Blackberry 2012 Annual Report Download - page 212

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Impairment of Goodwill
As stated under “Critical Accounting Policies and Estimates – Goodwill”, goodwill represents the excess of the acquisition price over
the fair value of identifiable net assets acquired. Goodwill is tested annually, through a two-step process, for impairment in the fourth
quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that goodwill is more likely than not
impaired. During the fourth quarter of fiscal 2012, the Company used the two-step impairment test to identify potential goodwill
impairment and measure the amount of the goodwill impairment loss to be recognized. In the first step, the fair value of the Company
was determined using RIM’s average market capitalization for the preceding five days from the impairment test date, plus a
reasonable control premium, which was established based on recent market transactions. The results from the first step of the
goodwill impairment test demonstrated that the carrying value of the Company exceeded its estimated fair value as at the balance
sheet date and therefore the second step of the goodwill impairment test was performed.
In the second step of the impairment test, the Company calculated the impairment loss by estimating the implied fair value of
goodwill and comparing it with its carrying value. Using the fair value determined in the first step as the acquisition price, the implied
fair value of goodwill was calculated as the residual amount of the acquisition price after allocations made to the fair value of net
assets, including recognized and unrecognized intangible assets. Based on the results of the second step of the goodwill impairment
test, it was concluded that the carrying value of goodwill was impaired. Consequently, the Company recorded a goodwill impairment
of $355 million and reported this amount as a separate line item in the Consolidated Statements of Operations.
The Company will continue to evaluate the carrying value of goodwill on an annual basis in the fourth quarter of its fiscal year or
more frequently, if possible indicators of impairment occur, such as a significant change in legal factors or in the business climate, a
significant decline in the Company’s share price, an adverse action or assessment by a regulator, unanticipated competition, a loss of
key personnel, significant disposal activity, and the test of recoverability for a significant asset group.
As described above, the Company’s share price and control premium are significant factors in assessing the Company’s fair value for
purposes of the goodwill impairment assessment. The Company’s share price can be affected by, among other things, changes in
industry or market conditions, including the effect of competition, changes in our results of operations, and changes in the Company’s
forecasts or market expectations relating to future results. See “Risk Factors – The market price of the Company’s common shares
may be volatile” in the Company’s Annual Information Form. The current macroeconomic environment and competitive dynamics
continue to be challenging to the Company’s business and the Company cannot be certain of the duration of these conditions and their
potential impact on the Company’s share price performance or control premium applicable to the Company. A sustained decline in
the Company’s performance, the Company’s market capitalization and future changes to the Company’s assumptions and estimates
used in the goodwill impairment, particularly the determination of an appropriate control premium, and the reasonableness of
observing the average market price over a 5-day period, may result in an impairment of some or all of the goodwill on the Company’s
balance sheet; including any goodwill arising from the acquisition of Paratek Microwave, Inc., which was an acquisition that was
completed five days following the end of fiscal 2012.
Investment Income
Investment income increased by $2 million to $5 million in the fourth quarter of fiscal 2012 from $3 million in the fourth quarter of
fiscal 2011. The increase primarily reflects a realized gain on the sale of investment, which was previously accounted for as a cost-
based investment.
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