Blackberry 2006 Annual Report Download - page 18

Research In Motion Limited
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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)
Warranty
The Company provides for the estimated costs of product warranties at the time revenue is recognized.
BlackBerry devices 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.
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During scal 2006, RIM increased its estimated warranty accrued liability by $4.2 million, or 0.2% of
consolidated revenue, as a result of an increase in both the unit warranty repair costs and in the current
and expected future returns (for warranty repair) rates for certain of its devices.
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The Company estimates that a 10% change to either the current average unit warranty repair cost,
measured against the device sales volumes currently under warranty as at March 4, 2006, or to the
current average warranty return rate, would have resulted in adjustments to warranty expense and pre-tax
earnings of approximately $2.2 million.
Investments
The Company’s investments are classied as available-for-sale under Statement of Financial Accounting
Standards 115 and are carried at fair value. Changes in fair values are accounted for through accumulated
other comprehensive income, until such investments mature or are sold. The Company does not exercise
signicant inuence with respect to any of these investments.
In scal 2005, the Company reviewed its intent to continue to hold certain investments previously
classied as held-to-maturity and determined this intent was no longer present. These investments were
reclassied as available-for-sale, and prior period carrying values have been adjusted to reect these
securities as available-for-sale since acquisition. This change resulted in an increase of $5.4 million in the
carrying amount of investments at February 28, 2004, and increased other total accumulated
comprehensive income by $5.4 million for the year ended February 28, 2004 (March 1, 2003 — increase of
$4.2 million).
The Company assesses declines in the value of individual investments for impairment to determine whether
the decline is other-than-temporary. The Company makes this assessment by considering available
evidence, including changes in general market conditions, specic industry and individual company data,
the length of time and the extent to which the market value has been less than cost, the nancial condition,
the near-term prospects of the individual investment and the Company’s ability and intent to hold the debt
securities to maturity. In the event that a decline in the fair value of an investment occurs and the decline
in value is considered to be other-than-temporary, an appropriate write-down would be recorded.