Blackberry 2005 Annual Report Download - page 17

15
Litigation
The Company is currently involved in patent litigation with NTP, Inc. (“NTP”) where it is seeking to defend
itself in a patent infringement suit (the “NTP matter” – see “Results of Operations – Litigation” and note 15
to the Consolidated Financial Statements). RIM has recorded liabilities for the estimated probable costs for
the resolution and the Company’s current and estimated future costs with respect to ongoing legal fees of
the NTP matter.
Change in Estimate During Fiscal 2005
During the first nine months of fiscal 2005, the Company recorded an expense of $58.4 million to provide for
additional estimated enhanced compensatory damages, estimated postjudgment interest, and current and
estimated future costs with respect to legal fees.
During the fourth quarter of fiscal 2005, the Company and NTP entered into negotiations, which concluded with
both parties signing a binding term sheet on March 16, 2005, that resolves the current litigation between them.
As part of the resolution, RIM will pay $450 million (the “resolution amount”) to NTP in final and full resolution
of all claims to date against RIM, as well as for a fully-paid up license (the “NTP license”) going forward. During
the fourth quarter of fiscal 2005, the Company adjusted its estimate and recorded an incremental provision of
$294.2 million on the Consolidated Statements of Operations, which includes the remaining resolution amount
and estimated legal fees, net of provisions previously recorded, and the acquisition of a $20 million intangible
asset. RIM and NTP are currently working to finalize the definitive agreements.
Warranty
The Company provides for the estimated costs of product warranties at the time revenue is recognized.
BlackBerry handheld products are generally covered by a time-limited warranty for varying periods of time.
The Company’s warranty obligation is affected by product failure rates, changes in warranty periods, regulatory
developments with respect to warranty obligations in the countries in which the Company carries on business,
freight expense, and material usage and other related repair costs.
The Company’s estimates of costs are based upon historical experience and expectations of future return
rates and unit warranty repair cost. To the extent that the Company experiences changes in warranty activity,
or changes to costs associated with servicing those obligations, revisions to the estimated warranty liability
would be required.
Change in Estimate During Fiscal 2005
During the current fiscal year, RIM reduced its estimated warranty accrued liability by $13.2 million, or 1.0%
of fiscal 2005 consolidated revenue, as a result of a reduction in both the unit warranty repair costs and in
the current and expected future returns (for warranty repair) rates across all of its handheld product lines.
Earnings Sensitivity
The Company estimates that a 10% change to either the current average unit warranty repair cost, measured
against the handheld sales volumes currently under warranty as at February 26, 2005, or to the current
average warranty return rate, would have resulted in adjustments to warranty expense and pre-tax earnings
of approximately $1.4 million.
For the years ended February 26, 2005, February 28, 2004 and March 1, 2003