e6vk
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of, June 2011
Commission File Number 000-29898
Research In Motion Limited
(Translation of registrants name into English)
295 Phillip Street, Waterloo, Ontario, Canada N2L 3W8
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40F:
Form 20-F o Form 40-F þ
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b)(7): o
Indicate by check mark whether by furnishing the information contained in this Form, the
registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b)
under the Securities Exchange Act of 1934.
Yes o No þ
If Yes is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-
DOCUMENTS INCLUDED AS PART OF THIS REPORT
Document
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1 |
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Consolidated Financial Statements for the Three Months Ended May 28, 2011. |
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2 |
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Managements Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months Ended May 28, 2011. |
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3 |
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Canadian Forms 52-109F2 Certification of Interim
Filings. |
This Report on Form 6-K is incorporated by reference into the Registration Statements on Form S-8
of the Registrant, which were originally filed with the Securities and Exchange Commission on March
28, 2002 (File No. 333-85294), October 21, 2002 (File No. 333-100684), and on April 28, 2008 (File
No. 333-150470).
2
DOCUMENT 1
Research In Motion Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions)(unaudited)
Consolidated Balance Sheets
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As at |
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May 28, |
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February 26, |
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2011 |
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2011 |
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Assets |
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Current |
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Cash and cash equivalents |
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$ |
1,986 |
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$ |
1,791 |
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Short-term investments |
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403 |
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330 |
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Accounts receivable, net |
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3,772 |
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3,955 |
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Other receivables |
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463 |
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324 |
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Inventories |
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943 |
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618 |
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Other current assets |
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307 |
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241 |
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Deferred income tax asset |
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226 |
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229 |
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8,100 |
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7,488 |
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Long-term investments |
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478 |
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577 |
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Property, plant and equipment, net |
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2,576 |
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2,504 |
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Intangible assets, net |
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2,164 |
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1,798 |
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Goodwill |
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524 |
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508 |
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$ |
13,842 |
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$ |
12,875 |
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Liabilities |
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Current |
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Accounts payable |
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$ |
1,141 |
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$ |
832 |
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Accrued liabilities |
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2,721 |
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2,511 |
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Income taxes payable |
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179 |
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Deferred revenue |
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105 |
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108 |
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3,967 |
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3,630 |
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Deferred income tax liability |
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256 |
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276 |
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Income taxes payable |
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31 |
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31 |
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4,254 |
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3,937 |
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Commitments and contingencies |
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Shareholders Equity |
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Capital stock and additional paid-in capital |
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Preferred shares, authorized unlimited number of non-voting, cumulative, redeemable and retractable |
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Common shares, authorized unlimited number of non-voting, redeemable, retractable Class A common
shares and unlimited number of voting common shares |
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Issued - 524,111,544 voting common shares (February 26, 2011 - 523,868,644) |
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2,382 |
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2,359 |
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Treasury stock |
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May 28, 2011 - 3,113,674 (February 26, 2011 - 2,752,890) |
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(180 |
) |
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(160 |
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Retained earnings |
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7,444 |
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6,749 |
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Accumulated other comprehensive loss |
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(58 |
) |
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(10 |
) |
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9,588 |
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8,938 |
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$ |
13,842 |
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$ |
12,875 |
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See notes to consolidated financial statements.
On behalf of the Board:
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James Balsillie
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Mike Lazaridis |
Director
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Director |
Research In Motion Limited
(United States dollars, in millions)(unaudited)
Consolidated Statements of Shareholders Equity
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Accumulated |
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Capital Stock |
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Other |
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and Additional |
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Treasury |
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Retained |
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Comprehensive |
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Paid-In Capital |
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Stock |
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Earnings |
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Loss |
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Total |
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Balance as at February 26, 2011 |
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$ |
2,359 |
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$ |
(160 |
) |
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$ |
6,749 |
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$ |
(10 |
) |
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$ |
8,938 |
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Comprehensive income: |
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Net income |
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695 |
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695 |
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Net change in fair value of derivatives designated as
cash flow hedges during the year |
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(82 |
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(82 |
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Amounts reclassified to income during the year |
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34 |
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34 |
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Shares issued: |
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Exercise of stock options |
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7 |
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7 |
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Stock-based compensation |
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23 |
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23 |
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Tax deficiencies related to stock-based
compensation |
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(1 |
) |
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(1 |
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Purchase of treasury stock |
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(26 |
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(26 |
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Treasury stock vested |
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(6 |
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6 |
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Balance as at May 28, 2011 |
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$ |
2,382 |
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$ |
(180 |
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$ |
7,444 |
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$ |
(58 |
) |
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$ |
9,588 |
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See notes to consolidated financial statements.
Research In Motion Limited
(United States dollars, in millions, except per share data)(unaudited)
Consolidated Statements of Operations
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Three Months Ended |
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May 28, |
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May 29, |
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2011 |
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2010 |
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Revenue |
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4,908 |
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$ |
4,235 |
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Cost of sales |
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2,752 |
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2,312 |
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Gross margin |
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2,156 |
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1,923 |
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Operating expenses |
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Research and development |
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423 |
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288 |
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Selling, marketing and administration |
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704 |
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483 |
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Amortization |
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132 |
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94 |
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1,259 |
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865 |
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Income from operations |
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897 |
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1,058 |
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Investment income, net |
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7 |
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10 |
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Income before income taxes |
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904 |
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1,068 |
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Provision for income taxes |
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209 |
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299 |
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Net income |
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$ |
695 |
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$ |
769 |
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Earnings per share |
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Basic |
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$ |
1.33 |
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$ |
1.39 |
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Diluted |
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$ |
1.33 |
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$ |
1.38 |
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See notes to consolidated financial statements.
Research In Motion Limited
(United States dollars, in millions)(unaudited)
Consolidated Statements of Cash Flows
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Three Months Ended |
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May 28, |
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May 29, |
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2011 |
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2010 |
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Cash flows from operating activities |
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Net income |
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$ |
695 |
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$ |
769 |
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Adjustments to reconcile net income to net cash provided by
operating activities: |
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Amortization |
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355 |
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186 |
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Deferred income taxes |
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1 |
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(40 |
) |
Stock-based compensation |
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23 |
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16 |
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Other |
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23 |
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29 |
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Net changes in working capital items |
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(77 |
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163 |
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Net cash provided by operating activities |
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1,020 |
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1,123 |
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Cash flows from investing activities |
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Acquisition of long-term investments |
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(67 |
) |
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(295 |
) |
Proceeds on sale or maturity of long-term investments |
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43 |
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149 |
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Acquisition of property, plant and equipment |
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(222 |
) |
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(226 |
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Acquisition of intangible assets |
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(560 |
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(42 |
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Business acquisitions, net of cash acquired |
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(27 |
) |
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(14 |
) |
Acquisition of short-term investments |
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(111 |
) |
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(108 |
) |
Proceeds on sale or maturity of short-term investments |
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162 |
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150 |
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Net cash used in investing activities |
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(782 |
) |
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(386 |
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Cash flows from financing activities |
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Issuance of common shares |
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7 |
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8 |
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Tax deficiencies related to stock-based compensation |
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(1 |
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Purchase of treasury stock |
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(26 |
) |
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(7 |
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Common shares repurchased |
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(410 |
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Net cash used in financing activities |
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(20 |
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(409 |
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Effect of foreign exchange loss on cash and cash equivalents |
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(23 |
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(29 |
) |
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Net increase in cash and cash equivalents for the period |
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195 |
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299 |
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Cash and cash equivalents, beginning of period |
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1,791 |
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1,551 |
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Cash and cash equivalents, end of period |
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$ |
1,986 |
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$ |
1,850 |
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See notes to consolidated financial statements.
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
1. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Basis of presentation and preparation |
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These interim consolidated financial statements have been prepared by management in accordance
with United States generally accepted accounting principles (U.S. GAAP). They do not include
all of the disclosures required by U.S. GAAP for annual financial statements and should be read
in conjunction with Research In Motions (RIM or the Company) audited consolidated financial
statements (the financial statements) for the year ended February 26, 2011, which have been
prepared in accordance with U.S. GAAP. In the opinion of management, all normal recurring
adjustments considered necessary for fair presentation have been included in these financial
statements. Operating results for the three months ended May 28, 2011 are not necessarily
indicative of the results that may be expected for the full year ending March 3, 2012. |
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The Companys fiscal year end date is the 52 or 53 weeks ending on the last Saturday of
February, or the first Saturday of March. The fiscal years ending March 3, 2012 and February
26, 2011 comprise 53 weeks and 52 weeks, respectively. Certain of the comparable figures have
been reclassified to conform to the current periods presentation. |
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Revenue recognition |
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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 collection is reasonably assured. In addition to
this general policy, the following paragraphs describe the specific revenue recognition policies
for each of the Companys major categories of revenue. |
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Hardware |
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Revenue from the sale of BlackBerry wireless hardware products (e.g. BlackBerry® handheld
devices and BlackBerry® PlayBook tablets) is recognized when title has transferred to the
customer and all significant contractual obligations that affect the customers final acceptance
have been fulfilled. For hardware products for which the software is deemed essential to the
functionality of the hardware, the Company recognizes revenue in accordance with general revenue
recognition accounting guidance. |
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The Company sells its BlackBerry PlayBook tablet with the right to receive unspecified software
upgrade rights on a when-and-if available basis. These upgrade rights are related specifically
to the products essential operating system software. In these instances, the amount allocated
to the unspecified software upgrade rights are deferred and recognized rateably over the
24-month estimated life of the tablet. |
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The Company records reductions to revenue for estimated commitments related to price protection,
right of return and for customer incentive programs. Price protection is accrued as a reduction
to revenue based on estimates of price reductions, provided the price reduction can be reliably
estimated and all other revenue recognition criteria have been met. The Company also records
reductions to revenue for a right of return based on contractual terms and conditions and, if
the expected product returns can be reasonably and reliably estimated, based on historical
experience. Where a general right of return cannot be reasonably and reliably estimated, the
Company recognizes revenue when the product sells through the distribution channel. The
estimated cost of the customer incentive program is accrued as a reduction to revenue based on
historical experience, and is recognized at the later of the date at which the Company has sold
the product or the date at which the program is offered. If historical |
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
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experience cannot support a breakage rate, the maximum rebate amount is deferred and adjusted
when incentive programs end. |
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Service |
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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. |
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Software |
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Revenue from licensed software is recognized at the inception of the license term and in
accordance with industry-specific software revenue recognition accounting guidance. 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 those services are provided. |
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Other |
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Revenue from the sale of accessories is recognized when title has transferred to the customer
and all significant contractual obligations that affect the customers final acceptance have
been fulfilled. 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 customers 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. |
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Shipping and handling costs |
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Amounts billed to customers related to shipping and handling are classified as revenue, and the
Companys shipping and handling costs are included in cost of sales. Shipping and handling costs
that cannot be reasonably attributed to certain customers are included in selling, marketing and
administration. |
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Multiple-element arrangements |
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The Company enters into revenue arrangements that may consist of multiple deliverables of its
product and service offerings. The Companys typical multiple-element arrangements involve: (i)
handheld devices with services, (ii) tablets with unspecified software upgrades on a when-and-if
available basis and (iii) software with technical support services. |
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For the Companys arrangements involving multiple deliverables of handheld devices with
services, the consideration from the arrangement is allocated to each respective element based
on its relative selling price, using vendor-specific objective evidence of selling price
(VSOE). In certain limited instances when the Company is unable to establish the selling price
using VSOE, the Company attempts to establish the selling price of each element based on
acceptable third party evidence of selling price (TPE); however, the Company is generally
unable to reliably determine the selling prices of similar competitor products and services on a
stand-alone basis. In these instances, the Company uses best estimated selling price (BESP) in
its allocation of arrangement consideration. The objective of BESP is to determine the price at
which the Company would transact a sale if the product or service was sold on a stand-alone
basis. |
2
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
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The BlackBerry PlayBook tablet includes the right to receive free unspecified software upgrade
rights on a when-and-if available basis. This upgrade right to the products embedded operating
system software is considered an undelivered element at the time of sale of the tablet and falls
within the general revenue recognition guidance. The consideration from the arrangement is
allocated to each respective element based on its relative selling price. As the BlackBerry
PlayBook tablet or the upgrade right are not sold on a standalone basis and no TPE exists for
these deliverables, the allocation of revenue is based on the Companys BESPs. The
consideration for the delivered hardware and the related essential software operating system are
recognized at the time of sale provided that the four revenue recognition criteria have been
met. The consideration allocated to the unspecified software upgrade rights is deferred and
recognized rateably over the 24-month estimated life of the tablets. |
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|
For arrangements involving multiple deliverables of software with technical support services,
the revenue is recognized based on the industry-specific software revenue recognition accounting
guidance. If the Company is not able to determine VSOE for all of the deliverables of the
arrangement, but is able to obtain VSOE for all undelivered elements, revenue is allocated using
the residual method. Under the residual method, the amount of revenue allocated to delivered
elements equals the total arrangement consideration less the aggregate fair value of any
undelivered elements. If VSOE of any undelivered software items does not exist, revenue from the
entire arrangement is initially deferred and recognized at the earlier of: (i) delivery of those
elements for which VSOE did not exist; or (ii) when VSOE can be established. |
|
|
|
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 Companys management, taking into consideration the Companys
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
Companys BESP for the unspecified software upgrade right is $6 per BlackBerry PlayBook tablet. |
|
|
|
Adoption of accounting pronouncements |
|
|
|
In January 2010, the Financial Accounting Standards Board (the FASB) issued authoritative
guidance to improve disclosures about fair value measurements. This new authoritative guidance
became effective for interim and annual periods beginning after December 15, 2009, except for
the requirement to separately disclose purchases, sales, issuances, and settlements in the Level
3 reconciliation, which became effective for interim and annual periods beginning after December
15, 2010. The Company partially adopted the authoritative guidance to improve disclosures about
fair value measurements in the first quarter of fiscal 2011. The Company adopted the remaining
portion of the authoritative guidance requiring separate disclosure on purchases, sales,
issuances, and settlements in the Level 3 reconciliation in the first quarter of fiscal 2012.
