Blackberry 2008 Annual Report Download - page 24

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 1, 2008
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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, RIM paid NTP $612.5 million in full and final
settlement of all claims against RIM, as well as for a perpetual,
fully-paid up license going forward.
Royalties
The Company recognizes its liability for royalty payments in
accordance with the terms of existing license agreements.
Where license agreements are not yet finalized, RIM
recognizes its current estimates of the obligation in Accrued
liabilities in the Consolidated Financial Statements. When the
license agreements are subsequently finalized, the estimate is
revised accordingly. Management’s estimates of royalty rates
are based on the Company’s historical licensing and royalty
payment experience
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 changes in warranty activity, or changes to costs
associated with servicing those obligations, revisions to the
estimated warranty liability would be required. For further
details on the Company’s warranty expense experience and
estimates for fiscal 2008, refer to Note 13 to the Consolidated
Financial Statements.
Earnings Sensitivity
The Company estimates that a 10% change to either the
current average unit warranty repair cost, measured against
the device sales volumes currently under warranty as at
March 1, 2008, or to the current average warranty return rate,
to protect its patents, RIM will review the related intangible
asset balance, including previously capitalized litigation costs,
for impairment.
For further details on the intangible assets, patents
and long-lived assets, refer to Note 7 to the Consolidated
Financial Statements.
In connection with business acquisitions completed by
the Company, the Company identifies and estimates the fair
value of net assets acquired, including certain identifiable
intangible assets other than goodwill and liabilities assumed
in the acquisitions. Any excess of the purchase price over the
estimated fair value of the net assets acquired is assigned to
goodwill. Goodwill is assessed for impairment on an annual
basis and the Company has concluded that no impairment
exists as of March 1, 2008.
Litigation
The Company is involved in litigation in the normal course
of its business. Lawsuits relating to patent infringement,
purported class actions and derivative actions may be filed
by the Company or by parties naming the Company as a
defendant. Management reviews all of the relevant facts for
each claim and applies judgment in evaluating the likelihood
and, if applicable, the amount of any potential loss. Where
it is considered likely for a material exposure to result and
where the amount of the claim is quantifiable, provisions for
loss are made based on management’s assessment of the
likely outcome. The Company does not provide for claims that
are considered unlikely to result in a significant loss, claims
for which the outcome is not determinable or claims where
the amount of the loss cannot be reasonably estimated. Any
settlements or awards under such claims are provided for
when reasonably determinable. For further details on legal
matters, refer to Note 12(b) of the Consolidated Financial
Statements.
As more fully disclosed in the Consolidated Financial
Statements, the Company was the defendant in a patent
litigation matter brought by NTP, Inc. (“NTP”) alleging that
the Company infringed on eight of NTP’s patents (See
“Summary Results of Operations – Litigation” and Note 12(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 RIM was