BULKY DOCUMENTS
`
`(Exceeds 100 pages)
`
`Proceeding/Serial No: 91 I 91 059
`
`Filed: 09[10[2010
`
`Title: OPPOSER’S NOTICE OFRELIANCE # 2:
`
`PRINTED PUBLICA TION
`
`1911910591
`
`

`
`EX-1.2
`
`Page 4 of54
`
`Research In Motion Limited
`
`(United States dollars. in thousands)
`
`Consolidated Statements of Shareholders’ Equity
`
`Balance as at March 4, 2006
`Comprehensive income (loss):
`Net income
`Net change in unrealized gains on
`available—for-sale investments
`Net change in derivative fair value during
`the year
`Amounts reclassified to earnings during
`the year
`~
`
`Shares issued:
`
`Exercise of stock options
`Transfers to capital stock from stock
`option exercises
`Stock-based compensation
`Excess tax benefits from stock-based
`
`compensation
`Common shares repurchased pursuant to
`Common Share Repurchase Program
`Balance as at March 3, 2007
`
`Capital Stock
`S 2.068,869
`
`Additional Paid-In
`Capital
`28,694
`
`$
`
`—
`
`—
`
`A
`
`A
`
`44,534
`
`18.055
`——
`
`—
`
`4
`
`—
`
`—
`
`—
`
`(18,055)
`19,454
`
`~
`
`6,000
`
`Accumulated
`Other
`Retained
`Comprehensi\e
`Earnings
`Total
`Income (Loss)
`(Deficit)
`$ (100,174) $
`(1.974) $1,995,415
`
`631.572
`
`——
`
`631,572
`
`—
`
`——
`
`—
`
`—
`
`—
`—
`
`—
`
`1 1,839
`
`1 1.839
`
`(13,455)
`
`(13,455)
`
`(7,926)
`
`(7.926)
`
`'
`
`—
`—
`
`—
`
`44,534
`
`———
`19.454
`
`6,000
`
`(31,762)
`$ 2,099.696
`
`$
`
`A
`36,093
`
`( 172,171 )
`$ 359.227 $
`
`— (203,933)
`(11,516) $2,483,500
`
`—
`
`— 1,293,867
`
`— 1,293,867
`
`—
`
`13,467
`
`13 .467
`
`Comprehensive income (loss):
`Net income
`Net change in unrealized gains on
`avai1ab1e—for—sa1e investments
`Net change in derivative fair value during
`the year
`Amounts reclassified to earnings during
`the year
`
`Other paid-in capital
`
`Shares issued:
`
`Exercise of stock options
`Transfers to capital stock from stock
`option exercises
`Stock—based compensation
`Excess tax benefits from stock-based
`
`4
`
`—
`
`—
`
`w
`
`62,889
`
`7,271
`—
`
`A
`
`—
`
`—
`
`9,626
`
`~
`
`(7.271)
`33,700
`
`~
`
`—
`
`V
`
`—
`
`—
`V
`
`37,5 64
`
`37,564
`
`(9,232)
`
`(9,232)
`
`—
`
`-—
`
`—
`——
`
`9,626
`
`62,889
`
`—
`33,700
`
`compensation
`Balance as at March 1,2008
`
`—
`35 2,169,856
`
`$
`
`8,185
`80.333
`
`—
`$1,653,094 $
`
`—
`30.283
`
`8.185
`$3.933.566
`
`Comprehensive income (loss):
`Net income
`Net change in unrealized gains on
`available-for-sale investments
`Net change in derivative fair value during
`the year
`Amounts reclassified to earnings during
`the year
`
`-—
`
`—
`
`—
`
`—
`
`— 1,892,616
`
`— 1,892,616
`
`—
`
`—
`
`—
`
`—
`
`—
`
`——
`
`(7,161)
`
`(7,161)
`
`(6,168)
`
`(6,168)
`
`(16,497)
`
`(16,497)
`
`http://www.sec.gov/Archives/edgar/data/107023 5/000090956709000334/o54602exv 1 w2.htm 9/7/2010
`
`

`
`EX-1.2
`
`Shares issued:
`
`Page 5 of 54
`
`Exercise of stock options
`Transfers to capital stock from stock
`option exercises
`Stock-based compensation
`Excess tax benefits from stock—based
`
`27,024
`
`11,355
`—
`
`—
`
`(11,355)
`38,100
`
`—
`
`—
`—
`
`—
`
`—~
`—
`
`27,024
`
`—
`38,100
`
`compensation
`Balance as at February 28, 2009
`
`—
`S 2,208,235
`
`$
`
`12,648
`119,726
`
`—
`$3,545,710 $
`
`—
`457
`
`12,648
`$5,874,128
`
`See notes 10 the consolidatedfinancial statements.