The adoption did not have a material impact on the Companys results of operations, financial
condition or the Companys disclosures. |
|
|
|
Recently issued pronouncements |
|
|
|
In May 2011, the FASB, as a result of work performed with the International Accounting Standards
Board (IASB), issued authoritative guidance to achieve common fair value measurement and
disclosure requirements in U.S. GAAP and International Financial Reporting Standards (IFRS).
The guidance is expected to improve the comparability of fair value measurements presented and
disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The guidance
presents certain amendments to clarify existing fair value measurements and disclosure
requirements such as clarifying the application of the highest and best use and valuation
premise concepts, measuring the fair value of an instrument classified in a reporting entitys
shareholders equity and clarifying that a reporting entity should disclose quantitative
information about the unobservable inputs used in a fair value measurements that is categorized
within Level 3 of the fair value |
3
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
|
|
hierarchy. Furthermore, the guidance amends previous literature by requiring additional
disclosures about fair value measurements, specifically requesting more information about the
valuation processes used for fair value measurements categorized within Level 3 of the fair
value hierarchy as well as presenting sensitivity of the fair value measurements to changes in
unobservable inputs in Level 3 valuations. The guidance also amends previous literature around
measuring the fair value of financial instruments that are managed within a portfolio as well as
the application of premiums and discounts in a fair value measurement. The new authoritative
guidance is effective for interim and annual periods beginning after December 15, 2011. The
Company will adopt the guidance in the first quarter of fiscal 2013 and is currently evaluating
the impact that the adoption of this guidance will have on its results of operations, financial
condition and disclosures. |
2. |
|
CASH, CASH EQUIVALENTS AND INVESTMENTS |
|
|
The Companys cash equivalents and investments, other than cost method investments of $15
million (February 26, 2011 $15 million) and equity method investments of $12 million (February
26, 2011 $11 million), consist of money market and other debt securities, and are classified
as available-for-sale for accounting purposes and are carried at fair value with unrealized
gains and losses recorded in accumulated other comprehensive income (loss) until such
investments mature or are sold. The Company uses the specific identification method of
determining the cost basis in computing realized gains or losses on available-for-sale
investments which are recorded in investment income. In the event of a decline in value which
is other-than-temporary, the investment is written down to fair value with a charge to income.
The Company does not exercise significant influence with respect to any of these investments. |
4
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
|
|
The components of cash, cash equivalents and investments were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
Unrealized |
|
|
|
|
|
|
|
Cash and Cash |
|
Short-term |
|
Long-term |
|
|
Cost Basis |
|
Gains |
|
Losses |
|
|
Fair Value |
|
|
Equivalents |
|
Investments |
|
Investments |
|
|
|
|
|
|
|
|
|
As at May 28, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank balances |
|
$ |
513 |
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
513 |
|
|
|
$ |
513 |
|
|
$ |
|
|
|
$ |
|
|
Money market fund |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
Bankers acceptances |
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
385 |
|
|
|
|
385 |
|
|
|
|
|
|
|
|
|
Non-U.S. government promissory
notes |
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
Term deposits/certificates |
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
285 |
|
|
|
|
254 |
|
|
|
31 |
|
|
|
|
|
Commercial paper |
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
|
446 |
|
|
|
|
404 |
|
|
|
42 |
|
|
|
|
|
Non-U.S. treasury bills/notes |
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
U.S. treasury bills/notes |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
20 |
|
|
|
22 |
|
U.S. government sponsored
enterprise notes |
|
|
198 |
|
|
|
1 |
|
|
|
|
|
|
|
|
199 |
|
|
|
|
57 |
|
|
|
56 |
|
|
|
86 |
|
Non-U.S. government sponsored
enterprise notes |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Corporate notes/bonds |
|
|
376 |
|
|
|
4 |
|
|
|
|
|
|
|
|
380 |
|
|
|
|
2 |
|
|
|
244 |
|
|
|
134 |
|
Asset-backed securities |
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
143 |
|
|
|
|
|
|
|
|
10 |
|
|
|
133 |
|
Auction-rate securities |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
Other investments |
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,862 |
|
|
$ |
5 |
|
|
$ |
|
|
|
|
$ |
2,867 |
|
|
|
$ |
1,986 |
|
|
$ |
403 |
|
|
$ |
478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at February 26, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank balances |
|
$ |
288 |
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
288 |
|
|
|
$ |
288 |
|
|
$ |
|
|
|
$ |
|
|
Money market fund |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
Bankers acceptances |
|
|
468 |
|
|
|
|
|
|
|
|
|
|
|
|
468 |
|
|
|
|
468 |
|
|
|
|
|
|
|
|
|
Term deposits/certificates |
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
|
109 |
|
|
|
16 |
|
|
|
|
|
Commercial paper |
|
|
416 |
|
|
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
|
369 |
|
|
|
47 |
|
|
|
|
|
Non-U.S. treasury bills/notes |
|
|
509 |
|
|
|
|
|
|
|
|
|
|
|
|
509 |
|
|
|
|
509 |
|
|
|
|
|
|
|
|
|
U.S. treasury bills/notes |
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
82 |
|
|
|
|
|
|
|
|
40 |
|
|
|
42 |
|
U.S. government sponsored
enterprise notes |
|
|
190 |
|
|
|
1 |
|
|
|
|
|
|
|
|
191 |
|
|
|
|
8 |
|
|
|
66 |
|
|
|
117 |
|
Non-U.S. government sponsored
enterprise notes |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
10 |
|
|
|
16 |
|
Corporate notes/bonds |
|
|
342 |
|
|
|
4 |
|
|
|
|
|
|
|
|
346 |
|
|
|
|
20 |
|
|
|
150 |
|
|
|
176 |
|
Asset-backed securities |
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
141 |
|
|
|
|
|
|
|
|
1 |
|
|
|
140 |
|
Auction-rate securities |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
Other investments |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,693 |
|
|
$ |
5 |
|
|
$ |
|
|
|
|
$ |
2,698 |
|
|
|
$ |
1,791 |
|
|
$ |
330 |
|
|
$ |
577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
|
|
The Company had no realized gains or losses on available-for-sale securities for the three
months ended May 28, 2011 or the three months ended May 29, 2010. |
|
|
|
The contractual maturities of available-for-sale investments
as at May 28, 2011 were as follows: |
|
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
Fair Value |
|
|
|
Due in one year or less |
|
$ |
1,854 |
|
|
$ |
1,856 |
|
Due in one to five years |
|
|
375 |
|
|
|
378 |
|
Due after five years |
|
|
48 |
|
|
|
48 |
|
No fixed maturity date |
|
|
20 |
|
|
|
20 |
|
|
|
|
|
|
$ |
2,297 |
|
|
$ |
2,302 |
|
|
|
|
|
|
As at May 28, 2011 and February 26, 2011, the Company had no investments with continuous
unrealized losses. |
|
|
|
During fiscal 2011, the Company recognized an other-than-temporary impairment charge on its
auction rate securities in the amount of $6 million as a result of the lack of continuing
liquidity in these securities. In valuing these securities, the Company used a multi-year
investment horizon and considered the underlying risk of the securities and the current market
interest rate environment. The Company has the ability and intent to hold these securities until
such time that market liquidity returns to normal levels, and does not consider the principal or
interest amounts on these securities to be materially at risk. The Company has not recorded any
additional impairment on its auction rate securities as of May 28, 2011. As there is uncertainty
as to when market liquidity for auction rate securities will return to normal, the Company
continues to classify the auction rate securities as long-term investments on the consolidated
balance sheet as at May 28, 2011. |
|
|
|
During fiscal 2011, the Company also recognized an other-than-temporary impairment charge of $11
million against a portion of its claim on Lehman Brothers International (Europe) (LBIE) trust
assets. These assets are represented by principal and interest payments from matured investments
that were originally held at LBIE at the time of bankruptcy. The Company has not recorded any
additional impairment on its claim of trust assets as of May 28, 2011. The Company continues to
classify $25 million of these holdings as other investments on the consolidated balance sheet as
at May 28, 2011. |
6
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
3. |
|
FAIR VALUE MEASUREMENTS |
|
|
The Company defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement
date. When determining the fair value measurements for assets and liabilities required to be
recorded at fair value, the Company considers the principal or most advantageous market in which
it would transact and considers assumptions that market participants would use in pricing the
asset or liability such as inherent risk, non-performance risk and credit risk. The Company
applies the following fair value hierarchy, which prioritizes the inputs used in the valuation
methodologies in measuring fair value into three levels: |
|
|
|
Level 1 Unadjusted quoted prices at the measurement date for identical assets or
liabilities in active markets. |
|
|
|
|
Level 2 Observable inputs other than quoted prices included in Level 1, such as
quoted prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data. |
|
|
|
|
Level 3 Significant unobservable inputs which are supported by little or no market
activity. |
|
|
The fair value hierarchy also requires the Company to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. |
|
|
|
The carrying amounts of the Companys cash and cash equivalents, accounts receivables, other
receivables, accounts payable and accrued liabilities approximate fair value due to their short
maturities. |
|
|
|
In determining the fair value of investments held, the Company primarily relies on an
independent third party valuator for the fair valuation of securities. Pricing inputs used by
the independent third party valuator are generally received from two primary vendors. The
pricing inputs are reviewed for completeness and accuracy, within a set tolerance level, on a
daily basis by the third party valuator. The Company also reviews and understands the inputs
used in the valuation process and assesses the pricing of the securities for reasonableness. |
|
|
|
The fair values of money market funds were derived from quoted prices in active markets for
identical assets or liabilities. |
|
|
|
For bankers acceptances, non-U.S. government promissory notes, term deposits/certificates and
commercial paper, the independent third party utilizes amortized cost as the short-term nature
of the securities approximates fair value. For corporate notes/bonds (other than those
classified as Level 3), U.S. treasury bills/notes, non-U.S. treasury bills/notes, U.S.
government sponsored enterprise notes, non-U.S. government sponsored enterprise notes and asset
backed securities, the independent third party provides fair values determined from quoted
prices that it obtains from vendors. The Company then corroborates the fair values received
from the independent third party against the results of its internal valuation in order to
corroborate the pricing provided by the independent third party. |
|
|
|
The Company corroborates the fair values provided by the independent third party for bankers
acceptances by comparing those provided against fair values determined by the Company utilizing
quoted prices from vendors for identical securities, or the market prices of similar securities
adjusted for observable inputs such as differences in maturity dates, interest rates, and credit
ratings. The bankers acceptances held by the Company are all issued by major banking
organizations and all have investment grade ratings. |
7
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
|
|
The Company corroborates the fair values provided by the independent third party for non-U.S.
government promissory notes by comparing those provided against fair values determined by the
Company utilizing quoted prices from vendors for identical securities, or the market prices of
similar securities adjusted for observable inputs such as differences in maturity dates,
interest rates and credit ratings. The non-U.S. government promissory notes held by the Company
are issued by the Provincial Government of British Columbia and all have investment grade
ratings. |
|
|
|
The Company corroborates the fair values provided by the independent third party for term
deposits/certificates by comparing those provided against fair values determined by the Company
utilizing quoted prices from vendors for identical securities, or the market prices of similar
securities adjusted for observable inputs such as differences in maturity dates, interest rates
and credit ratings. The term deposits/certificates held by the Company are all issued by major
banking organizations and all have investment grade ratings. |
|
|
|
The Company corroborates the fair values provided by the independent third party for commercial
paper by comparing those provided against fair values determined by the Company utilizing quoted
prices from vendors for identical securities, or the market prices of similar securities
adjusted for observable inputs such as differences in maturity dates, interest rates, dealer
placed rates and credit ratings. The commercial paper held by the Company are all issued by
financing or capital organizations and all have investment grade ratings. |
|
|
|
The Company corroborates the fair values provided by the independent third party for
corporate notes/bonds (other than those classified as Level 3) by comparing those provided
against fair values determined by the Company utilizing quoted prices from vendors for identical
securities, or the market prices of similar securities adjusted for observable inputs such as
differences in maturity dates, interest rates, yield curves, swap rates, credit ratings,
industry comparable trades and spread history. The corporate notes/bonds held by the Company
are all issued by major corporate organizations and all have investment grade ratings. |
|
|
|
The Company corroborates the fair values provided by the independent third party for U.S.
treasury bills/notes by comparing those provided against fair values determined by the Company
utilizing quoted prices from vendors for identical securities as provided by U.S. government
bond dealers. All U.S. treasury bills/notes held by the Company are issued by the United States
Department of the Treasury and all have investment grade ratings. |
|
|
|
The Company corroborates the fair values provided by the independent third party for non-U.S.
treasury bills/notes by comparing those provided against fair values determined by the Company
utilizing quoted prices from vendors for identical securities, or the market prices of similar
securities adjusted for observable inputs such as differences in maturity dates, interest rates
and credit rating. All non-U.S. treasury bills/notes held by the Company are issued by the
Federal and/or Provincial Governments of Canada and all have investment grade ratings. |
|
|
|
The Company corroborates the fair values provided by the independent third party for U.S.
government sponsored enterprise notes by comparing those provided against fair values determined
by the Company utilizing quoted prices from vendors for identical securities as provided by U.S.
government bond dealers or prices as provided by the published index of U.S. Agency securities.
