Blackberry 2008 Annual Report Download - page 34

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
32
Research and Development
Research and development expenditures consist primarily
of salaries and benefits for technical personnel, engineering
materials, certification and tooling expense, travel, software
tools, outsourcing and consulting services, and related
information technology infrastructure support.
Research and development expenditures increased
by $123.6 million to $359.8 million, or 6.0% of revenue, in
fiscal 2008, compared to $236.2 million, or 7.8% of revenue,
in fiscal 2007. The majority of the increases during fiscal
2008, compared to fiscal 2007, were attributable to salaries
and benefits due to an increase in the average headcount
associated with research and development activities, new
product development costs, office and related staffing
infrastructure costs and travel.
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 $343.6 million to $881.5 million for fiscal 2008 compared to
$537.9 million for the comparable period in fiscal 2007. As a
percentage of revenue, selling, marketing and administrative
expenses decreased to 14.7% in fiscal 2008 compared
to 17.7% in fiscal 2007. The net increase of $343.6 million
was primarily attributable to increased expenditures for
marketing, advertising and promotion expenses including
additional programs to support new product launches, salary
and benefits expenses primarily as a result of increased
personnel, external advisory fees, office and related staffing
infrastructure costs and travel. The increase also includes
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, regulatory investigations relating to the
Company’s historical option granting practices and related
matters.
Amortization
Amortization expense relating to certain capital and all
intangible assets other than licenses increased by
$31.2 million to $108.1 million for fiscal 2008 compared to
$76.9 million for the comparable period in fiscal 2007. The
increased amortization expense primarily reflects the impact
of a full year amortization of fiscal 2007 additions plus a
partial year’s amortization for fiscal 2008 additions.
Cost of sales
Amortization expense with respect to capital assets
employed in the Company’s manufacturing operations and
BlackBerry service operations increased to $45.2 million in
fiscal 2008 compared to $29.9 million in fiscal 2007 and is
charged to Cost of sales in the Consolidated Statements
of Operations. The increased amortization expense in
fiscal 2008 reflects the impact of a full year’s amortization
expense with respect to these capital asset expenditures
incurred during fiscal 2007 and also incremental amortization
with respect to capital asset expenditures incurred during
fiscal 2008. See also Note 6 to the Consolidated Financial
Statements.
Amortization expense with respect to licenses (a
component of Intangible assets) is charged to Cost of sales
and was $24.0 million in fiscal 2008 compared to $19.6 million
in fiscal 2007.
Total amortization expense with respect to Intangible
assets was $44.3 million in fiscal 2008 compared to
$32.9 million in fiscal 2007. See also Notes 1(l) and Note 7
to the Consolidated Financial Statements and “Critical
Accounting Policies and Estimates - Valuation of long-lived
assets, intangible assets and goodwill.”
Investment Income
Investment income increased by $27.3 million to $79.4 million
in fiscal 2008 from $52.1 million in fiscal 2007. The increase
primarily reflects the increase in cash and cash equivalents,
short-term investments and long-term investments when
compared to the prior year. See also “Liquidity and Capital
Resources”.
Income Taxes
For fiscal 2008, the Company’s income tax expense was
$516.7 million, resulting in an effective tax rate of 28.5%
compared to income tax expense of $227.4 million or an
effective tax rate of 26.5% for fiscal 2007. The Company’s
effective tax rate reflects the geographic mix of earnings in
jurisdictions with different tax rates. The fiscal 2008 effective
tax rate increase was partially offset by the significant
depreciation of the U.S. dollar relative to the Canadian
dollar during fiscal 2008, the impact of enacted Canadian
federal income tax rate reductions in the fourth quarter of
fiscal 2008 on the Company’s deferred income tax asset and
liability balances, and the settlement in the third quarter
of fiscal 2008 of previously unrecognized ITCs on research
and development expenditures attributable to prior fiscal
periods. The foreign exchange impact was a result of the U.S.