Blackberry 2010 Annual Report Download - page 19

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and credit risk. The Company applies the following fair value hierarchy, which prioritizes the inputs used in the
valuation methodologies in measuring fair value into three levels:
• Level 1 — Unadjusted quoted prices at the measurement date for identical assets or liabilities in active
markets.
• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data.
• Level 3 — Significant unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires the Company to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
When determining the fair value of its investments, the Company primarily relies on an independent third
party valuator. Pricing inputs by the service provider are generally received from two primary vendors. The
pricing inputs are reviewed for completeness, tolerance and accuracy on a daily basis by the service provider.
The Company also reviews and understands the inputs used in the valuation process and assesses the pricing
of the securities for reasonableness. To do this, the Company utilizes internally developed models to estimate
fair value. Inputs into the internally developed models may include benchmark yields, reported trades, quotes,
issuer spreads, benchmark curves (including Treasury benchmarks, LIBOR and swap curves), discount rates,
derivative indices, recovery and default rates, prepayment rates, trustee reports, bids/offers and other
reference data. In the event the Company disagrees with the pricing from the service provider, the Company
will challenge the pricing and work with the service provider to determine the fair value.
Given the current market conditions and economic uncertainties, management exercises significant judgment
in determining the fair value of the Company’s investments and the investment’s classification level within the
three-tier fair value hierarchy. As at February 27, 2010, the Company had approximately 98% of its
available-for-sale investments measured at fair value classified in Level 2.
The Company regularly 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 and ability to hold the investments
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. The Company’s
assessment on whether an investment is other-than-temporarily impaired or not, could change due to new
developments or changes in assumptions or risks to any particular investment.
For further details on the Company’s investments and fair value conclusions, refer to Note 4 and Note 5 to the
Consolidated Financial Statements.
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 recognized based upon differences between the financial
reporting and tax bases of assets and liabilities, and 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, capital assets, non-deductible reserves and
operating loss carryforwards, net of valuation allowances. 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. 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. 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.
MD&A
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