The U.S. government sponsored enterprise notes held by the Company are primarily agency notes
and collateralized mortgage obligations issued and backed by government organizations such as
Freddie Mac and Fannie Mae and all have investment grade ratings. |
|
|
|
The Company corroborates the fair values provided by the independent third party for non-U.S.
government sponsored enterprise notes by comparing those provided against fair values
determined by the Company utilizing quoted prices from vendors for identical securities, or
the market prices of similar securities adjusted for observable inputs such as differences in
maturity dates, interest rates and credit ratings. The non-U.S. government |
8
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
|
|
sponsored enterprise notes held by the Company are primarily issued by investment banks
backed by European or Latin American countries and all have investment grade ratings. |
|
|
|
The Company corroborates the fair values provided by the independent third party for asset
backed securities by comparing those provided against fair values determined by the Company
utilizing quoted prices from vendors for identical securities, or the market prices of similar
securities adjusted for different observable inputs such as differences in swap rates and
spreads, credit ratings, pricing changes relative to asset class, priority in capital structure,
principal payment windows, and maturity dates. All asset backed securities held by the Company
are issued by government or consumer agencies and are primarily backed by commercial automobile
and equipment loans and leases. All asset backed securities held by the Company have investment
grade ratings. |
|
|
|
Fair values for all investment categories provided by the independent third party that are in
excess of 0.5% from the fair values determined by the Company are communicated to the third
party for consideration of reasonableness. The independent third party considers the
information provided by the Company before determining whether a change in the original pricing
is warranted. |
|
|
|
The fair values of corporate notes/bonds classified as Level 3, which represent investments in
securities for which there is not an active market, are estimated via cash flow pricing
methodology using unobservable inputs such as actual monthly interest and principal payments
received, maturity rates of holdings, historical prices realized on sales, defaults experienced,
maturity extension risk, pricing for similar securities, collateral value, and recovery value
for similar securities. The corporate notes/bonds classified as Level 3 held by the Company
consist of securities received in a payment-in-kind distribution from a former structured
investment vehicle. |
|
|
|
The fair value of auction rate securities is estimated using a discounted cash flow model
incorporating maturity dates, contractual terms and assumptions concerning liquidity and credit
adjustments of the security sponsor to determine timing and amount of future cash flows. The
fair value includes an impairment charge of $6 million recognized in fiscal 2011 as discussed in
note 2. |
|
|
|
The fair value of other investments is represented by the trust claim on LBIE bankruptcy assets
and is estimated using unobservable inputs such as estimated recovery values and prices observed
on market activity for similar LBIE bankruptcy claims. The fair value includes an impairment
charge of $11 million recognized in fiscal 2011 as discussed in note 2. |
|
|
|
The fair value of currency forward contracts and currency option contracts has been determined
using notional and exercise values, transaction rates, market quoted currency spot rates and
interest rate yield curves. For currency forward contracts and currency option contracts, the
estimates presented herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. Changes in assumptions could have a significant effect on
the estimates. |
9
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The following table presents the Companys assets and liabilities that are measured at fair
value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at May 28, 2011 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund |
|
$ |
20 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20 |
|
Banker acceptances |
|
|
|
|
|
|
385 |
|
|
|
|
|
|
|
385 |
|
Non-U.S. government
promissory
notes |
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
101 |
|
Term deposits/certificates |
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
285 |
|
Commercial paper |
|
|
|
|
|
|
446 |
|
|
|
|
|
|
|
446 |
|
Non-U.S. treasury bills/notes |
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
250 |
|
U.S. treasury bills/notes |
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
42 |
|
U.S. government sponsored
enterprise notes |
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
199 |
|
Non-U.S. government sponsored
enterprise notes |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
16 |
|
Corporate notes/bonds |
|
|
|
|
|
|
371 |
|
|
|
9 |
|
|
|
380 |
|
Asset-backed securities |
|
|
|
|
|
|
143 |
|
|
|
|
|
|
|
143 |
|
Auction-rate securities |
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
35 |
|
Other investments |
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
25 |
|
|
|
|
Total available-for-sale
investments |
|
$ |
20 |
|
|
$ |
2,238 |
|
|
$ |
69 |
|
|
$ |
2,327 |
|
Currency forward contracts |
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
64 |
|
Currency options contracts |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
Total assets |
|
$ |
20 |
|
|
$ |
2,303 |
|
|
$ |
69 |
|
|
$ |
2,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts |
|
$ |
|
|
|
$ |
139 |
|
|
$ |
|
|
|
$ |
139 |
|
Currency option contracts |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
143 |
|
|
$ |
|
|
|
$ |
143 |
|
|
|
|
10
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at February 26, 2011 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund |
|
$ |
20 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20 |
|
Bankers acceptances |
|
|
|
|
|
|
468 |
|
|
|
|
|
|
|
468 |
|
Term deposits/certificates |
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
125 |
|
Commercial paper |
|
|
|
|
|
|
416 |
|
|
|
|
|
|
|
416 |
|
Non-U.S. treasury bills/notes |
|
|
|
|
|
|
509 |
|
|
|
|
|
|
|
509 |
|
U.S. treasury bills/notes |
|
|
|
|
|
|
82 |
|
|
|
|
|
|
|
82 |
|
U.S. Government sponsored
enterprise notes |
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
191 |
|
Non-U.S. government sponsored
enterprise notes |
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
26 |
|
Corporate notes/bonds |
|
|
|
|
|
|
335 |
|
|
|
11 |
|
|
|
346 |
|
Asset-backed securities |
|
|
|
|
|
|
141 |
|
|
|
|
|
|
|
141 |
|
Auction-rate securities |
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
35 |
|
Other investments |
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
25 |
|
|
|
|
Total available-for-sale investments |
|
$ |
20 |
|
|
$ |
2,293 |
|
|
$ |
71 |
|
|
$ |
2,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts |
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
63 |
|
Currency option contracts |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
Total assets |
|
$ |
20 |
|
|
$ |
2,357 |
|
|
$ |
71 |
|
|
$ |
2,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts |
|
$ |
|
|
|
$ |
129 |
|
|
$ |
|
|
|
$ |
129 |
|
Currency option contracts |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
130 |
|
|
$ |
|
|
|
$ |
130 |
|
|
|
|
The following table summarizes the changes in fair value of the Companys Level 3 assets for the
three months ended May 28, 2011:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
May 28, |
|
May 29, |
|
|
2011 |
|
2010 |
|
|
|
Balance, beginning of period |
|
$ |
71 |
|
|
$ |
48 |
|
Principal repayments |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
Balance, end of period |
|
$ |
69 |
|
|
$ |
46 |
|
|
|
|
The Company recognizes transfers into and out of levels within the fair value hierarchy at the
end of the reporting period in which the actual event or change in circumstance occurred.
There were no significant transfers in or out of Level 1, Level 2 or Level 3 during the three
months ended May 28, 2011.
11
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
4. CONSOLIDATED BALANCE SHEETS DETAIL
Inventories
Inventories were comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
May 28, |
|
February 26, |
|
|
2011 |
|
2011 |
|
|
|
Raw materials |
|
$ |
635 |
|
|
$ |
552 |
|
Work in process |
|
|
409 |
|
|
|
222 |
|
Finished goods |
|
|
175 |
|
|
|
94 |
|
Provision for excess and obsolete inventories |
|
|
(276 |
) |
|
|
(250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
943 |
|
|
$ |
618 |
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
Property, plant and equipment were comprised of the following: |
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
May 28, |
|
February |
|
|
2011 |
|
26, 2011 |
|
|
|
Cost |
|
|
|
|
|
|
|
|
Land |
|
$ |
128 |
|
|
$ |
128 |
|
Buildings, leaseholds and other |
|
|
1,220 |
|
|
|
1,155 |
|
BlackBerry operations and other information
technology |
|
|
1,874 |
|
|
|
1,803 |
|
Manufacturing equipment, research and
development equipment, and tooling |
|
|
407 |
|
|
|
380 |
|
Furniture and fixtures |
|
|
466 |
|
|
|
433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,095 |
|
|
|
3,899 |
|
Accumulated amortization |
|
|
1,519 |
|
|
|
1,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
$ |
2,576 |
|
|
$ |
2,504 |
|
|
|
|
12
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Intangible assets, net
Intangible assets were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at May 28, 2011 |
|
|
|
|
|
|
Accumulated |
|
Net book |
|
|
Cost |
|
amortization |
|
value |
|
|
|
Acquired technology |
|
$ |
330 |
|
|
$ |
139 |
|
|
$ |
191 |
|
Licenses |
|
|
1,602 |
|
|
|
448 |
|
|
|
1,154 |
|
Patents |
|
|
1,128 |
|
|
|
309 |
|
|
|
819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,060 |
|
|
$ |
896 |
|
|
$ |
2,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at February 26, 2011 |
|
|
|
|
|
|
Accumulated |
|
Net book |
|
|
Cost |
|
amortization |
|
value |
|
|
|
Acquired technology |
|
$ |
321 |
|
|
$ |
125 |
|
|
$ |
196 |
|
Licenses |
|
|
1,232 |
|
|
|
467 |
|
|
|
765 |
|
Patents |
|
|
1,114 |
|
|
|
277 |
|
|
|
837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,667 |
|
|
$ |
869 |
|
|
$ |
1,798 |
|
|
|
|
During the three months ended May 28, 2011, the additions to intangible assets primarily
consisted of payments relating to amended or renewed licensing agreements, a patent license
agreement with IV International, as well as agreements with third parties for the use of
intellectual property, software, messaging services and other BlackBerry related features, as
well as intangible assets associated with the business acquisitions discussed in note 5.
Based on the carrying value of the identified intangible assets as at May 28, 2011 and assuming
no subsequent impairment of the underlying assets, the annual amortization expense for the
remainder of fiscal 2012 and each of the succeeding years is expected to be as follows: 2012 -
$826 million; 2013 $432 million; 2014 $300 million; 2015 $162 million; and 2016 $102
million.
13
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
5. BUSINESS ACQUISITIONS
On March 25, 2011, the Company purchased for cash consideration 100% of the shares of a company
whose technology is being incorporated into the Companys developer tools.
On April 26, 2011, the Company purchased for cash consideration certain assets of a company
whose acquired technologies will be incorporated into the Companys products to enhance calendar
scheduling capabilities.
The following table summarizes the estimated fair value of the assets acquired and liabilities
assumed during the three months ended May 28, 2011:
|
|
|
|
|
Assets purchased |
|
|
|
|
Acquired technology |
|
$ |
11 |
|
Goodwill(1) |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
Liabilities assumed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-cash assets acquired |
|
|
27 |
|
|
|
|
|
|
Cash acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price |
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
Consideration |
|
|
|
|
Cash consideration |
|
$ |
25 |
|
Contingent consideration(2) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27 |
|
|
|
|
|
|
|
|
(1) |
|
Represents the excess of the acquisition price over the fair value of net assets
acquired, which is not expected to be deductible for tax purposes when goodwill results
from share purchases. Goodwill as a result of certain assets purchased is expected to be
deductible for tax purposes in the amount of approximately $10 million. |
|
(2) |
|
The Company has agreed to additional consideration contingent upon the achievement of
certain agreed upon technology milestones. |
The Company includes the operating results of each acquired business in the consolidated
financial statements from the date of acquisition.
The weighted average amortization period of the acquired technology related to the business
acquisitions completed during the three months ended May 28, 2011 is approximately 4.0 years.
