Blackberry 2013 Annual Report Download - page 185

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 claims that
it provides to certain of its 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.
Royalties
The Company recognizes its liability for royalties in accordance with the terms of existing license agreements. Where license
agreements are not yet finalized, the Company 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 activities, 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 costs. If the Company experiences increased or decreased warranty activity, or increased or decreased costs associated with
servicing those obligations, revisions to the estimated warranty liability would be recognized in the reporting period when such
revisions are made. For further details on the Company’s warranty expense experience and estimates for fiscal 2013, refer to Note 12
to the Consolidated Financial Statements.
I
ncome Sensitivity
The Company estimates that a 10% change to either the current average unit warranty repair cost or the current average warranty
return rate, measured against the device sales volumes currently under warranty as at March 2, 2013, would have resulted in
adjustments to warranty expense and pre-tax income of approximately $79 million, or 6.5% of consolidated annual net income (loss).
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