`
`http://www.sec.goV/Archives/edgar/data/107023 5/0O0O9O9567O9O0O334/o54602exV1w2.htm 9/7/2010
`
`

`
`EX-1.2
`
`Page 6 of 54
`
`Research In Motion Limited
`
`(United States dollars, in thousands. except per share data)
`
`Consolidated Statements of Operations
`
`Revenue
`
`Devices and other
`Service and software
`
`Cost of sales
`Devices and other
`Service and software
`
`Gross Margin
`
`Expenses
`Research and development
`Selling, marketing and administration (notes 16(d) and 17)
`Amortization
`
`Income from operations
`
`Investment income
`Income before income taxes
`Provision for (recovery of) income taxes (note 9)
`Current
`
`Deferred
`
`Net income
`
`Earnings per share (note 14)
`
`Basic
`
`Diluted
`
`See notes to the consolidatedfinancial statements.
`
`February 28,
`2009
`
`For the Year Ended
`March 1.
`2008
`
`March 3.
`2007
`
`$ 9,410,755
`1,654,431
`11,065,186
`
`$4,914,366
`1,095,029
`6.009.395
`
`$2.303.800
`733.303
`3.037.103
`
`5,718,041
`249,847
`5,967,888
`
`2,758,250
`170,564
`2.928.814
`
`5,097,298
`
`3,080,581
`
`1.265.251
`114.050
`1.379.301
`
`1.657.802
`
`684,702
`1,495,697
`194,803
`2,375,202
`2,722,096
`
`359,828
`881,482
`108.1 12
`1.349.422
`1,731,159
`
`78,267
`2,800,363
`
`79,361
`1.810.520
`
`236.173
`537.922
`76.879
`850,974
`806,828
`
`52,1 17
`858.945
`
`948,536
`
`587,845
`
`123,553
`
`(40,789)
`907,747
`$ 1,892,616
`
`(71,192)
`516,653
`$1,293,867
`
`103,820
`227,373
`$ 631.572
`
`$
`
`$
`
`3.35
`
`3.30
`
`$
`
`$
`
`2.31
`
`2.26
`
`$
`
`$
`
`1.14
`
`1.10
`
`http://www.sec.gov/Archives/edgar/data/107023 5/OO00909567090003 34/o54602exv1 w2.htm 9/7/2010
`
`

`
`EX-1.2
`
`Page 7 of 54
`
`Research In Motion Limited
`
`(United States dollars, in thousands)
`
`Consolidated Statements of Cash Flows
`
`Cash flows from operating activities
`
`For the Year Ended
`
`2009
`
`20()8
`
`2007
`
`Net income
`
`$ 1,892,616
`
`$ 1,293,867
`
`$ 631,572
`
`Items not requiring an outlay of cash:
`
`Amortization
`Deferred income taxes
`Income taxes payable
`Stock-based compensation (note 11(b))
`Other
`
`Net changes in working capital items (note l6(a))
`Net cash provided by operating activities
`Cash flows from financing activities
`
`Issuance of share capital
`Additional paid-in capital
`Excess tax benefits from stock-based compensation (note 11(b))
`Common shares repurchased pursuant to Common Share Repurchase Program
`(note 11(a))
`Repayment of debt
`Net cash provided by (used in) financing activities
`Cash flows from investing activities
`
`Acquisition of long-term investments
`Proceeds on sale or maturity of long-term investments
`Acquisition of capital assets
`Acquisition of intangible assets
`Business acquisitions (note 8)
`Acquisition of short—term investments
`Proceeds on sale or maturity of short—term investments
`Net cash used in investing activities
`Effect of foreign exchange gain (loss) on cash and cash equivalents
`Net increase (decrease) in cash and cash equivalents for the year
`Cash and cash equivalents, beginning of year
`Cash and cash equivalents, end of year
`
`See notes to the consolidatedfinancial statements.