Pro forma results of operations for the acquisitions have not been presented because the effects
of the operations, individually or in aggregate, are not considered to be material to the
Companys consolidated results.
14
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
6. PRODUCT WARRANTY
The Company estimates its warranty costs at the time of revenue recognition based on historical
warranty claims experience and records the expense in cost of sales. The warranty accrual
balance is reviewed quarterly to establish that it materially reflects the remaining obligation
based on the anticipated future expenditures over the balance of the obligation period.
Adjustments are made when the actual warranty claim experience differs from estimates.
The change in the Companys warranty expense and actual warranty experience for the three months
ended May 28, 2011 as well as the accrued warranty obligations as at May 28, 2011 are set forth
in the following table:
|
|
|
|
|
Accrued warranty obligations as at February 26, 2011 |
|
$ |
459 |
|
|
|
|
|
|
Warranty costs incurred for the three months ended May 28, 2011 |
|
|
(168 |
) |
Warranty provision for the three months ended May 28, 2011 |
|
|
149 |
|
Adjustments for changes in estimate for the three months ended May
28, 2011 |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
Accrued warranty obligations as at May 28, 2011 |
|
$ |
439 |
|
|
|
|
|
7. INCOME TAXES
For the three months ended May 28, 2011, the Companys net income tax expense was $209 million
or a net effective income tax rate of 23.1% compared to a net income tax expense of $299 million
or a net effective income tax rate of 28.0% in the three months ended May 29, 2010.
The Company has not recorded a valuation allowance against its deferred income tax assets (May
29, 2010 nil).
The Company has not provided for Canadian deferred income taxes or foreign withholding taxes
that would apply on the distribution of the earnings of its non-Canadian subsidiaries, as these
earnings are intended to be reinvested indefinitely.
The Companys total unrecognized income tax benefits as at May 28, 2011 was $155 million
(February 26, 2011 $164 million). The decrease in unrecognized income tax benefits in the
three months ended May 28, 2011 primarily relates to the settlement of an uncertain tax
position.
As at May 28, 2011, the total unrecognized income tax benefit of $155 million includes
approximately $111 million of unrecognized income tax benefits that have been netted against
related deferred income tax assets. The remaining $44 million is recorded within current taxes
payable and other non-current taxes payable on the Companys consolidated balance sheet.
The Companys total unrecognized income tax benefits that, if recognized, would affect the
Companys effective tax rate as at May 28, 2011 were $155 million (February 26, 2011 $164
million).
15
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
A summary of open tax years by major jurisdiction is presented below:
|
|
|
|
|
Canada (1) |
|
Fiscal 2003 - 2011 |
United States (1) |
|
Fiscal 2008 - 2011 |
United Kingdom |
|
Fiscal 2009 - 2011 |
|
|
|
(1) |
|
Includes federal as well as provincial and state jurisdictions, as applicable. |
The Company is subject to ongoing examination by tax authorities in the jurisdictions in which
it operates. The Company regularly assesses the status of these examinations and the potential
for adverse outcomes to determine the adequacy of the provision for income taxes. The Canada
Revenue Agency (CRA) is currently examining the Companys fiscal 2006 to fiscal 2009 Canadian
corporate tax filings. The Company has other non-Canadian income tax audits pending. While the
final resolution of these audits is uncertain, the Company believes the ultimate resolution of
these audits will not have a material adverse effect on its results of operations and financial
condition. The Company believes it is reasonably possible that approximately $9 million of its
gross unrecognized income tax benefits will decrease in the next twelve months.
The Company recognizes interest and penalties related to unrecognized income tax benefits as
interest expense that is netted and reported within investment income. The amount of interest
accrued as at May 28, 2011 was $10 million (February 26, 2011 $12 million). The amount of
penalties accrued as at May 28, 2011 was nil (February 26, 2011 nil).
8. STOCK-BASED COMPENSATION
Stock Option Plan
The Company recorded a charge to income and a credit to paid-in-capital of approximately $7
million in the three months ended May 28, 2011 (May 29, 2010 $8 million) in relation to
stock-based compensation expense.
The Company has presented excess tax benefits (deficiencies) from the exercise of stock-based
compensation awards as a financing activity in the consolidated statement of cash flows.
Stock options granted under the plan generally vest over a period of five years and are
generally exercisable over a period of six years to a maximum of ten years from the grant date.
The Company issues new shares to satisfy stock option exercises. There are 14 million stock
options available for future grants under the stock option plan as at May 28, 2011.
As part of a settlement agreement reached with the Ontario Securities Commission (OSC), on
February 5, 2009, Messrs. Balsillie, Lazaridis and Kavelman agreed to contribute, in aggregate,
a total of approximately CAD $83 million to RIM, consisting of (i) a total of CAD $38 million to
RIM in respect of the outstanding benefit arising from incorrectly priced stock options granted
to all RIM employees from 1996 to 2006, and (ii) a total of CAD $45 million to RIM (CAD $15
million of which had previously been paid) to defray costs incurred by RIM in the investigation
and remediation of stock options, granting practices and related governance practices at RIM.
These contributions are being made through Messrs. Balsillie, Lazaridis and Kavelman undertaking
not to exercise certain vested RIM options to acquire an aggregate of 1,160,129 common shares of
RIM. These options have a fair value equal to the aggregate contribution amounts determined
using a Black-Scholes-Merton (BSM)
16
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
calculation based on the last trading day prior to the day the OSC issued a notice of hearing in
respect of the matters giving rise to the settlement. In the first quarter of fiscal 2010,
options to acquire an aggregate of 758,837 common shares of RIM, and in the fourth quarter of
fiscal 2011, options to acquire an aggregate of 391,292 common shares of RIM, expired in
satisfaction of the undertakings not to exercise options. During the first quarter of fiscal
2012, the remaining 10,000 options expired in satisfaction of the undertakings not to exercise
options effectively completing the contributions required as part of the settlement agreement
reached with the OSC.
A summary of option activity since February 26, 2011 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
Weighted- |
|
Average |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Remaining |
|
Intrinsic |
|
|
Number |
|
Exercise |
|
Contractual |
|
Value |
|
|
(in 000s) |
|
Price |
|
Life in Years |
|
(millions) |
|
|
|
Balance as at February 26, 2011 |
|
|
4,610 |
|
|
$ |
70.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised during the period |
|
|
(243 |
) |
|
|
30.61 |
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired during
the period |
|
|
(84 |
) |
|
|
98.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 28, 2011 |
|
|
4,283 |
|
|
$ |
72.12 |
|
|
|
2.4 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as at
May 28, 2011 |
|
|
4,180 |
|
|
$ |
71.80 |
|
|
|
2.4 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as at May 28, 2011 |
|
|
2,950 |
|
|
$ |
66.21 |
|
|
|
2.2 |
|
|
$ |
13 |
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value
(the aggregate difference between the closing stock price of the Companys common shares on May
28, 2011 and the exercise price for in-the-money options) that would have been received by the
option holders if all in-the-money options had been exercised on May 28, 2011. The intrinsic
value of stock options exercised during the three months ended May 28, 2011, calculated using
the average market price during the year, was approximately $24 per share.
17
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
A summary of unvested stock options since February 26, 2011 is shown below:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant |
|
|
Number |
|
Date Fair |
|
|
(000s) |
|
Value |
|
|
|
Balance as at February 26, 2011 |
|
|
1,517 |
|
|
$ |
37.63 |
|
|
|
|
|
|
|
|
|
|
Vested during the period |
|
|
(172 |
) |
|
|
25.90 |
|
Forfeited during the period |
|
|
(12 |
) |
|
|
35.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 28, 2011 |
|
|
1,333 |
|
|
$ |
39.15 |
|
|
|
|
As at May 28, 2011, there was $37 million of unrecognized stock-based compensation expense
related to unvested stock options which will be expensed over the vesting period, which, on a
weighted-average basis, results in a period of approximately 1.4 years. The total fair value of
stock options vested during the three months ended May 28, 2011 was $4 million.
Cash received from the stock options exercised for the three months ended May 28, 2011 was $7
million (May 29, 2010 $8 million). Tax deficiencies incurred by the Company related to the
stock options exercised was $1 million (May 29, 2010 tax deficiencies incurred of $1
million).
During the three months ended May 28, 2011 and May 29, 2010, there were no stock options
granted, respectively.
Restricted Share Unit Plan
The Company recorded compensation expense with respect to Restricted Share Units (RSUs) of
approximately $16 million in the three months ended May 28, 2011 (May 29, 2010 $8 million).
During three months ended May 28, 2011, a trustee selected by the Company purchased 467,711
common shares for total consideration of approximately $26 million to comply with its
obligations to deliver shares upon vesting (May 29, 2010 100,000 common shares were purchased
for total cash consideration of approximately $7 million). These purchased shares are classified
as treasury stock for accounting purposes and included in the shareholders equity section of
the Companys consolidated balance sheet.
18
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
A summary of RSU activity since February 26, 2011 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs Outstanding |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
Instrinsic |
|
|
|
|
|
|
Number |
|
Grant Date |
|
Contractual |
|
Value |
|
|
|
|
|
|
(000s) |
|
Fair Value |
|
Life in Years |
|
(millions) |
|
|
|
|
|
|
|
Balance as at February 26, 2011 |
|
|
2,703 |
|
|
$ |
57.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted during the period |
|
|
524 |
|
|
|
55.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested during the period |
|
|
(107 |
) |
|
|
64.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled during the period |
|
|
(47 |
) |
|
|
58.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 28, 2011 |
|
|
3,073 |
|
|
$ |
56.88 |
|
|
|
1.8 |
|
|
$ |
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
May 28, 2011 |
|
|
2,919 |
|
|
$ |
56.99 |
|
|
|
1.7 |
|
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value
(the aggregate closing share price of the Companys common shares on May 28, 2011) that would
have been received by RSU holders if all RSUs had been redeemed on May 28, 2011.
As of May 28, 2011, there was $106 million of unrecognized compensation expense related to RSUs
which will be expensed over the vesting period, which, on a weighted-average basis, results in a
period of approximately 1.6 years.
Deferred Share Unit Plan
The Company issued 6,884 Deferred Share Units (DSUs)
in the three months ended May 28, 2011. As
at May 28, 2011, there were 53,207 DSUs outstanding (May 29, 2010 38,742). The Company had a
liability of $3 million in relation to the DSU plan as at May 28, 2011 (May 29, 2010 $2
million).
19
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
9. CAPITAL STOCK
The following details the changes in issued and outstanding common shares for the three months
ended May 28, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock and |
|
|
|
|
Additional Paid-In Capital |
|
Treasury Stock |
|
|
Stock |
|
|
|
|
|
Stock |
|
|
|
|
Outstanding |
|
|
|
|
|
Outstanding |
|
|
|
|
(000s) |
|
Amount |
|
(000s) |
|
Amount |
|
|
|
Common shares outstanding as at February 26, 2011 |
|
|
523,869 |
|
|
$ |
2,359 |
|
|
|
2,753 |
|
|
$ |
(160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
243 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
Tax deficiencies related to stock-based
compensation |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
468 |
|
|
|
(26 |
) |
Treasury stock vested |
|
|
|
|
|
|
(6 |
) |
|
|
(107 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding as at May 28, 2011 |
|
|
524,112 |
|
|
$ |
2,382 |
|
|
|
3,114 |
|
|
$ |
(180 |
) |
|
|
|
The Company had 524 million voting common shares outstanding, options to purchase 4 million
voting common shares, 3 million RSUs and 53,207 DSUs outstanding as at June 15, 2011.
On June 16, 2011, the Companys Board of Directors approved a share repurchase program to
purchase for cancellation through the facilities of the NASDAQ Stock
Market (NASDAQ) or, subject to regulatory approval, by way of
private agreement up to 5% of the Companys outstanding common shares (representing approximately
26 million common shares as of the date hereof). The share repurchase program may commence after
July 10, 2011 and will remain in place for up to 12 months or until the purchases are completed or
the program is terminated by RIM.
The price that the Company will pay for any shares purchased over NASDAQ will be the prevailing
market price at the time of purchase. The share repurchase program will be effected in accordance
with Rule 10b-18 under the U.S. Securities Exchange Act of 1934, as amended, which contains
restrictions on the number of shares that may be purchased on a single day, subject to certain
exceptions for block purchases, based on the average daily trading volumes of the Companys shares
on NASDAQ. Any purchases made by way of private agreement may be at a discount to the prevailing
market price at the time of purchase, and would be subject to regulatory approval.
