Blackberry 2007 Annual Report Download - page 43

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41
respect to these capital asset expenditures incurred during
fiscal 2006 and also incremental amortization with respect to
capital asset expenditures incurred during fiscal 2007. See
also note 7 to the Consolidated Financial Statements.
Amortization expense with respect to licenses (a
component of Intangible assets) is charged to Cost of sales
and was $19.6 million in fiscal 2007 compared to $17.5 million
in fiscal 2006.
Total amortization expense with respect to Intangible
assets was $32.9 million in fiscal 2007 compared to $23.2
million in fiscal 2006. See also notes 1(l) and 8 to the
Consolidated Financial Statements and “Critical Accounting
Policies and Estimates - Valuation of long-lived assets,
intangible assets and goodwill”.
Litigation
As more fully disclosed in the Consolidated Financial
Statements and notes for the fiscal years ended March 3,
2007, March 4, 2006 and February 26, 2005, the Company
was the defendant in a patent litigation matter brought
by NTP alleging that the Company infringed on eight of
NTP’s patents (See note 13(b) to the Consolidated Financial
Statements).
On March 3, 2006, the Company and NTP signed
definitive licensing and settlement agreements. All terms of
the agreement were finalized and the litigation against the
Company was dismissed by a court order on March 3, 2006.
The agreement eliminated the need for any further court
proceedings or decisions relating to damages or injunctive
relief. On March 3, 2006, the Company paid NTP $612.5
million in full and final settlement of all claims against the
Company, as well as for a perpetual, fully-paid up license
going forward. This amount included money already
escrowed by the Company as of March 3, 2006.
The licensing and settlement agreement relates to all
patents owned and controlled by NTP and covers all of
the Company’s products, services and technologies. NTP
granted the Company an unfettered right to continue its
business, including its BlackBerry related business. The
resolution permits the Company and its partners to sell
the Company’s products and services completely free and
clear of any claim by NTP, including any claims that NTP may
have against wireless carriers, channel partners, suppliers or
customers in relation to the Company’s products or services,
(including BlackBerry Connect and Built-In technologies), or
in relation to third party products and services, to the extent
they are used in connection with the Company’s products
and services.
As at February 26, 2005, the Company had an accrued
liability of $450.0 million in respect of the NTP litigation
which included an intangible asset of $20.0 million. As the
full and final settlement amount paid on March 3, 2006
was $612.5 million, an additional charge to earnings in the
amount of $162.5 million was recorded in the fiscal 2006
operating results. During fiscal 2006, the Patent Office
issued various office actions rejecting all claims in all NTP
patents. Accordingly, though the rulings of the Patent Office
are subject to appeal by NTP, given the conclusions and the
strength of the conclusions reached by the Patent Office, no
value has been ascribed to the NTP license. This resulted in
an additional charge to earnings of $18.3 million reflecting
the book value of the intangible asset at the time the Term
Sheet was ruled unenforceable. The charge of $162.5 million,
the write-off of the intangible asset of $18.3 million as well
as incremental legal and professional fees in respect of the
litigation resulted in a charge to earnings of $201.8 million in
fiscal 2006.
Investment Income
Investment income decreased by $14.1 million to $52.1 million
in fiscal 2007 from $66.2 million for the same period last year.
The decrease reflects the decrease in cash, cash equivalents,
short-term investments and investments when compared
to the prior year resulting primarily from the funding of the
NTP litigation settlement in the amount of $612.5 million
in the fourth quarter of fiscal 2006 as well as the common
shares of the Company repurchased as part of the Company’s
Common Share Repurchase Program at an aggregate cost of
$595.1 million, offset in part by improved interest rate yields.
Income Taxes
For fiscal 2007, the Company’s income tax expense was $227.4
million resulting in an effective tax rate of 26.5% compared to
an income tax expense of $106.9 million or a 22.2% effective
tax rate for the same period last year. During the first
quarter of fiscal 2006, the tax provision was reduced by $27.0
million as a result of the Company recognizing incremental
cumulative ITCs attributable to prior fiscal years. ITCs are
generated as a result of the Company incurring eligible
SR&ED expenditures, which, under the “flow-through”
method, are credited as a reduction of income tax expense.
The Company recorded this $27.0 million reduction in its