`
`327,896
`(36,623)
`(6,897)
`38,100
`5,867
`
`177,366
`(67,244)
`4,973
`33,700
`3,303
`
`126,355
`101,576
`~——
`19,063
`(315)
`
`(769,114)
`1,451,845
`
`130.794
`1,576,759
`
`(142,582)
`735,669
`
`27,024
`—
`12,648
`
`_
`(14,305)
`25,367
`
`62.889
`9,626
`8,185
`
`44.534
`~
`6,000
`
`/ (203.9133)
`(302)
`(262)
`80,398
`(153,661)
`
`(507,082)
`431,713
`(833,521)
`(687,913)
`(48,425)
`(917,316)
`739,021
`(1,823,523)
`(2,541)
`(348,852)
`1,184,398
`835,546
`
`$
`
`(757,656)
`260,393
`(351,914)
`(374,128)
`(6,200)
`(1,249,919)
`1,325,487
`(1,153,937)
`4,034
`507,254
`677,144
`$ 1,184,398
`
`(100,080)
`86,583
`(254,041 )
`(60,303)
`(1 16,190)
`(163,147)
`242,601
`(364,577)
`173
`217,604
`459,540
`$ 677,144
`
`http://www.sec.gov/Archives/edgar/data/107023 5/0000909567090003 34/o54602exV1w2.htm 9/7/2010
`
`

`
`EX-1.2
`
`Page 8 of 54
`
`Research In Motion Limited
`Notes to the Consolidated Financial Statements
`
`In thousands of United States dollars, except share and per share data. and except as otherwise indicated
`
`NATURE OF BUSINESS
`
`Research In Motion Limited (“RIM’" or the “Company"') is a leading designer, manufacturer and marketer of innovative
`wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware.
`software and services that support multiple wireless network standards, RIM provides platforms and solutions for seamless
`access to time—sensitive information including email, phone, short messaging service (SMS), Internet and intranet-based
`applications. RIM technology also enables a broad array of third party developers and manufacturers to enhance their
`products and services with wireless connectivity to data. RIM’s portfolio of award-winning products, services and
`embedded technologies are used by thousands of organizations around the world and include the BlackBerry wireless
`solution, and other software and hardware. The Company’s sales and marketing efforts include collaboration with strategic
`partners and distribution channels to promote the sale of its products and services as well as its own supporting sales and
`marketing teams. The Company was incorporated on March 7, 1984 under the Ontario Business Corporations Act. The
`Company’s shares are traded on the Toronto Stock Exchange under the symbol “RIM" and on the NASDAQ Global Select
`Market under the symbol “RIMM".
`
`1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
`
`(a) General
`
`These consolidated financial statements have been prepared by management in accordance with United States generally
`accepted accounting principles (“US GAAP”) on a basis consistent for all periods presented except as described in note 2.
`Certain of the comparative figures have been reclassified to conform to the current year presentation.
`
`The significant accounting policies used in these U.S. GAAP consolidated financial statements are as follows:
`
`(b) Fiscal year
`
`The Company‘s fiscal year end date is the 52 or 53 weelcs ending on the last Saturday of February, or the first Saturday of
`March. The fiscal years ended February 28, 2009, March 1, 2008 and March 3, 2007 comprise 52 weeks.
`
`(c) Basis of consolidation
`
`The consolidated financial statements include the accounts of all subsidiaries with intercompany transactions and balances
`eliminated on consolidation. All of the Company’s subsidiaries are wholly-owned.
`
`(d) Use of estimates
`
`The preparation of the Company‘s consolidated financial statements in accordance with U.S. GAAP requires management
`to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
`liabilities as at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during
`the reporting periods. Significant areas requiring the use of management estimates relate to the determination of reserves
`for various litigation claims, allowance for doubtful accounts, provision for excess and obsolete inventory, fair values of
`assets acquired and liabilities assumed in business combinations, royalties, amortization expense, implied fair value of
`goodwill, provision for income
`
`http://www.sec.gov/Archives/edgar/data/ 1 07023 5/0000909567090003 34/o54602exvl w2.htm 9/7/2010
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`

`
`EX-1.2
`
`Page 9 of 54
`
`Research In Motion Limited
`Notes to the Consolidated Financial Statements
`
`In thousands of United States dollars, except share and per share data. and except as otherwise indicated
`
`taxes, realization of deferred income tax assets and the related components of the valuation allowance, provision for
`warranty and the fair values of financial instruments. Actual results could differ from these estimates.