20
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
May 28, |
|
May 29, |
|
|
2011 |
|
2010 |
|
|
|
Net income for basic and diluted earnings per
share available to common shareholders |
|
$ |
695 |
|
|
$ |
769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
outstanding (000s) basic |
|
|
523,983 |
|
|
|
554,672 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities (000s)
stock-based compensation |
|
|
541 |
|
|
|
3,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares and
assumed conversions (000s) diluted |
|
|
524,524 |
|
|
|
558,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share reported |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.33 |
|
|
$ |
1.39 |
|
Diluted |
|
$ |
1.33 |
|
|
$ |
1.38 |
|
21
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
11. COMPREHENSIVE INCOME
The components of comprehensive income are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
May 28, |
|
May 29, |
|
|
2011 |
|
2010 |
Net income |
|
$ |
695 |
|
|
$ |
769 |
|
|
|
|
|
|
|
|
|
|
Net change
in unrealized gains (losses) on available-for-sale investments |
|
|
|
|
|
|
(5 |
) |
Net change in fair value of derivatives designated as
cash flow hedges during the year, net of income
tax recovery of $30 million (May 29, 2010 - income
taxes
of $22 million) |
|
|
(82 |
) |
|
|
54 |
|
Amounts reclassified to earnings during the year,
net of income tax recovery of $13 million (May 29, 2010
- income taxes of $12 million) |
|
|
34 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
647 |
|
|
$ |
789 |
|
|
|
|
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
May 28, |
|
February 26, |
|
|
2011 |
|
2011 |
Accumulated net unrealized gains on
available-for-sale
investments |
|
$ |
5 |
|
|
$ |
5 |
|
Accumulated net unrealized losses on derivative
instruments designated as cash flow hedges |
|
|
(63 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
$ |
(58 |
) |
|
$ |
(10 |
) |
|
|
|
22
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The components of unrealized losses on derivative instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
May 28, |
|
February 26, |
|
|
2011 |
|
2011 |
Unrealized gains included in other current assets |
|
$ |
65 |
|
|
$ |
64 |
|
Unrealized losses included in accrued liabilities |
|
|
(143 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
|
|
Net fair value of unrealized losses on derivative instruments |
|
$ |
(78 |
) |
|
$ |
(66 |
) |
|
|
|
12. FOREIGN EXCHANGE GAINS AND LOSSES
|
|
Selling, marketing and administration expense for the three months ended May 28, 2011 included
$9 million with respect to foreign exchange losses (three months ended May 29, 2010 foreign
exchange gains of $4 million). |
13. COMMITMENTS AND CONTINGENCIES
|
|
The Company has $150 million in unsecured demand credit facilities (the Facilities) to support
and secure operating and financing requirements. As at May 28, 2011, the Company has utilized
$9 million of the Facilities for outstanding letters of credit and $141 million of the
Facilities are unused. |
|
|
The Company is involved in litigation in the normal course of its business, both as a defendant
and as a plaintiff. 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 these claims that it provides to certain of it partners. In particular, the
industry in which the Company competes has many participants that own, or claim to own,
intellectual property, including participants that have been issued patents and may have filed
patent applications or may obtain additional patents and proprietary rights for technologies
similar to those used by the Company in its products. The Company has received, and may receive
in the future, assertions and claims from third parties that the Companys products infringe on
their patents or other intellectual property rights. Litigation has been and will likely
continue to be necessary to determine the scope, enforceability and validity of third-party
proprietary rights or to establish the Companys proprietary rights. Regardless of whether
claims that the Company is infringing patents or other intellectual property rights have any
merit, those claims could be time-consuming to evaluate and defend, result in costly litigation,
divert managements attention and resources, subject the Company to significant liabilities and
could have other effects. |
|
|
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 managements 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. |
23
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
|
|
Additional lawsuits and claims, including purported class actions and derivative actions, may be
filed or made based upon the Companys historical stock option granting practices. Management
assesses such claims and where considered likely to result in a material exposure and, where the
amount of the claim is quantifiable, provisions for loss are made based on managements
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. |
|
|
See the Legal Proceedings and Regulatory Action section of RIMs Annual Information Form for
additional unaudited information regarding the Companys legal proceedings, which is included in
RIMs Annual Report on Form 40-F and Legal Proceedings in the Managements Discussion and
Analysis (MD&A) of financial condition and results of operations for fiscal 2011. |
14. DERIVATIVE FINANCIAL INSTRUMENTS
|
|
Values of financial instruments outstanding were as follows: |
|
|
|
|
|
|
|
|
|
|
|
As at May 28, 2011 |
|
|
Notional |
|
Estimated |
|
|
Amount |
|
Fair Value |
Assets (Liabilities) |
|
|
|
|
|
|
|
|
Currency forward contracts asset |
|
$ |
2,117 |
|
|
$ |
64 |
|
Currency option contracts asset |
|
$ |
83 |
|
|
$ |
1 |
|
Currency forward contracts liability |
|
$ |
4,615 |
|
|
$ |
(139 |
) |
Currency option contracts liability |
|
$ |
148 |
|
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
As at February 26, 2011 |
|
|
Notional |
|
Estimated |
|
|
Amount |
|
Fair Value |
Assets (Liabilities) |
|
|
|
|
|
|
|
|
Currency forward contracts asset |
|
$ |
1,622 |
|
|
$ |
63 |
|
Currency option contracts asset |
|
$ |
156 |
|
|
$ |
1 |
|
Currency forward contracts liability |
|
$ |
4,848 |
|
|
$ |
(129 |
) |
Currency option contracts liability |
|
$ |
180 |
|
|
$ |
(1 |
) |
Foreign Exchange
The Company uses derivative instruments to manage exposures to foreign exchange risk resulting
from transactions in currencies other than its functional currency, the U.S. dollar. The
Companys risk management objective in holding derivative instruments is to reduce the
volatility of current and future income as a result of changes in foreign currency. To limit
its exposure to adverse movements in foreign currency exchange rates, the Company enters into
foreign currency forward and option contracts. The Company does not use derivative instruments
for speculative purposes.
The majority of the Companys revenues in the three months ended May 28, 2011 were transacted in
U.S. dollars. However, portions of the revenues are denominated in Canadian dollars, Euros, and
British Pounds. Purchases of raw materials are primarily transacted in U.S. dollars. Other
expenses, consisting of the majority of salaries,
certain operating costs and manufacturing overhead are incurred primarily in Canadian dollars.
The Company
24
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
enters into forward and option contracts to hedge portions of these anticipated
transactions to reduce the volatility on income associated with the foreign currency exposures.
The Company also enters into forward and option contracts to reduce the effects of foreign
exchange gains and losses resulting from the revaluation of certain foreign currency monetary
assets and liabilities.
The Company records all derivative instruments at fair value on the consolidated balance sheets.
The fair value of these instruments is calculated based on quoted currency spot rates and
interest rates. The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative instrument and the resulting designation.
The Companys accounting policies for these instruments outline the criteria to be met in order
to designate a derivative instrument as a hedge and the methods for evaluating 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 the value of the hedged items. If an anticipated transaction
is deemed no longer likely to occur, the corresponding derivative instrument is de-designated as
a hedge and any associated deferred gains and losses in accumulated other comprehensive income
(loss) are recognized in earnings at that time. Any future changes in the fair value of the
instrument are recognized in current earnings. The Company reclassified losses of $1 million
from accumulated other comprehensive income (loss) into income as a result of the de-designation
of derivative instruments as a hedge during the three months ended May 28, 2011 (May 29, 2010
nil).
For any derivative instruments that do not meet the requirements for hedge accounting, or for
any derivative instrument for which hedge accounting is not elected, the changes in fair value
of the instruments are recognized in income in the current period and will generally offset the
changes in the U.S. dollar value of the associated asset, liability, or forecasted transaction.
The Company enters into forward and option contracts to hedge exposures relating to foreign
currency anticipated transactions. These contracts have been designated as cash flow hedges,
with the effective portion of the change in fair value initially recorded in accumulated other
comprehensive income (loss) and subsequently reclassified to income in the period in which the
cash flows from the associated hedged transactions affect income. Any ineffective portion of
the change in fair value of the cash flow hedge is recognized in current period income. For the
three months ended May 28, 2011, there was $4 million in realized losses on forward contracts
which were ineffective upon maturity as the anticipated hedged transactions did not occur (May
29, 2010 nil). As at May 28, 2011 and May 29, 2010, the outstanding derivatives designated as
cash flow hedges were considered to be fully effective with no resulting portions being
designated as ineffective. The maturity dates of these instruments range from May 2011 to April
2013. As at May 28, 2011, the net unrealized losses on forward contracts was $82 million
(February 26, 2011 net unrealized losses of $20 million) and the net unrealized losses on
option contracts was $3 million (February 26, 2011 nil). Unrealized gains associated with
these contracts were recorded in other current assets and accumulated other comprehensive income
(loss). Unrealized losses were recorded in accrued liabilities and accumulated other
comprehensive income (loss). As at May 28, 2011, the Company estimates that approximately $95
million of net unrealized losses on these forward and option contracts will be reclassified into
income within the next twelve months.
25
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The following table shows the fair values of derivative instruments designated as cash flow
hedges in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
May 28, 2011 |
|
February 26, 2011 |
|
|
Balance Sheet |
|
|
|
|
|
Balance Sheet |
|
|
|
|
Classification |
|
Fair Value |
|
Classification |
|
Fair Value |
Currency forward contracts asset
|
|
Other current assets
|
|
$ |
41 |
|
|
Other current assets
|
|
$ |
57 |
|
Currency option contracts asset
|
|
Other current assets
|
|
$ |
1 |
|
|
Other current assets
|
|
$ |
1 |
|
Currency forward contracts liability
|
|
Accrued liabilities
|
|
$ |
123 |
|
|
Accrued liabilities
|
|
$ |
77 |
|
Currency option contracts liability
|
|
Accrued liabilities
|
|
$ |
4 |
|
|
Accrued liabilities
|
|
$ |
1 |
|
The following table show the impact of derivative instruments designated as cash flow hedges on
the consolidated statements of operations for the three months ended May 28, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Amount of Gain (Loss) |
|
Location of Gain (Loss) |
|
Reclassified from |
|
|
Recognized in OCI on |
|
Reclassified from |
|
Accumulated OCI into |
|
|
Derivative Instruments |
|
Accumulated OCI into |
|
Income (Effective |
|
|
(Effective Portion) |
|
Income (Effective Portion) |
|
Portion) |
Currency Forward Contracts
|
|
$ |
(119 |
) |
|
Revenue
|
|
$ |
(64 |
) |
Currency Option Contracts
|
|
$ |
(3 |
) |
|
Revenue
|
|
$ |
(1 |
) |
Currency Forward Contracts
|
|
$ |
10 |
|
|
Cost of sales
|
|
$ |
7 |
|
Currency Forward Contracts
|
|
$ |
11 |
|
|
Selling, marketing
and administration
|
|
$ |
7 |
|
Currency Forward Contracts
|
|
$ |
16 |
|
|
Research and
development
|
|
$ |
8 |
|
|
|
|
Amount of Gain
(Loss) Recognized
in Income on
Derivative
Instruments
(Ineffective
Portion)
|
|
Location of Loss
Reclassified from
Accumulated OCI
into Income
(Ineffective
Portion)
|
|
Amount of Loss
Reclassified from
Accumulated OCI
into Income
(Ineffective
Portion)
|
Currency Forward Contracts
|
|
$ |
- |
|
|
Selling, marketing
and administration
|
|
$ |
(4 |
) |
26
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The following table show the impact of derivative instruments designated as cash flow hedges on
the consolidated statements of operations for the three months ended May 29, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
Amount of Gain (Loss) |
|
Location of Gain (Loss) |
|
Reclassified from |
|
|
Recognized in OCI on |
|
Reclassified from |
|
Accumulated OCI into |
|
|
Derivative Instruments |
|
Accumulated OCI into |
|
Income (Effective |
|
|
(Effective Portion) |
|
Income (Effective Portion) |
|
Portion) |
Currency Forward Contracts
|
|
$ |
97 |
|
|
Revenue
|
|
$ |
30 |
|
Currency Forward Contracts
|
|
$ |
1 |
|
|
Cost of sales
|
|
$ |
4 |
|
Currency Forward Contracts
|
|
$ |
(5 |
) |
|
Selling, marketing
and administration
|
|
$ |
2 |
|
Currency Forward Contracts
|
|
$ |
3 |
|
|
Research and
development
|
|
$ |
6 |
|
As part of its risk management strategy, the Company may maintain net monetary asset and/or
liability balances in foreign currencies. The Company enters into foreign exchange forward
contracts to hedge certain monetary assets and liabilities that are exposed to foreign currency
risk. The principal currencies hedged include the Canadian dollar, Euro, and British Pound.
These contracts are not subject to hedge accounting, and any gains or losses are recognized in
income each period, offsetting the change in the U.S. dollar value of the asset or liability.
The maturity dates of these instruments range from May 2011 to September 2011. As at May 28,
2011, net unrealized gains of $7 million were recorded in respect of these instruments (February
26, 2011 net unrealized losses of $46 million). Unrealized gains associated with these
contracts were recorded in other current assets and selling, marketing and administration.
Unrealized losses were recorded in accrued liabilities and selling, marketing and
administration.
