Blackberry 2006 Annual Report Download - page 23

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)
Annual Report 2006 21
For the years ended March 4, 2006, February 26, 2005 and February 28, 2004
Gross margin increased to $1.14 billion, or 55.2% of revenue in scal 2006, compared to $714.5 million,
or 52.9% of revenue, in scal 2005. The increase of 2.3% in gross margin percentage in scal 2006 is
primarily attributable to increased manufacturing and service delivery cost efciencies as a result of the
increase in device volumes, favorable overall product mix, including higher software and NRE revenues in
scal 2006, lower net warranty expense as well as the Company’s continuing cost reduction efforts for its
BlackBerry devices and service revenue streams which was partially offset by a 6.8% decrease in ASP.

The Company continued to invest in research and development, and sales, marketing and administration
in scal 2006. These expenses increased by $191.1 million, or 58.3%, to $519.0 million in scal 2006 from
$327.9 million in the preceding scal year. The 58.3% increase in scal 2006 was higher than the revenue
increase of 53.0% reecting the Company’s investment in research and development and sales and
marketing activities.

Litigation expenses totalled $201.8 million, a decrease of $150.8 million from $352.6 million in scal 2005,
as a result of the Company and NTP completing a full and nal settlement agreement for $612.5 million
on March 3, 2006. The litigation expense of $201.8 million reects the incremental amount required to
adjust the accrual from $450 million to the $612.5 million amount, the write-off of the intangible asset
plus additional legal and other professional fees incurred during scal 2006 – see “Results of Operations –
Litigation” and note 15 to the Consolidated Financial Statements.

Investment income increased by $29.1 million to $66.2 million in scal 2006 from $37.1 million in scal
2005 primarily as a result of improved investment yields and the increase in cash, cash equivalents,
short-term investments and investments.

The Company recorded income tax expense of $104.0 million in scal 2006 compared to an income tax
recovery of $142.2 million in scal 2005 — see “Results of Operations — Income Taxes” and note 9 to the
Consolidated Financial Statements.

Net income increased by $168.7 million to $382.1 million, or $2.02 basic EPS and $1.96 diluted EPS, in scal
2006 compared to net income of $213.4 million, or $1.14 basic EPS and $1.09 diluted EPS in the prior year.
See “Results of Operations – Net Income” for an analysis and reconciliation of the scal 2006 increase in
net income and EPS.
Selected Quarterly Financial Data
The following table sets forth RIM’s unaudited quarterly consolidated results of operations data for each
of the eight most recent quarters ended March 4, 2006. The information has been derived from RIM’s
quarterly unaudited consolidated nancial statements that, in management’s opinion, have been prepared
on a basis consistent with the Consolidated Financial Statements and include all adjustments necessary
for a fair presentation of information when read in conjunction with the Consolidated Financial Statements.
RIM’s quarterly operating results have varied substantially in the past and may vary substantially in the
future. Accordingly, the information below is not necessarily indicative of results for any future quarter.