Blackberry 2007 Annual Report Download - page 47

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45
Amortization
Amortization expense relating to certain capital and all
intangible assets other than licenses increased by $14.1
million to $50.0 million for fiscal 2006 compared to $35.9
million for fiscal 2005. The increased amortization expense
in fiscal 2006 reflects the impact of a full year’s amortization
expense with respect to capital and certain intangible asset
expenditures incurred during fiscal 2005 and also incremental
amortization with respect to capital and certain intangible
asset expenditures incurred during 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 $18.5 million in
fiscal 2006 compared to $14.3 million in fiscal 2005 and is
charged to Cost of sales in the consolidated statements
of operations. The increased amortization expense in
fiscal 2006 reflects the impact of a full year’s amortization
expense with respect to these capital asset expenditures
incurred during fiscal 2005 and also incremental amortization
with respect to capital asset expenditures incurred during
fiscal 2006. 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 $17.5
million in fiscal 2006 compared to $16.5 million in fiscal 2005.
Total amortization expense with respect to Intangible
assets was $23.2 million in fiscal 2006 compared to $19.7
million in fiscal 2005. 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”.
Changes in Capital Assets Amortization
During fiscal 2005, the Company re-evaluated the estimated
useful lives of certain of its information technology assets
and determined that the estimated useful lives should be
reduced from five years to periods of three to four years. The
impact of this change was applied on a prospective basis
commencing in the first quarter of fiscal 2005. The impact of
this change of accounting estimate resulted in incremental
amortization expense of $4.3 million for the year. Of this
amount, $1.8 million was included in Cost of sales, and $2.5
million was included in Amortization. See also note 1(k) to
the Consolidated Financial Statements.
During fiscal 2005, the Company also re-evaluated the
estimated useful lives of capital assets used in manufacturing,
and research and development operations that resulted from
the application of the 20% declining balance amortization
methodology. As a result of the plant capacity and capital
asset utilizations currently approaching 100% compared to
much lower levels in prior fiscal years, the Company now
believes that the 20% declining balance method will not
produce quarterly and annual depreciation expense and
resulting residual net book values that are consistent with
the increased current and future capital asset usage. The
Company, therefore, revised its amortization method to a
straight-line method and determined estimated useful lives to
be between five and eight years for such capital assets, on a
prospective basis, effective the second quarter of fiscal 2005.
The impact of this change of method of accounting was
insignificant for fiscal years 2006 and 2005. See also notes 2
and 7 to the Consolidated Financial Statements.
Litigation
As more fully disclosed in the Consolidated Financial
Statements, the Company was the defendant in a patent
litigation matter brought by NTP alleging that the Company
infringed on eight of NTP’s patents.
On March 16, 2005, the parties jointly announced the
signing of a binding Term Sheet to resolve all current
litigation between them. The parties announced that RIM
would pay NTP $450 million in final and full resolution of all
claims to date against RIM, as well as a fully-paid up license
going forward. During fiscal 2005, the Company recorded
an incremental expense of $352.6 million to adjust the total
NTP provision to the resolution amount plus current and
estimated legal, professional and other fees, less the previous
cumulative quarterly provisions for enhanced compensatory
damages, prejudgment interest, plaintiff’s attorney fees,
estimated postjudgment interest, and current and estimated
future costs with respect to legal and other professional
fees, and the acquisition of a $20 million intangible asset.
The $76.2 million attributable to enhanced compensatory
damages and postjudgment interest with respect to fiscal
2005 was classified as Restricted cash on its consolidated
balance sheets as at February 26, 2005.
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,