Blackberry 2002 Annual Report Download - page 13

Gross Margin
Gross profit increased to $98.6 million or 33.5% of revenue in the current fiscal year, compared to $87.5 million or
39.5% in the previous year. The net decrease in gross margin percentage was primarily due to the Company recording
a write-down to the carrying values of its inventories of legacy component raw materials parts during the second
quarter of fiscal 2002. The inventory write-down was charged to cost of sales on the Consolidated Statement of
Operations and Retained Earnings.
The table below reconciles reported gross margins with the impact of the inventory write-down:
COST OF SALES TOTAL
Cost of sales as reported $ 195,493
Write-down of inventories (16,100)
Adjusted cost of sales $ 179,393
Gross margin for the year, before the impact of this write-down, was 39.0% compared to 39.5% in the previous year.
The remaining reduction is a combination of a favourable product mix impact whereby higher gross margin software,
NRE and other revenues in 2002 represent 8.5% of consolidated revenues in fiscal 2002 versus 7.9% in the prior
year; unfavourable manufacturing variances due to the lower utilization of manufacturing capacity; and raw materials
component parts inventory write-downs with respect to excess and/or obsolete quantities as well as adjustments to
reflect the lower of cost or replacement cost given recent component part cost reductions in the industry.
Research and Development
Gross research and development expenditures, primarily composed of salaries for technical personnel, costs of related
engineering materials, software tools and related information technology infrastructure support, as well as subcontracted
research and development costs, increased by $23.8 million or 92.9% to $49.5 million or 16.8% of revenue in the
year ended March 2, 2002 compared to $25.7 million or 11.6% of revenue in the previous year. After accounting for
government funding in the form of expense reimbursements and scientific research and experimental development
investment tax credits of $12.1 million for the current year and $7.4 million in the previous year, net research and
development expenditures in fiscal 2002 represented $37.4 million or 12.7% of revenue versus $18.3 million or 8.3%
of revenue in the previous year.
The total number of research and development employees increased 81% to 599 in the current fiscal year versus
331 in the prior year. Compensation expense increased by $12.5 million to $28.4 million in fiscal 2002 from $15.9
million in fiscal 2001.
Selling, Marketing and Administration Expenses
Selling, marketing and administrative expenses were $102.4 million for the current year compared to $65.2 million
for fiscal 2001.
Consistent with its long-term strategic objectives, RIM increased its expense levels and personnel numbers to support
BlackBerry and other sales and distribution channels. Additionally, increased expenses resulted from:
• increased BlackBerry sales and marketing initiatives
• brand penetration in Europe
• continued focus on joint channel marketing activities
• additional international sales and marketing personnel
• increased infrastructure and staffing in customer fulfilment activities such as call centre, order entry and processing,
enhancements to billing systems, etc.
• increased infrastructure and staffing in administrative, financial and legal services to support the Company’s rate
of internal growth.
The total number of employees in sales, marketing and administration increased 81% to 947 in the current fiscal
year versus 522 in the prior year. The related compensation expense increased by $26.5 million to $39.7 million
in fiscal 2002 from $13.2 million in fiscal 2001.
2002 ANNUAL REPORT RESEARCH IN MOTION LIMITED
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