Blackberry 2014 Annual Report Download - page 153

BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Income Taxes
For fiscal 2014, the Company’s income tax recovery from continuing operations was $1.3 billion, resulting in an effective
income tax recovery rate of approximately 18.2%, compared to income tax recovery of $592 million and an effective income
tax rate of approximately 48.5% for the prior fiscal year. The Company's effective income tax recovery rate reflects the
geographic mix of earnings in jurisdictions with different tax rates. The Company's lower effective income tax recovery rate in
fiscal 2014 primarily reflects certain charges related to the LLA Impairment Charge resulting in the recognition of a deferred
tax valuation allowance, which is more fully described below.
The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment,
the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to
determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax
assets will be realized. In evaluating the need for a valuation allowance, the Company noted that there were significant
increases in deductible temporary differences in the third quarter of fiscal 2014 in relation to the LLA Impairment Charge,
which was not currently deductible for tax purposes. In addition, the Company has three years of cumulative losses for fiscal
2014. As a result, the Company was unable to recognize the benefit relating to a significant portion of deferred tax assets that
arose in fiscal 2014, which resulted in a $783 million valuation allowance against its deferred tax assets. The deferred tax
recovery is partially offset by this deferred tax valuation allowance of $781 million and included in the income tax provision in
fiscal 2014. This accounting treatment has no effect on the Company’s actual ability to utilize deferred tax assets to reduce
future cash tax payments. The Company will continue to assess the likelihood that the deferred tax assets will be realizable at
each reporting period and the valuation allowance will be adjusted accordingly.
During the third quarter of fiscal 2014, the Company took steps to accelerate the receipt of a portion of the tax refund to which
it is entitled. The Canadian federal and Ontario provincial Ministers of Finance had indicated to the Company that they would
be prepared to recommend measures such that the acceleration would not jeopardize the Company's potential entitlement to the
balance of its tax refund. The Company's actions resulted in a November 3, 2013 taxation year end, which triggered the
entitlement to the accrued tax refund of $696 million, which the Company received in the third quarter of fiscal 2014. In
December 2013, Remission Orders were made by the Canadian federal and Ontario provincial governments which preserved
the Company's ability to carry back losses for the balance of fiscal 2014 and for fiscal 2015 on the same basis as without the
November 3, 2013 taxation year end. The tax provision includes the impact of the Remission Orders in accordance with ASC
740 because they were made in the fourth quarter.
Given the change in the Company's financial circumstances in the third quarter of fiscal 2014, the Company has provided for
foreign withholding taxes of $32 million that would apply on the distribution of the earnings of its non-Canadian subsidiaries as
these earnings are no longer intended to be reinvested indefinitely by these subsidiaries.
Net Loss
The Company’s net loss from continuing operations for fiscal 2014 was $5.9 billion or $11.18 per share (basic and diluted),
reflecting increase in net loss of $5.2 billion compared to net loss from continuing operations of $628 million, or $1.20 per
share (basic and diluted) in fiscal 2013. The increase in net loss from continuing operations includes the impacts in fiscal 2014
and 2013 of:
Fiscal 2014
• the LLA Impairment Charge;
• the Q3 Fiscal 2014 Inventory Charge;
• the Z10 Inventory Charge;
• the Q4 Fiscal 2014 Debentures Fair Value Adjustment;
• restructuring charges of approximately $398 million, after tax, related to the Company’s CORE program and strategic
review process; and
• the Q4 Fiscal 2014 Inventory Recovery.
Fiscal 2013
• an income tax benefit of $166 million related to the settlement of uncertain tax positions, including related interest and
foreign exchange gains;
• the 2013 Goodwill Impairment Charge; and
• approximately $151 million, after-tax, of restructuring charges related to the Company's CORE program in fiscal
2013.
Excluding the above items (see “Non-GAAP Financial Measures”), the Company's net loss increased by $394 million
compared to fiscal 2013, which reflects a decrease in the Company’s gross margin, partially offset by an increase in the
recovery of income taxes and a reduction in operating expenditures. The decrease in the Company's consolidated gross margin