Blackberry 2013 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, historical
pricing practices for similar offerings, 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 and the Company’s BESP for the unspecified software upgrade right and
non-software services ranges from $10-$20 per BlackBerry 10 device.
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), the Company 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 the Company operates is subject to rapid changes in technology and customer demand. The Company performs
an assessment of inventory during each reporting period, which includes a review of, among other factors, demand requirements,
component part purchase commitments of the Company and certain key suppliers, product life cycle and development plans,
component cost trends, product pricing and quality issues. If customer demand subsequently differs from the Company’s forecasts,
requirements for inventory write-offs that differ from the Company’s estimates could become necessary. If management believes that
demand no longer allows the Company to sell inventories above cost or at all, such inventory is written down to net realizable value
or excess inventory is written off.
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