated Financial Statements.
Management anticipates the Company’s effective tax rate
for fiscal 2010 to be approximately 29% to 30%.
The Company has not provided for Canadian income
taxes or foreign withholding taxes that would apply on the
distribution of the earnings of its non-Canadian subsidiaries,
as these earnings are intended to be reinvested indefinitely
by these subsidiaries.
Net Income
Net income was $1.89 billion in fiscal 2009, compared to net
income of $1.29 billion in fiscal 2008. Basic EPS was $3.35 and
diluted EPS was $3.30 in fiscal 2009 compared to $2.31 basic
EPS and $2.26 diluted EPS, in fiscal 2008.
The $598.7 million increase in net income in fiscal 2009
reflects primarily an increase in gross margin in the amount of
$2.02 billion, resulting primarily from the increased number of
device shipments, which was partially offset by the decrease
of consolidated gross margin percentage and an increase of
$1.33 billion in the Company’s research and development,
selling, marketing and administration expenses and the
Company’s provision for income taxes, which included
the negative impact of $99.7 million due to the significant
depreciation of the Canadian dollar relative to the U.S. dollar
in the fiscal year. See “Income Taxes”.
The weighted average number of shares outstanding was
565.1 million common shares for basic EPS and 574.2 million
common shares for diluted EPS for the fiscal year ended
February 28, 2009 compared to 559.8 million common shares
for basic EPS and 572.8 million common shares for diluted EPS
for the fiscal year ended March 1, 2008.
Common Shares Outstanding
On March 31, 2009, there were 566.4 million common shares,
12.6 million options to purchase common shares, 3,334
restricted share units outstanding and 20,208 deferred share
units outstanding.
The Company has not paid any cash dividends during the
last three fiscal years.