Blackberry 2012 Annual Report Download - page 183

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company determines BESP for a product or service by considering multiple factors including, but not limited to, market
conditions, competitive landscape, internal costs, gross margin objectives and pricing practices. The determination of BESP is made
through consultation with and formal approval by, the Company’s management, taking into consideration the Company’s marketing
strategy. The Company regularly reviews VSOE, TPE and BESP, and maintains internal controls over the establishment and updates
of these estimates. Based on the above factors, the Company’s BESP for the unspecified software upgrade right is $6 per BlackBerry
PlayBook tablet. If the Company’s quarterly pricing reviews and internal control procedures indicate market facts and circumstances
have changed, the Company’s BESP for hardware products, services and unspecified software upgrade rights related to the
Company’s tablets could change. On an annual basis, the Company also reviews internal statistical data to estimate the useful life of
the Company’s devices and tablets in market. If the estimated life of these hardware products should change, the amortization period
for any deferred service revenues or deferred unspecified software upgrade right revenues would also change to reflect new market
realities.
A
llowance for Doubtful Accounts and Bad Debt Expense
The Company has historically been dependent on an increasing number of significant telecommunication carriers and distribution
partners and on large more complex contracts with respect to sales of the majority of its products and services. The Company expects
increasing accounts receivable balances with its large customers to continue as it sells an increasing number of its wireless devices
and software products and service relay access through network carriers and resellers rather than directly.
The Company evaluates the collectability of its accounts receivables based upon a combination of factors on a periodic basis, such as
specific credit risk of its customers, historical trends and economic circumstances. The Company, in the normal course of business,
monitors the financial condition of its customers and reviews the credit history of each new customer. When the Company becomes
aware of a specific customer’s inability to meet its financial obligations to the Company (such as in the case of bankruptcy filings or
material deterioration in the customer’s operating results or financial position, and payment experiences), RIM records a specific bad
debt provision to reduce the customer’s related accounts receivable to its estimated net realizable value. If circumstances related to
specific customers change, the Company’s estimates of the recoverability of accounts receivables balances could be further adjusted.
Inventories and Inventory Purchase Commitments
Raw materials are stated at the lower of cost and replacement cost. Work in process and finished goods inventories are stated at the
lower of cost and net realizable value. Cost includes the cost of materials plus direct labor applied to the product and the applicable
share of manufacturing overhead. Cost is determined on a first-in-first-out basis.
The Company’s policy for the valuation of inventory, including the determination of obsolete or excess inventory, requires
management to estimate the future demand for the Company’s products within specific time horizons. Inventory purchases and
purchase commitments are based upon such forecasts of future demand and scheduled rollout of new products. The business
environment in which RIM operates is subject
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