The following table shows the fair values of derivative instruments that are not subject to
hedge accounting in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
May 28, 2011 |
|
February 26, 2011 |
|
|
Balance Sheet |
|
Fair |
|
Balance Sheet |
|
Fair |
|
|
Classification |
|
Value |
|
Classification |
|
Value |
Currency forward contracts asset
|
|
Other current assets
|
|
$ |
23 |
|
|
Other current assets
|
|
$ |
6 |
|
Currency forward contracts liability
|
|
Accrued liabilities
|
|
$ |
16 |
|
|
Accrued liabilities
|
|
$ |
52 |
|
27
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The following table shows the impact of derivative instruments that are not subject to hedge
accounting on the consolidated statement of operations for the three
months ended May 28, 2011:
|
|
|
|
|
|
|
|
|
Location of Loss Recognized in Income |
|
Amount of Loss in Income on |
|
|
on Derivative Instruments |
|
Derivative Instruments |
Currency Forward Contracts
|
|
Selling, marketing and
administration
|
|
$ |
(36 |
) |
The following table shows the impact of derivative instruments that are not subject to hedge
accounting on the consolidated statement of operations for the three
months ended May 29, 2010:
|
|
|
|
|
|
|
|
|
Location of Gain Recognized in Income |
|
Amount of Gain in Income on |
|
|
on Derivative Instruments |
|
Derivative Instruments |
Currency Forward Contracts
|
|
Selling, marketing and
administration
|
|
$ |
52 |
|
Credit
The Company is exposed to credit risk on derivative financial instruments arising from the
potential for counterparties to default on their contractual obligations. The Company mitigates
this risk by limiting counterparties to highly rated financial institutions and by continuously
monitoring their creditworthiness. The Companys exposure to credit loss and market risk will
vary over time as a function of currency exchange rates. The Company measures its counterparty
credit exposure as a percentage of the total fair value of the applicable derivative
instruments. Where the net fair value of derivative instruments with any counterparty is
negative, the Company deems the credit exposure to that counterparty to be nil. As at May 28,
2011, the maximum credit exposure to a single counterparty, measured as a percentage of the
total fair value of derivative instruments with net unrealized gains was 93% (February 26, 2011
59%).
The Company is exposed to market and credit risk on its investment portfolio. The Company
reduces this risk by investing in liquid, investment grade securities and by limiting exposure
to any one entity or group of related entities. As at May 28, 2011, no single issuer
represented more than 11% of the total cash, cash equivalents and
investments (February 26, 2011 no
single issuer represented more than 19% of the total cash, cash equivalents and investments).
Interest Rate
Cash and cash equivalents and investments are invested in certain instruments of varying
maturities. Consequently, the Company is exposed to interest rate risk as a result of holding
investments of varying maturities. The fair value of investments, as well as the investment
income derived from the investment portfolio, will fluctuate with changes in prevailing interest
rates. The Company does not currently utilize interest rate derivative instruments in its
investment portfolio.
28
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
15. SEGMENT DISCLOSURES
The Company is organized and managed as a single reportable business segment. The Companys
operations are substantially all related to the research, design, manufacture and sales of
wireless communications products, services and software.
Revenue, classified by major geographic segments in which our customers are located, was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
May 28, |
|
May 29, |
|
|
2011 |
|
2010 |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
371 |
|
|
$ |
234 |
|
United States |
|
|
1,320 |
|
|
|
2,074 |
|
United Kingdom |
|
|
478 |
|
|
|
469 |
|
Other |
|
|
2,739 |
|
|
|
1,458 |
|
|
|
|
|
|
$ |
4,908 |
|
|
$ |
4,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
7.6 |
% |
|
|
5.5 |
% |
United States |
|
|
26.9 |
% |
|
|
49.0 |
% |
United Kingdom |
|
|
9.7 |
% |
|
|
11.1 |
% |
Other |
|
|
55.8 |
% |
|
|
34.4 |
% |
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
29
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
May 28, |
|
May 29, |
|
|
2011 |
|
2010 |
Revenue mix |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware |
|
$ |
3,821 |
|
|
$ |
3,349 |
|
Service |
|
|
973 |
|
|
|
693 |
|
Software |
|
|
81 |
|
|
|
64 |
|
Other |
|
|
33 |
|
|
|
129 |
|
|
|
|
|
|
$ |
4,908 |
|
|
$ |
4,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
May 28, |
|
February 26, |
|
|
2011 |
|
2011 |
Property, plant and equipment, intangible
assets and goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
4,251 |
|
|
$ |
3,787 |
|
United States |
|
|
696 |
|
|
|
707 |
|
United Kingdom |
|
|
40 |
|
|
|
41 |
|
Other |
|
|
277 |
|
|
|
275 |
|
|
|
|
|
|
$ |
5,264 |
|
|
$ |
4,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
7,673 |
|
|
$ |
6,935 |
|
United States |
|
|
3,423 |
|
|
|
3,390 |
|
United Kingdom |
|
|
1,663 |
|
|
|
1,594 |
|
Other |
|
|
1,083 |
|
|
|
956 |
|
|
|
|
|
|
$ |
13,842 |
|
|
$ |
12,875 |
|
|
|
|
30
Research In Motion Limited
Notes to the Consolidated Financial Statements
(unaudited)
In millions of United States dollars, except share and per share data, and except as otherwise indicated
16. CASH FLOW INFORMATION
Cash flows resulting from net changes in working capital items are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
May 28, |
|
May 29, |
|
|
2011 |
|
2010 |
Accounts receivable, net |
|
$ |
183 |
|
|
$ |
(56 |
) |
Other receivables |
|
|
(139 |
) |
|
|
71 |
|
Inventories |
|
|
(325 |
) |
|
|
104 |
|
Other current assets |
|
|
(120 |
) |
|
|
(15 |
) |
Accounts payable |
|
|
309 |
|
|
|
(39 |
) |
Accrued liabilities |
|
|
197 |
|
|
|
112 |
|
Income taxes payable |
|
|
(179 |
) |
|
|
(18 |
) |
Deferred revenue |
|
|
(3 |
) |
|
|
4 |
|
|
|
|
|
|
$ |
(77 |
) |
|
$ |
163 |
|
|
|
|
31
DOCUMENT 2
RESEARCH IN MOTION LIMITED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MAY 28, 2011
June 20, 2011
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read together with the unaudited interim consolidated financial
statements and the accompanying notes (the Consolidated Financial Statements) of Research In
Motion Limited (RIM or the Company) for the three months ended May 28, 2011 and the Companys
audited consolidated financial statements and accompanying notes, and MD&A, for the fiscal year
ended February 26, 2011. The Consolidated Financial Statements are presented in U.S. dollars and
have been prepared in accordance with United States generally accepted accounting principles (U.S.
GAAP). All financial information in this MD&A is presented in U.S. dollars, unless otherwise
indicated.
RIM has prepared this MD&A with reference to National Instrument 51-102 Continuous Disclosure
Obligations of the Canadian Securities Administrators. Under the U.S./Canada Multijurisdictional
Disclosure System, the Company is permitted to prepare this MD&A in accordance with the disclosure
requirements of Canada, which requirements are different from those of the United States. This
MD&A provides information for the three months ended May 28, 2011 and up to and including June 19,
2011.
Additional information about the Company, including the Companys Annual Information Form for the
fiscal year ended February 26, 2011, which is included in RIMs Annual Report on Form 40-F for the
fiscal year ended February 26, 2011, can be found on SEDAR at www.sedar.com and on the U.S.
Securities and Exchange Commissions (SEC) website at www.sec.gov.
Cautionary Note Regarding Forward-Looking Statements
This MD&A contains forward-looking statements within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including
statements relating to:
|
|
the Companys expectations regarding the impact of the situation in Japan on its supply
chain operations; |
|
|
|
the Companys expectations regarding new product initiatives and timing, including the
anticipated timing of technical acceptances; |
|
|
|
the Companys plans to streamline its operations and accelerate new product
introductions, and its expectations relating to the benefits and timing of its
cost optimization program; |
|
|
|
assumptions and expectations described in the Companys critical accounting policies and
estimates; |
|
|
|
statements relating to the Companys earnings and gross margin expectations; |
|
|
|
the Companys revenue and earnings expectations in the near term and for the second half
of fiscal 2012; |
|
|
|
the Companys anticipated tax rate for fiscal 2012; |
|
|
|
the Companys intentions with respect to its share repurchase program, and RIMs
expectation that its strong balance sheet and expected cash flow generation would enable it
to effect the share repurchase program without adversely affecting its growth plans; |
|
|
|
the Companys estimates of purchase obligations and other contractual commitments; and |
|
|
|
the Companys expectations with respect to the sufficiency of its financial resources. |
The words expect, anticipate, estimate, may, will, should, intend, believe, plan
and similar expressions are intended to identify forward-looking statements. Forward-looking
statements are based on estimates and assumptions made by RIM in light of its experience and its
perception of historical trends, current conditions and expected future developments, as well as
other factors that RIM believes are appropriate in the circumstances. Many factors could cause
RIMs actual results, performance or
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
achievements to differ materially from those expressed or
implied by the forward-looking statements, including, without limitation, the following factors,
most of which are discussed in greater detail in the Risk Factors section of RIMs Annual Information
Form for the fiscal year ended February 26, 2011, which is included in RIMs Annual Report on Form
40-F for the fiscal year ended February 26, 2011:
|
|
third-party claims for infringement of intellectual property rights by RIM and the outcome
of any litigation with respect thereto; |
|
|
|
RIMs ability to successfully obtain patent or other proprietary or statutory protection
for its technologies and products; |
|
|
|
RIMs ability to obtain rights to use software or components supplied by third parties; |
|
|
|
the potential impact of copyright levies in numerous countries; |
|
|
|
RIMs ability to enhance current products and services, or develop new products and
services in a timely manner at competitive prices; |
|
|
|
risks related to delays in new product introductions; |
|
|
|
risks related to RIMs ability to implement and to realize the anticipated benefits of
its cost optimization program; |
|
|
|
intense competition within RIMs industry, including the possibility that strategic
transactions by RIMs competitors or carrier partners could weaken RIMs competitive position
or require RIM to reduce its prices to compete effectively; |
|
|
|
RIMs ability to establish new, and to build on existing relationships with its network
carrier partners and distributors, and its dependence on a limited number of significant
customers; |
|
|
|
RIMs reliance on its suppliers for functional components, and the risk that suppliers will
not be able to supply components on a timely basis or in sufficient quantities; |
|
|
|
the efficient and uninterrupted operation of RIMs network operations center and the
networks of its carrier partners, and the risk of other business interruptions; |
|
|
|
dependence on key personnel and RIMs ability to attract and retain key personnel; |
|
|
|
RIMs reliance on third-party manufacturers for certain products and its ability to manage
its production process; |
|
|
|
risks associated with RIMs expanding foreign operations; |
|
|
|
restrictions on import and use of RIMs products in certain countries due to encryption of
the products and services; |
|
|
|
the occurrence or perception of a breach of RIMs security measures, or an inappropriate
disclosure of confidential or personal information; |
|
|
|
the continued quality and reliability of RIMs products and services and the potential
effect of defects in products and services; |
|
|
|
RIMs ability to manage inventory and asset risk; |
|
|
|
RIMs ability to successfully maintain and enhance its brand; |
|
|
|
RIMs ability to effectively compete in the tablet market; |
|
|
|
reliance on strategic alliances and relationships with third-party network infrastructure
developers, software platform vendors and service platform vendors; |
|
|
|
effective management of growth and ongoing development of RIMs service and support
operations; |
|
|
|
regulation, certification and health risks, and risks relating to the misuse of RIMs
products; |
|
|
|
RIMs ability to expand and enhance BlackBerry App World; |
|
|
|
government regulation of wireless spectrum and radio frequencies; |
|
|
|
reduced spending by customers due to the uncertainty of economic and geopolitical
conditions; |
|
|
|
potential liabilities or costs related to the collection, storage, transmission, use and
disclosure of user and personal information; |
|
|
|
risks associated with acquisitions, investments and other business initiatives; |
2
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
foreign exchange risks; |
|
|
|
tax liabilities, resulting from changes in tax laws or otherwise, associated with RIMs
worldwide operations; |
|
|
|
general commercial litigation and other litigation claims as part of RIMs operations; |
|
|
|
risks associated with litigation claims against the Company
arising from the Company's practice of providing forward-looking
guidance to its shareholders with respect to certain financial
metrics, including the Company's practice of updating previous
guidance where circumstances warrant; |
|
|
|
changes in interest rates affecting RIMs investment portfolio and the creditworthiness of
its investment portfolio; and |
|
|
|
risks associated with the Companys share repurchase program, including: fluctuations in
the market price for RIMs shares; RIMs ability to comply with regulatory requirements
relating to the share repurchase program; and future alternative uses for RIMs cash. |
In addition, on March 11, 2011, Japan experienced a severe earthquake and tsunami that caused
significant damage to its northeast coast, impacting infrastructure, power sources and its overall
economy. The Company did not experience any significant supply chain disruptions during the first
quarter of fiscal 2012 due to the impact of
these geological events. The Company continues to monitor and assess the impact of the situation in
Japan on its supply chain operations and currently does not expect any significant disruption in
the Companys ability to meet customer requirements in the second quarter of fiscal 2012. Beyond
the second quarter of fiscal 2012, uncertainty remains with respect to the recovery efforts in
Japan and the impacts of those efforts, if any, on the Company, including the possibility of worsening conditions that
were unforeseen, which could have a negative impact on the Companys business.
