Blackberry 2008 Annual Report Download - page 37

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and external advisory costs, travel and office expenses as
well as related staffing infrastructure costs. The increase
also includes legal, accounting and other professional costs
incurred by the Company in fiscal 2007 as well as 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 and
related matters.
Amortization
Amortization expense relating to certain capital and all
intangible assets other than licenses increased by $26.9
million to $76.9 million for fiscal 2007 compared to
$50.0 million for the comparable period in fiscal 2006. The
increased amortization expense primarily reflects the impact
of capital and intangible asset additions incurred during the
first three quarters of fiscal 2007 and 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 $29.9 million in
fiscal 2007 compared to $18.5 million in fiscal 2006 and is
charged to Cost of sales in the consolidated statements of
operations. The increased amortization expense in fiscal 2007
reflects the impact of a full year’s amortization expense with
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 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 $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 7 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
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 United States Patent and
Trademark Office (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.