Blackberry 2005 Annual Report Download - page 52

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50
(t) Stock-based compensation plan
The Company has a stock-based compensation plan, which is described in note 11(b). The options are granted
with an exercise price equal to the fair market value of the shares on the day of grant of the options. Any
consideration paid by employees on exercise of stock options is credited to capital stock.
Compensation expense is recognized when stock options are issued with an exercise price of the stock option
that is less than the market price of the underlying stock on the date of grant. The difference between the
exercise price of the stock option and the market price of the underlying stock on the date of grant is recorded as
compensation expense (“intrinsic value method”). The exercise price of options granted by the Company is the
market value of the underlying stock at the date of grant; consequently, no compensation expense is recognized.
This method is consistent with U.S. GAAP, APB Opinion 25, Accounting for Stock Issued to Employees.
SFAS 123, Accounting for Stock-Based Compensation, requires proforma disclosures of net income (loss) and
earnings (loss) per share, as if the fair value method, as opposed to the intrinsic value method of accounting
for employee stock options, had been applied. The disclosures in the following table present the Company’s
net income (loss) and earnings (loss) per share on a proforma basis using the fair value method as determined
using the Black-Scholes option pricing model:
For the year ended February 26, 2005 February 28, 2004 March 1, 2003
Net income (loss) – as reported $213,387 $51,829 $ (148,857)
Stock-based compensation expense
for the year 22,487 20,033 20,296
Net income (loss) – proforma $190,900 $31,796 $ (169,153)
Proforma earnings (loss) per common share:
Basic $1.02 $0.20 $ (1.09)
Diluted $0.98 $0.19 $ (1.09)
Weighted average number of shares
outstanding (000’s):
Basic 187,653 159,300 155,272
Diluted 195,675 163,868 155,272
The weighted average fair value of options granted during the year was calculated using the Black-Scholes
option-pricing model with the following assumptions:
For the year ended February 26, 2005 February 28, 2004 March 1, 2003
Number of options granted (000’s) 315 3,148 1,912
Weighted average Black-Scholes value of each option $31.58 $8.29 $ 4.29
Assumptions:
Risk free interest rate 3.3% 3.0% 4.5%
Expected life in years 4.0 4.0 3.5
Expected dividend yield 0% 0% 0%
Volatility 69% 70% 70%
(u) 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, material usage and other related repair costs, and freight expense.
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)