Finally, the Company notes that it follows the practice of providing forward-looking guidance to
its shareholders with respect to certain financial metrics for the subsequent fiscal quarter in its
quarterly earnings press releases. In addition, in the press release announcing the Companys
financial results for fiscal 2011, the press release dated April 28, 2011 reporting updated
earnings guidance for fiscal 2012, and the press release announcing the Companys financial results
for the first quarter of fiscal 2012, the Company provided forward-looking guidance with respect to
its anticipated earnings per share for full year fiscal 2012. These statements relating to RIMs revenue,
gross margin and earnings expectations are forward-looking statements that are intended to enable
RIMs shareholders to view the anticipated financial performance and prospects of the Company from managements perspective at the time
such statements are made, and they are subject to the risks that are inherent in all
forward-looking statements, as described above. They are made by RIM in light of its experience,
its perception of historical and anticipated business trends, current conditions in the business
and anticipated future developments, including competition and new product initiatives and timing,
as well as RIMs current assessments of the various risk factors identified above. As noted above and in
the press releases containing such guidance, these forward-looking statements are subject to the
inherent risk of difficulties in forecasting RIMs financial results for future periods, particularly over longer periods, given
the rapid technological changes, evolving industry standards, intense competition and short product
life cycles that characterize the wireless communications industry.
These factors should be considered carefully, and readers should not place undue reliance on RIMs
forward-looking statements. RIM has no intention and undertakes no obligation to update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise,
except as required by law.
Overview
RIM 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 information, including email, voice, instant messaging, short message
service (SMS), Internet- and intranet-based applications and browsing. RIM technology also enables
a broad array of third party developers and manufacturers to enhance their products and services
through software development kits, wireless connectivity to data and third-party support programs.
RIMs portfolio of award-winning products, services and embedded technologies are used by thousands
of organizations and millions of consumers around the world and include the BlackBerry® wireless
solution, the RIM Wireless Handheld product line, the recently launched BlackBerry® PlayBook
tablet, software development tools and other software and hardware. The Companys sales and
marketing efforts include collaboration with strategic partners and distribution channels, as well
as its own supporting sales and marketing teams, to promote the sale of its products and services.
Sources of Revenue
RIMs primary revenue stream is generated by the BlackBerry wireless solution, which includes sales
of BlackBerry® handheld devices and BlackBerry PlayBook tablets, software and services. The BlackBerry wireless solution provides
users with a wireless extension of their work and personal email accounts, including Microsoft®
Outlook®, IBM® Lotus Notes®, Novell® GroupWise®, and many ISP email services.
3
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
RIM generates hardware revenues from sales, primarily to carriers and distributors, of BlackBerry handheld devices,
which provide users with the ability to send and receive wireless messages and data. RIMs
BlackBerry handheld devices also incorporate a mobile phone, web-browsing capability and enables
the use of data functions such as calendar, address book, task and memo lists and other functions
associated with personal organizers. Certain BlackBerry handheld devices also include multimedia
capabilities.
During the first quarter of fiscal year 2012, the Company launched the WiFi enabled BlackBerry
PlayBook tablet in North America. The BlackBerry PlayBook tablet represents the Companys first
tablet product and features the new BlackBerry Tablet Operating System based on technology
resulting from the Companys acquisition of QNX Software Systems
in fiscal 2011. The QNX-based operating system is expected to become the core of future high-end BlackBerry handheld devices. Other features of
the BlackBerry PlayBook tablet include a seven-inch high definition display, a dual core 1 GHZ
processor, dual high definition cameras and other high performance multimedia capabilities, true
multitasking, advanced security features and an uncompromised web browsing experience that supports
Adobe Flash.
On June 10, 2011, the Company announced its plans to launch the BlackBerry PlayBook tablet in an
additional 16 markets around the world over the next 30 days. Certain countries scheduled for
launches include the United Kingdom, Spain, France, India, United Arab Emirates, Hong Kong,
Australia, and Mexico, among others.
RIM generates service revenues from billings to its BlackBerry subscriber account base primarily
from a monthly infrastructure access fee charged to a carrier or reseller, which the carrier or
reseller in turn bills the BlackBerry subscriber. The BlackBerry subscriber account base is the
total of all subscriber accounts that have an active status at the end of a reporting period. Each
carrier instructs RIM to create subscriber accounts and determines whether each subscriber account
should have an active status. Each carrier is charged a service fee for each subscriber account
each month, with substantially all of such service fees having no regard to the amount of data
traffic that the subscriber account passes over the BlackBerry architecture. If a carrier
instructs RIM to deactivate a subscriber account, then RIM no longer includes that subscriber
account in its BlackBerry subscriber account base and ceases billing the carrier with respect to
such account from the date of notification of its deactivation. On a quarterly basis, RIM may make
an estimate of pending deactivations for certain carriers that do not use a fully-integrated
provisioning system. It is, however, each carriers responsibility to report changes to its
subscriber account status on a timely basis to RIM. The number of subscriber accounts is a
non-financial metric and is intended to highlight the change in RIMs subscriber base and should
not be relied upon as an indicator of RIMs financial performance. The number of subscriber
accounts does not have any standardized meaning prescribed by U.S. GAAP and may not be comparable
to similar metrics presented by other companies.
An important part of RIMs BlackBerry wireless solution is the software that is installed at the
corporate or small- and medium-size enterprise server level, and in some cases, on personal
computers. Software revenues include fees from: (i) licensing RIMs BlackBerry® Enterprise Server
(BES) software; (ii) BlackBerry® Client Access Licenses (CALs), which are charged for each
subscriber using the BlackBerry service via a BES; (iii) maintenance and upgrades to software; and
(iv) technical support.
Revenues are also generated from non-warranty repairs, sales of accessories and non-recurring
engineering development contracts (NRE).
Cost Optimization Program
On June 16, 2011, the Company announced that it will begin a program to streamline operations
across the organization, which will include headcount reductions. This realignment will be
focused on taking out redundancies and a reallocation of resources to enable the Company to focus
on areas that offer the highest growth opportunities and align with RIM strategic objectives, such
as accelerating new product introductions. The Company believes that a more efficient cost
structure will better enable it to respond to new market opportunities and changes in the
competitive environment. The Company does not intend to make significant cuts to areas or
development projects that are critical and directly related to RIMs future direction and growth. The Company expects
to implement this program beginning in the second quarter of fiscal 2012, with the benefits
impacting results primarily in the third quarter of fiscal 2012 and beyond. Any one-time charges
associated with this initiative will be identified and disclosed in the Companys unaudited interim
consolidated financial statements for the second quarter of fiscal 2012.
4
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies and Estimates
General
The preparation of the Consolidated Financial Statements requires management to make estimates
and assumptions with respect to the reported amounts of assets, liabilities, revenues and expenses
and the disclosure of contingent assets and liabilities. These estimates and assumptions are based
upon managements historical experience and are believed by management to be reasonable under the
circumstances. Such estimates and assumptions are evaluated on an ongoing basis and form the basis
for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results could differ significantly from these estimates.
The Companys critical accounting policies and estimates have been reviewed and discussed with the
Companys Audit & Risk Management Committee. There have not been any changes to the Companys
critical accounting policies and estimates from those disclosed in the Companys annual MD&A for
the fiscal year ended February 26, 2011, except as noted below.
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 collection is reasonably assured. In addition to this
general policy, the following paragraphs describe the specific revenue recognition policies for
each of the Companys major categories of revenue.
Hardware
Revenue from the sale of BlackBerry wireless hardware products (e.g., BlackBerry handheld devices
and BlackBerry PlayBook tablets) is recognized when title has transferred to the customer and all
significant contractual obligations that affect the customers final acceptance have been
fulfilled. For hardware products for which the software is deemed essential to the functionality
of the hardware, the Company recognizes revenue in accordance with general revenue recognition
accounting guidance.
The Company sells its BlackBerry PlayBook tablet with the right to receive unspecified software
upgrade rights on a when-and-if available basis. These upgrade rights are related specifically to
the products essential operating system software. In these instances, the amount allocated to the
unspecified software upgrade rights are deferred and recognized rateably over the 24-month
estimated life of the BlackBerry PlayBook tablet.
The Company records reductions to revenue for estimated commitments related to price protection,
right of return and for customer incentive programs. Price protection is accrued as a reduction to
revenue based on estimates of price reductions, provided the price reduction can be reliably
estimated and all other revenue recognition criteria have been met. The Company also records
reductions to revenue for a right of return based on contractual terms and conditions and, if the
expected product returns can be reasonably and reliably estimated, based on historical experience.
Where a general right of return cannot be reasonably and reliably estimated, the Company recognizes
revenue when the product sells through the distribution channel. The
5
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
estimated cost of the customer
incentive programs is accrued as a reduction to revenue based on historical experience, and is
recognized at the later of the date at which the Company has sold the product or the date at which
the program is offered. If historical experience cannot support a breakage rate, the maximum rebate
amount is deferred and adjusted when incentive programs end.
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 and in accordance
with industry-specific software revenue recognition accounting guidance. 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 those services are provided.
Other
Revenue from the sale of accessories is recognized when title has transferred to the customer and
all significant contractual obligations that affect the customers final acceptance have been
fulfilled. 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 customers 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
Amounts billed to customers related to shipping and handling are classified as revenue, and the
Companys shipping and handling costs are included in cost of sales. Shipping and handling costs
that cannot be reasonably attributed to certain customers are included in selling, marketing and
administration.
Multiple-Element Arrangements
The Company enters into revenue arrangements that may consist of multiple deliverables of its
product and service offerings. The Companys typical multiple-element arrangements involve: (i)
handheld devices with services, (ii) tablets with unspecified software upgrades on a when-and-if
available basis and (iii) software with technical support services.
For the Companys arrangements involving multiple deliverables of handheld devices with services,
the consideration from the arrangement is allocated to each respective element based on its
relative selling price, using vendor-specific objective evidence of selling price (VSOE). In
certain limited instances when the Company is unable to establish the selling price using VSOE, the
Company attempts to establish the selling
6
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
price of each element based on acceptable third party
evidence of selling price (TPE); however, the Company is generally unable to reliably determine
the selling prices of similar competitor products and services on a stand-alone basis. In these
instances, the Company uses best estimated selling price (BESP) in its allocation of arrangement
consideration. The objective of BESP is to determine the price at which the Company would transact
a sale if the product or service was sold on a stand-alone basis.
The BlackBerry PlayBook tablet includes the right to receive free unspecified software upgrade
rights on a when-and-if available basis. This upgrade right to the products embedded operating
system software is considered an undelivered element at the time of sale of the BlackBerry PlayBook
tablet and falls within the general revenue recognition guidance. The consideration from the
arrangement is allocated to each respective element based on its relative selling price. As the
BlackBerry PlayBook tablet or the upgrade right are not sold on a standalone basis and no TPE
exists for these deliverables, the allocation of revenue is based on the Companys BESP. The
consideration for the delivered hardware and the related essential software operating system are
recognized at the time of sale provided that the four revenue recognition criteria have been met.
The consideration allocated to the unspecified software upgrade rights is deferred and recognized
rateably over the 24-month estimated life of the tablets.
For arrangements involving multiple deliverables of software with technical support services, the
revenue is recognized based on the industry-specific software revenue recognition accounting
guidance. If the Company is not able to determine VSOE for all of the deliverables of the
arrangement, but is able to obtain VSOE for all undelivered elements, revenue is allocated using
the residual method. Under the residual method, the amount of revenue allocated to delivered
elements equals the total arrangement consideration less the aggregate fair value of any
undelivered elements. If VSOE of any undelivered software items does not exist, revenue from the
entire arrangement is initially deferred and recognized at the earlier of: (i) delivery of those
elements for which VSOE did not exist; or (ii) when VSOE can be established.
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 Companys management, taking into consideration the Companys 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 Companys BESP for
the unspecified software upgrade right is $6 per BlackBerry PlayBook tablet. If the Companys
quarterly pricing reviews and internal control procedures indicate market facts and circumstances
have changed, the Companys BESP for hardware products, services and unspecified software upgrade
rights related to the Companys tablets could change. On an annual basis, the Company also reviews
internal statistical data to estimate the useful life of the Companys 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.