`
`(e) Foreign currency translation
`
`The U.S. dollar is the functional and reporting currency of the Company. Foreign currency denominated assets and
`liabilities of the Company and all of its subsidiaries are translated into U.S. dollars using the remeasurement method.
`Accordingly, monetary assets and liabilities are translated using the exchange rates in effect at the consolidated balance
`sheet date and revenues and expenses at the rates of exchange prevailing when the transactions occurred. Resulting
`exchange gains and losses are included in income. Non—monetary assets and liabilities are translated at historical exchange
`rates.
`
`(f) Cash and cash equivalents
`
`Cash and cash equivalents consist of balances with banks and liquid investments with maturities of three months or less at
`the date of acquisition and are carried on the consolidated balance sheets at fair value.
`
`(g) Trade receivables
`
`Trade receivables which reflect invoiced and accrued revenue are presented net of an allowance for doubtful accounts. The
`allowance was $2.1 million at February 28. 2009 (March 1. 2008 — $2.0 million). Bad debt expense (recovery) was $24
`for the year ended February 28, 2009 (March 1. 2008 ~ ($26): March 3. 2007 — $274).
`
`The allowance for doubtful accounts reflects estimates of probable losses in trade receivables. The Company is dependent
`on a number of significant customers and on large complex contracts with respect to sales of the majority of its products.
`software and services. The Company expects the majority of trade receivables to continue to come from large customers as
`it sells the majority of its devices and software products and service relay access through network carriers and resellers
`rather than directly.
`
`The Company evaluates the collectability of its trade receivables based upon a combination of factors on a periodic basis.
`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 trade receivable to
`its estimated net realizable value. If circumstances related to specific customers change. the Company's estimates of the
`recoverability of trade receivables balances could be further adjusted.
`
`(h) Investments
`
`The Company’s investments, other than cost method investments of $2.5 million and equity method investments of
`$2.7 million, consist of money market and other debt securities, and are classified as available-for-sale for accounting
`purposes. The Company does not exercise significant influence with respect to any of these investments.
`
`Investments with maturities of less than one year. as well as any investments that management intends to hold for less than
`one year, are classified as Short—term investments. Investments with maturities of one year or more are classified as Long-
`term investments.
`
`Investments classified as available-for-sale under Statement of Financial Accounting Standards (“SPAS”) l 15 are
`
`2
`
`http://www.sec.gov/Archives/edgar/data/ 1 07023 5/000090956709000334/o54602exv l w2 .htm 9/7/2010
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`

`
`EX-1.2
`
`Page 10 of 54
`
`Research In Motion Limited
`Notes to the Consolidated Financial Statements
`
`In thousands of United States dollars, except share and per share data, and except as otherwise indicated
`
`carried at fair value determined under SFAS 157 Fair Value Measurements. Changes in fair value are accounted for
`through Accumulated other comprehensive income until such investments mature or are sold.
`
`The Company assesses declines in the value of individual investments for impairment to determine whether the decline is
`other-than—temporary. The Company makes this assessment by considering available evidence, including changes in
`general market conditions, specific industry and individual company data, the length of time and the extent to which the
`fair value has been less than cost, the financial condition, the near—term prospects of the individual investment and the
`Company’s intent and ability to hold the investments. In the event that a decline in the fair value of an investment occurs
`and the decline in value is considered to be other-than—temporary. an impairment charge is recorded and a new cost basis in
`the investment is established.
`
`(i) Derivative financial instruments
`
`The Company uses derivative financial instruments, including forward contracts and options, to hedge certain foreign
`currency exposures. The Company does not use derivative financial instruments for speculative purposes.
`
`The Company formally documents relationships between hedging instruments and associated hedged items. This
`documentation includes: identification of the specific foreign currency asset, liability or forecasted transaction being
`hedged; the nature of the risk being hedged; the hedge objective; and the method of assessing hedge effectiveness. Hedge
`effectiveness is formally assessed, both at hedge inception and on an ongoing basis, to determine whether the derivatives
`used in hedging transactions are highly effective in offsetting changes in foreign currency denominated assets. liabilities
`and anticipated cash flows of hedged items.
