Blackberry 2009 Annual Report Download - page 24

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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 FEBRUARY 28, 2009
22
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
February 28, 2009, or to the current average warranty return
rate, would have resulted in adjustments to warranty expense
and pre-tax earnings of approximately $18.4 million, or 1% of
consolidated annual net income.
Investments
All cash equivalents and investments, other than cost method
investments of $2.5 million and equity method investments
of $2.7 million, are categorized as available-for-sale under
Statement of Financial Accounting Standard (“SFAS”)
No. 115 Accounting for Certain Investments in Debt and
Equity Securities, and are carried at fair value determined
under SFAS No. 157 Fair Value Measurements (“SFAS 157”)
with unrealized gains and losses recorded through other
comprehensive income. In the event of a decline in value
which is other than temporary, the cash equivalents and
investments are written down to fair value by a charge to
earnings.
Effective for fiscal 2009, the Company adopted SFAS 157,
except as it applies to the non-financial assets and non-
financial liabilities subject to FASB Staff Position (“FSP”) SFAS
157-2, with the impact of adoption described in Note 4 to
the Consolidated Financial Statements. SFAS 157 defines fair
value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. SFAS 157
establishes a three-tier fair value hierarchy, which prioritizes
the inputs used in the valuation methodologies in measuring
fair value.
• Level 1 — Unadjusted quoted prices at the measurement
date for identical assets or liabilities in active markets.
competition and other economic factors are potential
indicators that the useful life of an intangible asset may be
revised.
The Company has concluded that no impairment relating to
intangible assets and goodwill exists as of February 28, 2009.
For further details on the intangible assets and goodwill,
refer to Notes 7 and 8 to the Consolidated Financial
Statements.
Litigation
The Company is involved in litigation in the normal course
of its business. The Company may be subject to claims
(including claims related to patent infringement, purported
class actions and derivative actions) either directly or through
indemnities against these claims that it provides to certain of
it partners. 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.
Royalties
The Company recognizes its liability for royalties 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