Blackberry 2015 Annual Report Download - page 77

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
2
balances to continue to come from large customers as it sells the majority of its devices, software products and services
through network carriers and resellers rather than directly.
The Company evaluates the collectability of its accounts receivable balance based upon a combination of factors on a
periodic basis such as specific credit risk of its customers, historical trends and economic circumstances. The Company, in
the normal course of business, monitors the financial condition of its customers and reviews the credit history of each new
customer. When the Company becomes aware of a specific customer’s inability to meet its financial obligations to the
Company (such as in the case of bankruptcy filings or material deterioration in the customer’s operating results or
financial position, and payment experiences), the Company records a specific bad debt provision to reduce the customer’s
related accounts receivable to its estimated net realizable value. If circumstances related to specific customers change, the
Company’s estimates of the recoverability of accounts receivables balances could be further adjusted.
Investments
The Company’s cash equivalents and investments, other than cost method and equity method investments, consist of
money market and other debt securities, which are classified as available-for-sale for accounting purposes and are carried
at fair value. Unrealized gains and losses, net of related income taxes, are recorded in accumulated other comprehensive
income (“AOCI”) until such investments mature or are sold. The Company uses the specific identification method of
determining the cost basis in computing realized gains or losses on available-for-sale investments, which are recorded in
investment income. In the event of a decline in value which is other-than-temporary, the investment is written down to fair
value with a charge to income. The Company does not exercise significant influence with respect to any of these
investments.
Investments with maturities at time of purchase of three months or less are classified as cash equivalents. Investments
with maturities of one year or less (but which are not cash equivalents), as well as any investments that management
intends to hold for less than one year, are classified as short-term investments. Investments with maturities in excess of
one year are classified as long-term investments.
The Company assesses individual investments that are in an unrealized loss position to determine whether the unrealized
loss 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
fair 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 investment. In the event that a decline in the fair value of an investment occurs
and that decline in value is considered to be other-than-temporary, an impairment charge is recorded in investment income
equal to the difference between the cost basis and the fair value of the individual investment at the consolidated balance
sheets date of the reporting period for which the assessment was made. The fair value of the investment then becomes the
new cost basis of the investment.
If a debt security’s market value is below its amortized cost and the Company either intends to sell the security or it is
more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company
records an other-than-temporary impairment charge to investment income for the entire amount of the impairment. For
other-than-temporary impairments on debt securities that the Company does not intend to sell and it is not more likely
than not that the entity will be required to sell the security before its anticipated recovery, the Company would separate
the other-than-temporary impairment into the amount representing the credit loss and the amount related to all other
factors. The Company would record the other-than-temporary impairment related to the credit loss as a charge to
investment income and the remaining other-than-temporary impairment would be recorded as a component of AOCI.
Derivative financial instruments
The Company uses derivative financial instruments, including forward contracts and options, to hedge certain foreign
currency exposures. The Company does not use derivative financial instruments for speculative purposes.
The Company records all derivative instruments at fair value on the consolidated balance sheets. The fair value of these
instruments is calculated based on notional and exercise values, transaction rates, market quoted currency spot rates,
forward points, volatilities and interest rate yield curves. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative instrument and the resulting designation.
For derivative instruments designated as cash flow hedges, the effective portion of the derivative’s gain or loss is initially
reported as a component of AOCI, net of tax, and subsequently reclassified into income in the same period or periods in
which the hedged item affects income. The ineffective portion of the derivative’s gain or loss is recognized in current
income. In order for the Company to receive hedge accounting treatment, the cash flow hedge must be highly effective in