Blackberry 2004 Annual Report Download - page 22

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Research In Motion Limited • Incorporated Under the Laws of Ontario (In thousands of United States dollars, except per share data, and except as otherwise indicated)
The Company qualifies for investment tax credits
(“Tics”) on eligible expenditures on account of
scientific research and experimental development.
The Company has not recorded the benefit of Tics in
fiscal 2004 or fiscal 2003. See “Income Taxes” and
note 9 to the Consolidated Financial Statements.
Selling, Marketing and Administration
Selling, marketing and administration expenses
increased $3.5 million or 3.3% to $108.5 million
for fiscal 2004 compared to $105.0 million for
fiscal 2003. As a percentage of revenue, Selling,
marketing and administration expenses declined to
18.2% in fiscal 2004 compared to 34.2% in the
preceding year, primarily due to the increase in
fiscal 2004 revenues over fiscal 2003.
The net increase in Selling, marketing and
administration expenses for fiscal 2004 was
primarily attributable to marketing, advertising
and promotion expenses. Other cost increases were
for information technology support expenses,
infrastructure and maintenance expenses, building
maintenance and professional fees, including the
costs of complying with the Sarbanes-Oxley Act of
2002 and similar Canadian regulatory initiatives.
The cost increases were partially offset by a foreign
exchange gain of $2.2 million in fiscal 2004,
compared to a lesser foreign exchange gain of
$0.3 million in fiscal 2003 (see note 20 to the
Consolidated Financial Statements) and a reduction
in bad debt expense. Compensation expense was
approximately equal in fiscal 2004 compared to
fiscal 2003 generally as a result of the Company’s
cost restructuring undertaken in November 2002.
See “Restructuring Charge”.
Amortization
Amortization expense on account of certain capital
and certain intangible assets increased by $5.6
million to $27.9 million for fiscal 2004 compared
to $22.3 million for fiscal 2003. The increased
amortization expense in fiscal 2004 reflects the
impact of a full year’s amortization expense with
respect to capital and certain intangible asset
expenditures during fiscal 2003 and also incremental
amortization with respect to capital and certain
intangible asset expenditures during fiscal 2004.
Amortization expense with respect to capital
assets employed in the Company’s manufacturing
operations and BlackBerry service operations
was $7.9 million in fiscal 2004 compared to
$7.7 million in fiscal 2003 and is charged to
Cost of sales in the Consolidated Statements of
Operations. See also note 6 to the Consolidated
Financial Statements. The Company expects
amortization expense with respect to capital assets
employed in the Company’s manufacturing
operations and BlackBerry service operations to
increase in fiscal 2005 compared to fiscal 2004 as
it incurs capital expenditures necessary to expand
its manufacturing and service business operations.
Amortization expense with respect to licenses (a
component of Intangible assets) is charged to Cost
of sales and was $18.7 million in fiscal 2004
compared to $1.1 million in fiscal 2003. This
increase is due generally to the increase in the
number of handhelds sold in fiscal 2004 versus
fiscal 2003. See “Revenue”. Total amortization
expense with respect to intangible assets was
$19.5 million in fiscal 2004 compared to $2.8
million in fiscal 2003. See also note 7 to the
Consolidated Financial Statements.
Restructuring Charge
During the third quarter of fiscal 2003, as part of
the implementation of a plan to improve operating
results, the Company recorded restructuring charges
of $6.6 million including the costs associated with
the termination of employees, related costs and the
closure and exit of certain leased facilities. See note
15 to the Consolidated Financial Statements.
Litigation
See also the discussion of the NTP matter in
“Liquidity and Capital Resources – NTP Litigation
Funding” and note 16 to the Consolidated Financial
Statements.
The Company is the defendant in a patent litigation
matter brought by NTP, Inc. (“NTP”) alleging that
the Company infringed on eight of NTP’s patents
(the “NTP matter”).
On May 23, 2003, the Court ruled on the issues
of enhanced compensatory damages, plaintiff’s
attorney fees and certain other matters.