`
`SFAS 133 Accountingfor Derivative Instruments, as amended by SFAS 137, 138 and 149, requires all derivative
`instruments to be recognized at fair value on the consolidated balance sheet and outlines the criteria to be met in order to
`designate a derivative instrument as a hedge and the methods for evaluating hedge effectiveness. The fair value is
`calculated based on quoted market prices. For derivative instruments designated as cash flow hedges as defined in SFAS
`133, the effective portion of changes in fair value are recorded in other comprehensive income and subsequently
`reclassified to earnings in the period in which the cash flows from the associated hedged transaction affect earnings.
`Ineffective portions of changes in fair value, if any, are recorded in current earnings. If an anticipated transaction is
`deemed no longer likely to occur, the corresponding derivative instrument is de—designated as a hedge and gains and losses
`are recognized in earnings at that time. Any future changes in the fair value of the instrument are recognized in current
`earnings.
`
`For derivative instruments that do not meet the requirements for hedge accounting under SFAS 133, changes in fair value
`are recognized in current earnings and will generally offset the changes in the U.S. dollar value of the associated hedged
`asset or liability.
`
`(j) Inventories
`
`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 labour applied to the
`product and the applicable share of manufacturing overhead. Cost is determined on a first—in—f1rst—out basis.
`
`http://WWW.sec.gov/Archives/edgar/data/ 1 07023 5/OOOO909567090003 34/o54602exv l w2.htm 9/7/201 0
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`

`
`EX—l.2
`
`Page ll of54
`
`Research In Motion Limited
`Notes to the Consolidated Financial Statements
`
`In thousands of United States dollars, except share and per share data, and except as otherwise indicated
`
`(k) Capital assets
`
`Capital assets are stated at cost less accumulated amortization. No amortization is provided for construction in progress
`until the assets are ready for use. Amortization is provided using the following rates and methods:
`
`Buildings, leaseholds and other
`B1ackBerry operations and other information
`technology
`Manufacturing equipment, research and development
`equipment and tooling
`Furniture and fixtures
`
`(1) Intangible assets
`
`Straight—line over terms between 5 and 40 years
`Straight-line over terms between 3 and 5 years
`
`Straight-line over terms between 2 and 8 years
`Declining balance at 20% per annum
`
`Intangible assets are stated at cost less accumulated amortization and are comprised of licenses, patents and acquired
`technology. Acquired technology consists of purchased developed technology arising from the Company’s corporate
`acquisitions. Licenses include licenses or agreements that the Company has negotiated with third parties upon use of third
`parties’ technology. Patents comprise trademarks, internally developed patents, as well as individual patents or portfolios
`of patents acquired from third parties. Costs capitalized and subsequently amortized include all costs necessary to acquire
`intellectual property, such as patents and trademarks, as well as legal defense costs arising out of the assertion of any
`Company-owned patents.
`
`Intangible assets are amortized as follows:
`
`Acquired technology
`
`Licenses
`
`Patents
`
`(m) Goodwill
`
`Straight-line over 2 to 5 years except for acquired in—process
`research and development costs which is expensed
`immediately
`Straight-line over terms of the license agreements or on a per
`unit basis based upon the anticipated number of units sold
`during the terms, subject to a maximum of 5 years
`Straight—line over 17 years or over estimated useful life
`
`Goodwill represents the excess of the purchase price of business acquisitions over the fair value of identifiable net assets
`acquired in such acquisitions. Goodwill is allocated as at the date of the business combination. Goodwill is not amortized.
`but is tested for impairment annually, or more frequently if events or changes in circumstances indicate the asset might be
`impaired.
`
`The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit including
`goodwill is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount. goodwill of
`the reporting unit is considered not to be impaired, and the second step is unnecessary.
`
`4
`
`http://www.sec.gov/Archives/edgar/data/107023 5/000O90956709000334/o54602exvl w2.htm 9/7/2010
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`

`
`EX-1.2
`
`Page 12 of 54
`
`Research In Motion Limited
`Notes to the Consolidated Financial Statements
`
`In thousands of United States dollars, except share and per share data, and except as otherwise indicated
`
`In the event that the fair value of the reporting unit. including goodwill, is less than the carrying value, the implied fair
`value of the reporting unit‘s goodwill is compared with its carrying amount to measure the amount of the impairment loss,
`if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determined in a
`business combination using the fair value of the reporting unit as if it were the purchase price. When the carrying amount
`of the reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an
`amount equal to the excess and is presented as a separate line item in the consolidated statements of operations.
