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Research฀In฀Motion฀Limited฀฀|฀฀Incorporated฀Under฀the฀Laws฀of฀Ontario฀(United฀States฀dollars,฀in฀thousands฀except฀per฀share฀data฀or฀as฀otherwise฀indicated)
For฀the฀years฀ended฀March฀1,฀2003,฀March฀2,฀2002฀and฀February฀28,฀2001
15
Gross฀Margin฀
Gross฀prot฀increased฀to฀$140.1฀million฀or฀45.7%฀of฀revenue฀in฀the฀current฀scal฀year,฀compared฀to฀
$98.6฀million฀or฀33.5%฀in฀the฀previous฀year.฀The฀Company฀recorded฀a฀$16.1฀million฀write-down฀of฀the฀
carrying฀values฀of฀its฀inventories฀of฀legacy฀component฀raw฀materials฀parts฀during฀the฀second฀quarter฀
of฀scal฀2002.฀The฀inventory฀write-down฀was฀charged฀to฀Cost฀of฀sales฀on฀the฀Consolidated฀Statement฀of฀
Operations฀and฀Decit.฀Gross฀margin฀for฀scal฀2002,฀adjusted฀for฀the฀impact฀of฀this฀write-down,฀was฀39.0%.฀
This฀adjusted฀gross฀margin฀gure฀does฀not฀have฀any฀standardized฀meaning฀prescribed฀by฀GAAP฀and฀is฀
not฀comparable฀to฀similar฀measures฀presented฀by฀other฀companies.
The฀net฀increase฀in฀gross฀margin฀to฀45.7%฀versus฀39.0%,฀as฀adjusted,฀for฀scal฀2002฀was฀primarily฀due฀to:
•฀ a฀higher฀percentage฀of฀service฀revenue฀in฀the฀scal฀2003฀product฀mix
•฀ higher฀margin฀software฀revenue฀made฀up฀a฀greater฀percentage฀of฀overall฀product฀mix฀in฀scal฀2003
•฀ improved฀handheld฀margins฀as฀a฀result฀of฀the฀favourable฀impact฀of฀supplier฀cost฀reductions฀for฀
certain฀raw฀material฀component฀parts
Trending฀into฀Fiscal฀2004฀
The฀Company฀expects฀its฀gross฀margin฀percentage฀to฀decline฀in฀scal฀2004฀from฀the฀45.7%฀realized฀
in฀scal฀2003.฀
Handheld฀product฀mix฀has฀a฀signicant฀impact฀on฀handheld฀margins฀as฀certain฀product฀lines฀realize฀
lower฀margins฀than฀others฀because฀cost฀of฀goods฀sold฀for฀handhelds฀include฀materials,฀labour฀and฀
overhead฀together฀with฀other฀direct฀non-manufacturing฀costs฀such฀as฀royalties฀and฀warranty.฀
Additionally,฀RIM฀expects฀its฀ASP฀for฀handheld฀product฀lines฀and฀resulting฀handheld฀gross฀margin฀
to฀decline฀in฀scal฀2004฀over฀2003฀as฀a฀result฀of฀broadening฀RIM’s฀market฀share฀by฀introducing฀new฀
products฀with฀lower฀price฀points฀for฀the฀prosumer฀market.฀
The฀Company฀will฀attempt฀to฀offset฀a฀portion฀of฀this฀handheld฀gross฀margin฀erosion฀through฀
reductions฀in฀its฀product฀bills฀of฀material฀cost฀as฀a฀result฀of฀negotiating฀further฀component฀parts฀cost฀
reductions฀and฀through฀improving฀manufacturing฀efciencies.฀Beginning฀with฀the฀fourth฀quarter฀of฀
scal฀2003,฀RIM฀has฀been฀able฀to฀rely฀on฀its฀higher฀conrmed฀production฀backlog฀to฀realize฀manufac-
turing฀cost฀economies฀by฀evening฀out฀its฀production฀stream฀over฀the฀thirteen฀week฀quarterly฀cycles,฀
which฀results฀in฀lower฀non-standard฀manufacturing฀costs฀such฀as฀direct฀labour฀overtime฀and฀higher฀
capacity฀utilization.฀Additionally,฀the฀Company’s฀handheld฀and฀consolidated฀gross฀margin฀will฀continue฀
to฀be฀inuenced฀by฀the฀determination฀of฀obsolete฀or฀excess฀inventory.฀
The฀Company’s฀service฀and฀consolidated฀gross฀margin฀will฀be฀inuenced฀by฀the฀change฀in฀the฀
percentage฀mix฀from฀BlackBerry฀direct฀subscribers฀to฀carrier-owned฀2.5G฀BlackBerry฀subscribers.฀
The฀Company’s฀consolidated฀gross฀margin฀will฀also฀be฀inuenced฀by฀the฀change฀in฀the฀overall฀revenue฀
mix฀among฀handhelds,฀service฀and฀software฀as฀well฀as฀any฀impact฀of฀BlackBerry฀Connect฀and฀Technical฀
Support฀Services฀revenues.
Expenses
Expenses,฀as฀reported฀on฀the฀Consolidated฀Statement฀of฀Operations฀and฀Decit฀and฀excluding฀Restructuring฀
charges฀and฀Litigation,฀are฀comprised฀of฀research฀and฀development,฀selling,฀marketing฀and฀administrative฀
expenses฀and฀amortization.฀
As฀a฀result฀of฀RIM’s฀restructuring฀plan฀late฀in฀the฀scal฀2003฀third฀quarter฀as฀well฀as฀the฀expected฀future฀
quarterly฀and฀annual฀costs฀savings฀that฀management฀is฀targeting฀(see฀Restructuring฀Charges฀later฀in฀this฀
MD&A฀and฀note฀13฀to฀the฀Consolidated฀Financial฀Statements),฀the฀Company฀believes฀that฀the฀scal฀2003฀
annual฀expense฀gures฀for฀research฀and฀development,฀selling,฀marketing฀and฀administrative฀expenses฀
and฀amortization฀are฀not฀a฀meaningful฀reference฀point.฀Additionally,฀RIM฀incurred฀the฀largest฀portion฀of฀
its฀annual฀marketing฀program฀costs฀during฀the฀third฀quarter฀of฀scal฀2003.฀Consequently,฀the฀Company฀
believes฀that฀its฀expense฀levels฀in฀the฀fourth฀quarter฀of฀scal฀2003฀provide฀more฀meaningful฀forward-
looking฀analysis.