Blackberry 2005 Annual Report Download - page 16

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The Company’s policy for the valuation of inventory, including the determination of obsolete or excess
inventory, requires management to estimate the future demand for the Company’s products within specific
time horizons. Inventory purchases and purchase commitments are based upon such forecasts of future
demand and scheduled rollout of new products. The business environment in which RIM operates is subject
to rapid changes in technology and customer demand. The Company performs an assessment of inventory
during each reporting period, which includes a review of, among other factors, demand requirements,
component part purchase commitments of the Company and certain key suppliers, product life cycle and
development plans, component cost trends, product pricing and quality issues. If customer demand
subsequently differs from the Company’s forecasts, requirements for inventory write-offs that differ from the
Company’s estimates could become necessary. If management believes that demand no longer allows the
Company to sell inventories above cost or at all, such inventory is written down to net realizable value or
excess inventory is written off.
Valuation of long-lived assets, intangible assets and goodwill
The Company assesses the impairment of identifiable intangibles, long-lived assets and goodwill whenever
events or changes in circumstances indicate that the carrying value may not be recoverable.
Intangible assets are stated at cost less accumulated amortization and are comprised of licenses, patents
and acquired technology. The largest component of Intangible assets is the net book value of licenses. Under
certain such license agreements, RIM is committed to current and future royalty payments based on the sales
of products using certain licensed technologies. The Company recognizes its liability for royalty payments in
accordance with the terms of the license agreements. Where license agreements are not yet finalized, RIM
recognizes its current estimates of the obligation in Accrued liabilities on the Consolidated Balance Sheets.
When the license agreements are subsequently finalized, the estimate is revised accordingly. License
agreements involving up-front lump sum payments are capitalized as part of Intangible assets and are then
amortized over the lesser of five years or on a per unit basis based upon the Company’s projected number of
units to be sold during the terms of the license agreements. See “Results of Operations – Gross Margin” and
“Results of Operations – Amortization”. Unforeseen events, changes in circumstances and market conditions,
and material differences in the value of licenses and other long-lived and intangible assets and goodwill due
to changes in estimates of future cash flows could affect the fair value of the Company’s assets and require
an impairment charge. Intangible assets are reviewed quarterly to determine if any events have occurred that
would warrant further review. In the event that a further assessment is required, the Company will analyze
estimated undiscounted future cash flows to determine whether the carrying value of the intangible asset
will be recovered.
Patents include all costs necessary to acquire intellectual property such as patents and trademarks, as well
as legal costs arising out of litigation relating to the assertion of any Company-owned patents. The Company
is currently involved in patent litigation where it is seeking to protect its patents (see note 12 (b) to the
Consolidated Financial Statements). If the Company is not successful in such litigation to protect its patents, RIM
will review the related intangible asset balance, including previously capitalized litigation costs, for impairment.
In connection with business acquisitions completed by the Company, the Company identifies and estimates
the fair value of net assets acquired, including certain identifiable intangible assets other than goodwill and
liabilities assumed in the acquisitions. Any excess of the purchase price over the estimated fair value of the
net assets acquired is assigned to goodwill. Goodwill is assessed for impairment on an annual basis.
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)