Blackberry 2006 Annual Report Download - page 53

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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)
Annual Report 2006 51
For the years ended March 4, 2006, February 26, 2005 and February 28, 2004
For the year ended  February 26, 2005 February 28, 2004
Net income — as reported   $ 213,387 $ 51,829
Stock-based compensation expense for the year  22,487 20,033
Net income — proforma   $ 190,900 $ 31,796
Weighted average number of shares
outstanding (000’s) — basic  187,653 159,300
Effect of dilutive securities: Employee stock options  8,022 4,568
Weighted-average number of shares and
assumed conversions — diluted  195,675 163,868
Proforma earnings per common share:
Basic   $ 1.02 $ 0.20
Diluted   $ 0.98 $ 0.19
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
Number of options granted (000’s)  315 3,148
Weighted-average Black-Scholes value of each option   $ 31.58 $ 8.29
Assumptions:
Risk free interest rate  3.3% 3.0%
Expected life in years  4.0 4.0
Expected dividend yield 0% 0%
Volatility  69% 70%
(v) 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, differences 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 increased or decreased
warranty activity, or increased or decreased costs associated with servicing those obligations, revisions to
the estimated warranty liability would be required.
(w) Advertising costs
The Company expenses all advertising costs as incurred. These costs are included in
Selling, marketing
and administration
.