Blackberry 2007 Annual Report Download - page 42

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RESEARCH IN MOTION LIMITED
management’s discussion and analysis of financial
condition and results of operations continued
FOR THE THREE MONTHS AND FISCAL YEAR ENDED MARCH 3, 2007
The decrease in gross margin percentage relating to the
increase in percentage of device shipments was offset in part
by improved service margins resulting from cost efficiencies
in RIM’s network operations infrastructure as a result of the
increase in BlackBerry subscriber accounts and a decline in
certain fixed costs as a percentage of consolidated revenue
as the Company continues to realize economies of scale in its
manufacturing operations.
Research and Development, Selling, Marketing and
Administration, and Amortization Expense
The table below presents a comparison of research and
development, selling, marketing and administration, and
amortization expenses for fiscal 2007 compared to fiscal
2006.
Fiscal Year Ended
March 3, 2007
March 4, 2006
(as restated)
$% of Revenue $% of Revenue
Revenue $ 3,037,103 $ 2,065,845
Research and development $ 236,173 7.8% $ 158,887 7.7%
Selling, marketing and administration 537,922 17.7% 314,317 15.2%
Amortization 76,879 2.5% 49,951 2.4%
$ 850,974 28.0% $ 523,155 25.3%
Research and Development
Research and development expenditures consist primarily
of salaries for technical personnel, engineering materials,
certification and tooling expense, outsourcing and consulting
services, software tools and related information technology
infrastructure support and travel.
Research and development expenditures increased by
$77.3 million to $236.2 million, or 7.8% of revenue, for fiscal
2007 compared to $158.9 million, or 7.7% of revenue, in fiscal
2006. The majority of the increases during fiscal 2007 when
compared to fiscal 2006 were attributable to salaries and
benefits, third party new product development costs, travel
and office expenses as well as related staffing infrastructure
costs.
Selling, Marketing and Administration Expenses
Selling, marketing and administrative expenses consist
primarily of salaries and benefits, marketing, advertising and
promotion, travel and entertainment, external advisory fees,
related information technology and office infrastructure
support, recruiting and foreign exchange gain or loss.
Selling, marketing and administrative expenses increased
by $223.6 million to $537.9 million, or 17.7% of revenue, during
the current fiscal year compared to $314.3 million or 15.2%
of revenue, for the comparable period in fiscal 2006. The
net increase of $223.6 million was primarily attributable
to increased expenditures for marketing, advertising and
promotion expenses, salary and benefit expense, consulting
and external advisory costs, travel and office expenses as
well as related staffing infrastructure costs. The increase
also includes legal, accounting and other professional costs
incurred by the Company in fiscal 2007 as well as other costs
incurred by the Company under indemnity agreements in
favor of certain officers and directors of the Company, in each
case in connection with the Review, the Restatement and
related matters.
Amortization
Amortization expense relating to certain capital and all
intangible assets other than licenses increased by $26.9
million to $76.9 million for fiscal 2007 compared to $50.0
million for the comparable period in fiscal 2006. The
increased amortization expense primarily reflects the impact
of capital and intangible asset additions incurred during the
first three quarters of fiscal 2007 and fiscal 2006.
Cost of sales
Amortization expense with respect to capital assets
employed in the Company’s manufacturing operations and
BlackBerry service operations increased to $29.9 million in
fiscal 2007 compared to $18.5 million in fiscal 2006 and is
charged to Cost of sales in the consolidated statements of
operations. The increased amortization expense in fiscal 2007
reflects the impact of a full year’s amortization expense with