`
`The Company has one reporting unit which is the consolidated Company.
`
`(11) Impairment of long-lived assets
`
`The Company reviews long-lived assets such as property, plant and equipment and intangible assets with finite useful lives
`for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If
`the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized
`for the excess of the carrying amount over the fair value of the asset.
`
`(0) Income taxes
`
`In accordance with SFAS 109 Accountingfor Income Taxes, the Company uses the liability method of tax allocation to
`account for income taxes. Under this method, deferred income tax assets and liabilities are determined based upon
`differences between the financial reporting and tax bases of assets and liabilities, and measured using enacted tax rates and
`laws that will be in effect when the differences are expected to reverse. The Company’s deferred income tax asset balance
`represents temporary differences between the financial reporting and tax basis of assets and liabilities, including research
`and development costs and incentives, capital assets, non-deductible reserves and operating loss carryforwards. net of
`valuation allowances. The Company considers both positive evidence and negative evidence, to determine whether. based
`upon the weight of that evidence, a valuation allowance is required. Judgment is required in considering the relative impact
`of negative and positive evidence. The Company records a valuation allowance to reduce deferred income tax assets to the
`amount that is more likely than not to be realized. If the Company determines that it is more likely than not that it will not
`be able to realize all or part of its deferred income tax assets in future fiscal periods, the valuation allowance would be
`increased. resulting in a decrease to net income in the reporting periods when such determinations are made.
`
`The Company uses the flow-through method to account for investment tax credits (“ITCs") earned on eligible scientific
`research and experimental development expenditures. Under this method. the ITCs are recognized as a reduction to income
`tax expense.
`
`The Company uses Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accourztingfor Uncertainty in
`Income Taxes (“FIN 48”) in assessing its uncertain tax positions and provision for income taxes. FIN 48 clarifies the
`accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS
`109, and prescribes a recognition threshold of more likely than not to be sustained upon examination. In addition. FIN 48
`provides guidance on derecognition, measurement, classification. interest and penalties. accounting in interim periods and
`disclosure and transitions.
`
`(p) Revenue recognition
`
`The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or
`realizable and earned when it has persuasive evidence of an arrangement, the product has been delivered or the services
`have been provided to the customer. the sales price is fixed or determinable and
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`Research In Motion Limited
`Notes to the Consolidated Financial Statements
`
`In thousands of United States dollars, except share and per share data, and except as otherwise indicated
`
`collectability is reasonably assured. In addition to this general policy. the following paragraphs describe the specific
`revenue recognition policies for each major category of revenue.
`
`Devices
`
`Revenue from the sales of BlackBerry devices is recognized when title is transferred to the customer and all significant
`contractual obligations that affect the customer’s final acceptance have been fulfilled. For hardware products for which
`software is deemed not to be incidental, the Company recognizes revenue in accordance with the American Institute of
`Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition (“SOP 97-2”). The Company
`records reductions to revenue for estimated commitments related to price protection and for customer incentive programs,
`including reseller and end-user rebates. The estimated cost of the incentive programs are accrued based on historical
`experience, as a reduction to revenue in the period the Company has sold the product and committed to a plan. Price
`protection is accrued as a reduction to revenue based on estimates of future price reductions and certain agreed customer
`inventories at the date of the price adjustment.
`
`Provisions are made at the time of sale for warranties, royalties, price protection, rebates and estimated product returns. If
`the historical data the Company uses to estimate product returns does not properly reflect future returns, these estimates
`could be revised. If future returns are higher than estimated, they would result in a reduction of revenue. To date. returns of
`devices and other products have been negligible. As a result, the Company's accrual with respect to such product returns is
`not significant.
`Service
`
`Revenue from service is recognized rateably on a monthly basis when the service is provided. In instances where the
`Company bills the customer prior to performing the service, the prebilling is recorded as deferred revenue.
`
`Software
`
`Revenue from licensed software is recognized at the inception of the license term in accordance with SOP 97-2. When the
`fair value of a delivered element has not been established. the Company uses the residual method to recognize revenue if
`the fair value of undelivered elements is determinable. Revenue from software maintenance, unspecified upgrades and
`technical support contracts is recognized over the period that such items are delivered or that services are provided.
