Blackberry 2011 Annual Report Download - page 39

Income Taxes
For fiscal 2010, the Company’s income tax expense was $809 million, resulting in an effective tax rate of 24.8% compared to income
tax expense of $908 million and an effective tax rate of 32.4% for the same period last year. The Company’s effective tax rate reflects
the geographic mix of earnings in jurisdictions with different tax rates.
In the first quarter of fiscal 2010, the Government of Canada enacted changes to its income tax legislation which allows the
Company the option to elect, on an annual basis, to determine its Canadian income tax based on its functional currency (the U.S. dollar)
rather than the Canadian dollar. While the Company had elected for Canadian tax purposes to adopt these rules in the third quarter of
fiscal 2009, the Company could not recognize the related income tax benefit of electing to adopt these rules under U.S. GAAP until the
first quarter of fiscal 2010. As a result of the enactment of the changes to the legislation and the Company’s election, the Company
was able to recalculate its fiscal 2009 Canadian income tax liability based on its functional currency (the U.S. dollar) and record an
incremental income tax benefit of approximately $145 million to net income in fiscal 2010.
The Company’s effective tax rate in fiscal 2010 was lower due to the $145 million incremental tax benefit related to fiscal 2009 that
resulted from the Company opting to elect to determine its Canadian income tax results on its functional currency (the U.S. dollar). The
Company’s adjusted tax rate for fiscal 2010 was approximately 29.4%, which was in line with management’s estimate of 29% — 30%.
The Company’s effective tax rate in fiscal 2009 was higher 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 $100 million resulting in an
adjusted tax rate for fiscal 2009 of 28.9%.
The Company has not provided for Canadian income taxes or foreign withholding taxes that would apply on the distribution of
income of its non-Canadian subsidiaries, as this income is intended to be reinvested indefinitely by these subsidiaries.
Net Income
Net income was $2.5 billion in fiscal 2010 compared to net income of $1.9 billion in the prior fiscal year. The $564 million increase in
net income in fiscal 2010 reflects primarily an increase in gross margin in the amount of $1.5 billion, resulting primarily from the
increased number of device shipments, additional subscriber accounts and a decrease in the provision of income taxes of $98 million,
which included a benefit of $145 million, which was partially offset by the decrease in consolidated gross margin percentage, as well as
an increase of $971 million in the Company’s operating expenses, which included a litigation charge of $164 million relating to the
Visto Litigation and unusual charges of $96 million. See “Results of Operations — Selling, Marketing and Administration Expenses”,
“Results of Operations — Litigation” and “Results of Operations — Income Taxes” for the year ended February 27, 2010.
Basic EPS was $4.35 and diluted EPS was $4.31 in fiscal 2010, an increase of 29.9% and 30.6%, respectively, compared to $3.35
basic EPS and $3.30 diluted EPS in fiscal 2009. The common shares repurchased by the Company in the third quarter of fiscal 2010
had an impact on the basic and diluted EPS amounts of $0.03 per share for fiscal 2010.
The weighted average number of shares outstanding was 565 million common shares for basic EPS and 570 million common shares
for diluted EPS for the fiscal year ended February 27, 2010 compared to 565 million common shares for basic EPS and 574 million
common shares for diluted EPS for the fiscal year ended February 28, 2009.
Common Shares Outstanding
On March 30, 2010, there were 557 million common shares, options to purchase 9 million common shares, one million restricted
share units and 34,801 deferred share units outstanding.
The Company has not paid any cash dividends during the last three fiscal years.
On November 4, 2009, the Company’s Board of Directors authorized the 2010 Repurchase Program for the repurchase and
cancellation through the facilities of the NASDAQ Stock Market, common shares having an aggregate purchase price of up to
$1.2 billion, or approximately 21 million common shares based on trading prices at the time of the authorization. This represented
approximately 3.6% of the outstanding common shares of the Company at the time of the authorization. In the third quarter of fiscal
2010, the Company repurchased 12 million common shares at a cost of $775 million pursuant to the 2010 Repurchase Program.
There was a reduction of $47 million to capital stock in the third quarter of fiscal 2010 and the amounts paid in excess of the per
share paid-in capital of the common shares of $728 million were charged to retained earnings. All common shares repurchased by the
Company pursuant to the 2010 Repurchase Program have been cancelled.
26 RESEARCH IN MOTION ANNUAL REPORT 2011
MANAGEMENT’S DISCUSSION AND ANALYSIS