Blackberry 2008 Annual Report Download - page 23

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customer demand subsequently differs from the Company’s
forecasts, requirements for inventory write-offs that differ
from the Company’s estimates could become necessary.
If management believes that demand no longer allows
the Company to sell inventories above cost or at all, such
inventory is written down to net realizable value or excess
inventory is written off. For further details on the carrying
value of inventory as at March 1, 2008, refer to Note 5 to the
Consolidated Financial Statements.
Valuation of long-lived assets, intangible assets and goodwill
The Company assesses the impairment of identifiable
intangibles, long-lived assets and goodwill whenever events
or changes in circumstances indicate that the carrying value
may not be recoverable. In addition, the Company assesses
goodwill for impairment at the end of every fiscal year.
Intangible assets are stated at cost less accumulated
amortization and are comprised of licenses, patents and
acquired technology. A significant component of intangible
assets is the net book value of licenses. Under certain
license agreements, RIM is committed to current and future
royalty payments based on the sales of products using
certain licensed technologies. License agreements involving
up-front lump sum payments are capitalized as part of
intangible assets and are then amortized over the lesser of
five years or on a per unit basis based upon the Company’s
projected number of units to be sold during the terms of the
license agreements. See “Summary Results of Operations –
Amortization”. Unforeseen events, changes in circumstances
and market conditions, and material differences in the value
of licenses and other long-lived assets, intangible assets
and goodwill due to changes in estimates of future cash
flows could affect the fair value of the Company’s assets and
require an impairment charge. Intangible assets are reviewed
quarterly to determine if any events have occurred that would
warrant further review. In the event that a further assessment
is required, the Company will analyze estimated undiscounted
future cash flows to determine whether the carrying value of
the intangible asset will be recovered.
Patents include trademarks, internally developed patents,
as well as individual patents or portfolios of patents acquired
from third parties. Costs capitalized and subsequently
amortized include all costs necessary to acquire intellectual
property, such as patents and trademarks, as well as legal
costs arising out of the assertion of any Company-owned
patents. If the Company is not successful in any such litigation
through prices charged for each revenue element when that
element is sold separately. The revenue recognition policies
described above are then applied to each unit of accounting.
Allowance for Doubtful Accounts and Bad Debt Expense
The Company is dependent on a number of significant
customers and on large complex contracts with respect to
sales of the majority of its products, software and services.
The Company expects increasing trade receivables balances
with its large customers to continue as it sells an increasing
number of its wireless handheld and software products and
service relay access through network carriers and resellers
rather than directly. The Company evaluates the collectibility
of its trade receivables based upon a combination of factors
on a periodic basis.
When the Company becomes aware of a specific
customer’s inability to meet its financial obligations to
the Company (such as in the case of bankruptcy filings or
material deterioration in the customer’s financial position
and payment experience), RIM records a specific bad debt
provision to reduce the customer’s related trade receivable to
its estimated net realizable value. If circumstances related to
specific customers change, the Company’s estimates of the
recoverability of trade receivables could be further adjusted.
Inventory
Raw materials are stated at the lower of cost and replacement
cost. Work in process and finished goods inventories are
stated at the lower of cost and net realizable value. Cost
includes the cost of materials plus direct labor applied to the
product and the applicable share of manufacturing overhead.
Cost is determined on a first-in-first-out basis.
The Company’s policy for the valuation of inventory,
including the determination of obsolete or excess inventory,
requires management to estimate the future demand for the
Company’s products within specific time horizons. Inventory
purchases and purchase commitments are based upon such
forecasts of future demand and scheduled rollout of new
products. The business environment in which RIM operates
is subject to rapid changes in technology and customer
demand. The Company performs an assessment of inventory
during each reporting period, which includes a review of,
among other factors, demand requirements, component
part purchase commitments of the Company and certain
key suppliers, product life cycle and development plans,
component cost trends, product pricing and quality issues. If