`Other
`
`Revenue from the sale of accessories is recognized when title is transferred to the customer and all significant contractual
`obligations that affect the customer‘s final acceptance have been fulfilled. Technical support contracts extending beyond
`the current period are recorded as deferred revenue. Revenue from repair and maintenance programs is recognized when
`the service is delivered which is when the title is transferred to the customer and all significant contractual obligations that
`affect the customer’s final acceptance have been fulfilled. Revenue for non—recurring engineering contracts is recognized
`as specific contract milestones are met. The attainment of milestones approximates actual performance.
`
`Shipping and handling costs
`
`Shipping and handling costs charged to earnings are included in Cost ofsales where they can be reasonably attributed to
`certain revenue; otherwise they are included in Selling, Marketing and Administration.
`
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`EX-1.2
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`Research In Motion Limited
`Notes to the Consolidated Financial Statements
`
`In thousands of United States dollars, except share and per share data, and except as otherwise indicated
`
`Multiple-element arrangements
`
`The Company enters into transactions that represent multiple—element arrangements which may include any combination
`of hardware, service and software. These multiple—element arrangements are assessed to determine whether they can be
`separated into more than one unit of accounting or element for the purpose of revenue recognition. When the appropriate
`criteria for separating revenue into more than one unit of accounting is met and there is vendor specific objective evidence
`of fair value for all units of accounting or elements in an arrangement. the arrangement consideration is allocated to the
`separate units of accounting or elements based on each unit's relative fair value. This vendor specific objective evidence of
`fair value is established through prices charged for each revenue element when that element is sold separately. The revenue
`recognition policies described above are then applied to each unit of accounting.
`
`(q) Research and development
`
`Research costs are expensed as incurred. Development costs for BlackBerry devices and licensed software to be sold.
`leased or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been
`established and ending when a product is available for general release to customers pursuant to SFAS 86 Accountingfor
`the Costs of Computer Software to be Sold, Leased, of Otherwise Marketed. The Company’s products are generally
`released soon after technological feasibility has been established and therefore cost incurred subsequent to achievement of
`technological feasibility are not significant and have been expensed as incurred.
`
`(r) Comprehensive income (loss)
`
`SFAS 130 Reporting Comprehensive Income establishes standards for the reporting and display of comprehensive income
`and its components in general-purpose financial statements. Comprehensive income is defined as the change in net assets
`of a business enterprise during a period from transactions and other events and circumstances from non—owner sources and
`includes all changes in equity during a period except those resulting from investments by owners and distributions to
`owners. The reportable items of comprehensive income are cash flow hedges as described in note 17 and changes in the
`fair value of investments available for sale as described in note 4. Realized gains or losses on available-for-sale
`investments are reclassified into earnings using the specific identification basis.
`
`(s) Earnings per share
`
`Earnings per share is calculated based on the weighted—average number of shares outstanding during the year. The treasury
`stock method is used for the calculation of the dilutive effect of stock options.
`
`(t) Stock-based compensation plans
`
`The Company has stock-based compensation plans, which are described in note 1 l(b).
`
`The Company records stock-based compensation expense in accordance with SFAS 123(R) Share-Based Payment. Under
`the provisions of SFAS 123(R), stock-based compensation expense is estimated at the grant date based on the awards fair
`value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model and is recognized rateably over the
`vesting period. The BSM model requires various judgmental assumptions including volatility and expected option life. In
`addition, judgment is also applied in estimating the amount of share-based
`
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`EX-1.2
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`Research In Motion Limited
`Notes to the Consolidated Financial Statements
`
`In thousands of United States dollars, except share and per share data, and except as otherwise indicated
`
`awards that are expected to be forfeited, and if actual results differ significantly from these estimates, stock—based
`compensation expense and our results of operations would be impacted.
`
`The BSM option-pricing model used in SFAS l23(R) is consistent with that used in pro forma disclosures under SFAS 123
`Accountingfor Stock—Based Compensation, however, SFAS l23(R) requires the Company to factor in an expected
`forfeiture rate in establishing the expense while under SFAS 123 the Company accounted for forfeitures as they occurred.
`In fiscal 2007, the Company used the modified prospective transition (“MPT”) m