Blackberry 2010 Annual Report Download - page 18

Download and view the complete annual report

Please find page 18 of the 2010 Blackberry annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 98

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98

The Company has concluded that no impairment relating to intangible assets and goodwill exists as of
February 27, 2010.
For further details on the intangible assets and goodwill, refer to Notes 8 and 9 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, see “Legal Proceedings” below and see “Results
of Operations — Litigation” for the fiscal year ended February 27, 2010.
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, royalty payment experience and forward-looking expectations.
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
2010, refer to Note 13 to the Consolidated Financial Statements.
Income 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 27, 2010, or to the current average
warranty return rate, would have resulted in adjustments to warranty expense and pre-tax income of
approximately $25.2 million, or 1.0% 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 $4.1 million, are classified as available-for-sale and are carried at fair value with unrealized
gains and losses recorded in other comprehensive income (loss) until such investments mature or are sold. In
the event of a decline in value which is other than temporary, the investment is written down to fair value by a
charge to income.
The Company 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. When determining the
fair value measurements for assets and liabilities required to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk
MD&A
10