Blackberry 2016 Annual Report Download - page 83

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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
15
The following table summarizes the changes in fair value of the Company’s Level 3 assets for the years ended
February 28, 2015 and February 29, 2016:
Level 3
Balance at March 1, 2014 $ 40
Principal payments (2)
Change in fair value 2
Balance at February 28, 2015 40
Principal repayments (12)
Change in fair value 3
Transfers out of Level 3 to Level 1 (10)
Balance at February 29, 2016 $ 21
The Company recognizes transfers in and out of levels within the fair value hierarchy at the end of the reporting period in
which the actual event or change in circumstance occurred. During the year ended February 29, 2016, $10 million of
auction rate securities were publicly called at par with settlement dates in March of 2016 and transferred from Level 3 to
Level 1. There were no significant transfers in or out of Level 3 assets during the year ended February 28, 2015.
The Company’s Level 3 assets measured on a recurring basis include auction rate securities as well as corporate notes/
bonds consisting of securities received in a payment-in-kind distribution from a former structured investment vehicle.
The auction rate securities are valued using a discounted cash flow method incorporating both observable and
unobservable inputs. The unobservable inputs utilized in the valuation are the estimated weighted average life of each
security based on its contractual details and expected pay down schedule based upon the underlying collateral, the value
of the underlying collateral which would be realized in the event of a waterfall event, an estimate of the likelihood of a
waterfall event, an estimate of the likelihood of a permanent auction suspension, and an estimate of the likelihood of the
securities being called at par. Significant changes in these unobservable inputs would result in significantly different fair
value measurements. Generally, a change in the assumption used for the probability of a waterfall event is accompanied
by a directionally opposite change in the assumption used for the probability of a permanent auction suspension. A
waterfall event occurs if the funded reserves of the securities become insufficient to make the interest payments, resulting
in the disbursement of the securities’ underlying collateral to the security holders.
The following table presents the significant unobservable inputs used in the fair value measurement of the auction rate
securities, as well as the impact on the fair value measurement resulting from a significant increase or decrease in each
input in isolation:
As at February
29, 2016 Fair
Value Valuation
Technique Unobservable Input Range (weighted average)
Effect of Significant
Increase/(Decrease) in
Input on Fair Value
Auction rate
securities $ 19 Discounted
cash flow Weighted average life 17 years (Decrease)/increase
Collateral value (as a % of fair
value) 139% Increase/(decrease)
Probability of waterfall event 10% Increase/(decrease)
Probability of permanent
suspension of auction 5% (Decrease)/increase
Probability of being called at
par 25% Increase/(decrease)