7
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
Summary Results of Operations
First quarter of Fiscal 2012 compared to the first quarter of Fiscal 2011
The following table sets forth certain unaudited consolidated statement of operations data,
which is expressed in millions of dollars, for the periods indicated, except for share and per
share amounts, as well as certain unaudited consolidated balance sheet data, as at May 28, 2011 and
May 29, 2010, which is expressed in millions of dollars.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at and for the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
May 28, 2011 |
|
|
May 29, 2010 |
|
|
2012/2011 |
|
|
|
(in millions, except for share and per share amounts) |
|
Revenue |
|
$ |
4,908 |
|
|
|
100.0 |
% |
|
$ |
4,235 |
|
|
|
100.0 |
% |
|
$ |
673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
2,752 |
|
|
|
56.1 |
% |
|
|
2,312 |
|
|
|
54.6 |
% |
|
|
440 |
|
|
|
|
Gross margin |
|
|
2,156 |
|
|
|
43.9 |
% |
|
|
1,923 |
|
|
|
45.4 |
% |
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
423 |
|
|
|
8.6 |
% |
|
|
288 |
|
|
|
6.8 |
% |
|
|
135 |
|
Selling, marketing and
administration |
|
|
704 |
|
|
|
14.3 |
% |
|
|
483 |
|
|
|
11.4 |
% |
|
|
221 |
|
Amortization |
|
|
132 |
|
|
|
2.7 |
% |
|
|
94 |
|
|
|
2.2 |
% |
|
|
38 |
|
|
|
|
|
|
|
1,259 |
|
|
|
25.6 |
% |
|
|
865 |
|
|
|
20.4 |
% |
|
|
394 |
|
|
|
|
Income from operations |
|
|
897 |
|
|
|
18.3 |
% |
|
|
1,058 |
|
|
|
25.0 |
% |
|
|
(161 |
) |
|
|
|
|
|
Investment income, net |
|
|
7 |
|
|
|
0.1 |
% |
|
|
10 |
|
|
|
0.2 |
% |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
904 |
|
|
|
18.4 |
% |
|
|
1,068 |
|
|
|
25.2 |
% |
|
|
(164 |
) |
|
|
|
|
|
Provision for income taxes |
|
|
209 |
|
|
|
4.3 |
% |
|
|
299 |
|
|
|
7.1 |
% |
|
|
(90 |
) |
|
|
|
|
|
|
|
|
Net income |
|
$ |
695 |
|
|
|
14.1 |
% |
|
$ |
769 |
|
|
|
18.1 |
% |
|
$ |
(74 |
) |
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.33 |
|
|
|
|
|
|
$ |
1.39 |
|
|
|
|
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.33 |
|
|
|
|
|
|
$ |
1.38 |
|
|
|
|
|
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of
shares outstanding (000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
523,983 |
|
|
|
|
|
|
|
554,672 |
|
|
|
|
|
|
|
|
|
Diluted |
|
|
524,524 |
|
|
|
|
|
|
|
558,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
13,842 |
|
|
|
|
|
|
$ |
10,683 |
|
|
|
|
|
|
$ |
3,159 |
|
Total liabilities |
|
$ |
4,254 |
|
|
|
|
|
|
$ |
2,684 |
|
|
|
|
|
|
$ |
1,570 |
|
Total long-term liabilities |
|
$ |
287 |
|
|
|
|
|
|
$ |
163 |
|
|
|
|
|
|
$ |
124 |
|
Shareholders equity |
|
$ |
9,588 |
|
|
|
|
|
|
$ |
7,999 |
|
|
|
|
|
|
$ |
1,589 |
|
8
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Revenue for the first quarter of fiscal 2012 was $4.9 billion, an increase of $673 million, or
15.9%, from $4.2 billion in the first quarter of fiscal 2011. Hardware revenue increased by $472
million, or 14.1%, to $3.8 billion, primarily reflecting the higher number of BlackBerry handheld
devices sold. The number of BlackBerry handheld devices sold increased by approximately 2.0
million, or 18%, to approximately 13.2 million in the first quarter of fiscal 2012, compared to
approximately 11.2 million in the first quarter of fiscal 2011. In addition, the Company launched
the BlackBerry PlayBook tablet in North America in April 2011, which contributed to the increase in
hardware revenue with approximately 500,000 tablet sales during the first quarter of fiscal
2012. Service revenue increased by $280 million to $973 million, reflecting the Companys increase
in net new BlackBerry subscriber accounts since the first quarter of fiscal 2011. Software revenue
increased by $17 million to $81 million in the first quarter of fiscal 2012 and other revenue
decreased by $96 million to $33 million in the first quarter of fiscal 2012.
The Companys net income for the first quarter of fiscal 2012 was $695 million, a decrease of $74
million, or 9.6%, compared to net income of $769 million in the first quarter of fiscal 2011. This
decrease primarily reflects an increase in the Companys operating expenses in the amount of $394
million, resulting primarily from increased expenditures in selling, marketing and administration
and research and development, which was partially offset by an increase of $233 million in the
Companys gross margin and a decrease of $90 million in the provision for income taxes.
Basic earnings per share (basic EPS) was $1.33 and diluted earnings per share (diluted EPS) was
$1.33 in the first quarter of fiscal 2012 compared to $1.39 basic EPS and $1.38 diluted EPS in the
first quarter of fiscal 2011, a 3.6% decrease in diluted EPS when compared to the first quarter of
fiscal 2011. On March 24, 2011, the Company had forecast diluted EPS to be in the range of $1.47-$1.55 for the first quarter of fiscal 2012, and had forecast diluted EPS to be in excess of $7.50 for the full year fiscal 2012. On April 28, 2011, the Company released updated guidance for the first quarter of fiscal 2012 to amend its previously forecasted diluted EPS to a revised range of $1.30-$1.37,
primarily due to shipment volumes of BlackBerry handheld devices that were expected to be at the lower end of the forecasted range of 13.5 to 14.5 million BlackBerry handheld devices as well as a shift in the expected mix of BlackBerry handheld devices shipped towards handsets with lower average selling prices. The Company also announced that it expected to achieve full year fiscal 2012 diluted EPS of
approximately $7.50 based on anticipated strong revenue growth in the third and fourth quarters of fiscal 2012 relating to the launches of new BlackBerry handheld devices and prudent cost management. On June 16, 2011, the Company announced that it was revising its guidance for full year fiscal 2012 diluted EPS to a forecasted range of $5.25-$6.00, excluding any one-time charges associated with the Companys
cost optimization program described above or the effect of any repurchases of shares under the Companys share repurchase program described below. The Company noted that the challenges encountered by RIM in the first quarter of fiscal 2012 were continuing into the second quarter of fiscal 2012. In particular, the Company observed that the existing portfolio of BlackBerry handheld devices has been in market for a close to a year and
delivering new products has proven more challenging than anticipated. Delays in the new product introduction timelines by a couple of weeks have excluded RIM from some of the back-to-school programs it had expected to be part of,
which is expected to result in lower than anticipated shipments, revenue and earnings in the second quarter of fiscal 2012. While RIM believes that the new BlackBerry handheld devices scheduled for launch in
the coming months, as well as realigning its cost structure pursuant to the
cost optimization program described above, will enable it to achieve improvements to its net income in the latter part of fiscal 2012, the lower than anticipated sell-through
related to the age of the current BlackBerry handheld device portfolio and the delays in new product
introductions have resulted in the lower guidance for full year fiscal 2012.
See Cautionary Note Regarding Forward-Looking Statements.
A more comprehensive analysis of these factors is contained in Results of Operations.
On June
16, 2011, RIM's Board of Directors approved a share repurchase program to purchase for cancellation through the
facilities of the NASDAQ stock market (NASDAQ) or, subject to regulatory approval, by way of private agreement up to 5% for RIM
outstanding common shares (representing
approximately 26 million common shares as of the date hereof). The share repurchase program may
commence after July 10, 2011 and will remain in place for up to 12 months or until the purchases are completed
or the program is terminated by RIM. See Common Shares Outstanding Share Repurchase Program.
9
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Three months ended May 28, 2011 compared to the three months ended May 29, 2010
Revenue
Revenue for the first quarter of fiscal 2012 was $4.9 billion, an increase of $673 million, or
15.9%, from $4.2 billion in the first quarter of fiscal 2011.
A comparative breakdown of the significant revenue streams is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change Fiscal |
|
|
|
May 28, 2011 |
|
|
May 29, 2010 |
|
|
2012/2011 |
|
|
|
|
Millions of BlackBerry handheld devices sold |
|
|
13.2 |
|
|
|
|
|
|
|
11.2 |
|
|
|
|
|
|
|
2.0 |
|
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of BlackBerry PlayBook tablets sold |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware |
|
$ |
3,821 |
|
|
|
77.9 |
% |
|
$ |
3,349 |
|
|
|
79.1 |
% |
|
$ |
472 |
|
|
|
14.1 |
% |
Service |
|
|
973 |
|
|
|
19.8 |
% |
|
|
693 |
|
|
|
16.4 |
% |
|
|
280 |
|
|
|
40.4 |
% |
Software |
|
|
81 |
|
|
|
1.7 |
% |
|
|
64 |
|
|
|
1.5 |
% |
|
|
17 |
|
|
|
26.6 |
% |
Other |
|
|
33 |
|
|
|
0.6 |
% |
|
|
129 |
|
|
|
3.0 |
% |
|
|
(96 |
) |
|
|
(74.4 |
%) |
|
|
|
|
|
$ |
4,908 |
|
|
|
100.0 |
% |
|
$ |
4,235 |
|
|
|
100.0 |
% |
|
$ |
673 |
|
|
|
15.9 |
% |
|
|
|
Hardware revenue was $3.8 billion, or 77.9% of consolidated revenue, in the first quarter
of fiscal 2012, compared to $3.3 billion, or 79.1% of consolidated revenue, in the first
quarter of fiscal 2011, representing an increase of 14.1% over the same period in the prior
fiscal year. This increase in hardware revenue over the comparable prior fiscal year period
was primarily attributable to a volume increase of approximately 2.0 million BlackBerry
handheld devices, or 18%, to approximately 13.2 million BlackBerry handheld devices in the
first quarter of fiscal 2012 compared to approximately 11.2 million BlackBerry handheld
devices in the first quarter of fiscal 2011. BlackBerry handheld device shipments for the
first quarter of fiscal 2012 were impacted by the highly competitive environment in North
America, which is not expected to improve significantly in the near-term as a result of the
maturity of the current BlackBerry product portfolio in that market
and the delays in new product introductions described above. The existing portfolio of BlackBerry handheld devices has been in the market for close to a year
and delivering new products on a timely basis has proven more challenging than RIM had anticipated.
The Company had been making progress on a development path for the next generation of BlackBerry
handheld devices when it determined it needed to make more significant upgrades to both hardware
and software to address the dynamic forces in the smartphone market, specifically in the United
States. Consequently, the decision was made to develop a new single hardware platform and the new
BlackBerry 7 operating system for its high-end BlackBerry lineup. These changes, among other
things, have affected both hardware and software timelines and pushed out entry into carrier
certification labs. As noted in the Risk Factors section of RIMs Annual Information Form, there
are always risks and uncertainties in new product development and these changes presented extra
challenges to carrier lab entry and the certification process. The Company currently expects that
it should begin to see technical acceptances for the new BlackBerry 7 platform beginning in
mid-summer with shipments beginning near the end of the second quarter of fiscal 2012. With the Companys
anticipated launch of new products based on the BlackBerry 7 operating
system in subsequent quarters, North America is expected to
improve above the current performance. BlackBerry handheld device shipments were positively
impacted during the quarter by continued growth in international markets when compared to the
first quarter of fiscal 2011 primarily due to the continued focus and development of prepaid
markets and tiered pricing plan offerings in countries in Western
Europe, the Middle East, Africa
and Asia Pacific, |
10
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
primarily in India and South East Asia. However, sales in Latin America were impacted as a result of lower sell-through related to a variety of factors, including a change in the subsidy environment in Mexico that had a greater than expected impact and a specific import license issue in Argentina. In addition, the Company launched the BlackBerry PlayBook
tablet on April 19, 2011, which contributed to the increase in hardware revenue during the first
quarter of fiscal 2012 with approximately 500,000 tablet sales. The BlackBerry PlayBook tablet
was available to consumers in North America through a broad network of channel partners during the
first quarter of fiscal 2012 and is being launched in certain international markets in the second quarter of fiscal 2012. |
|
Service revenue increased by $280 million, or 40.4%, to $973 million or 19.8% of
consolidated revenue, in the first quarter of fiscal 2012, compared to $693 million, or 16.4%
of consolidated revenue, in the first quarter of fiscal 2011, reflecting the Companys
increase in net new BlackBerry subscriber accounts since the first quarter of fiscal 2011. |
|
Software revenue includes fees from licensed BES software, CALs, technical support,
maintenance and upgrades. Software revenue increased by $17 million, or 26.6%, to $81 million
in the first quarter of fiscal 2012 from $64 million in the first quarter of fiscal 2011. The
majority of the increase was attributable to software revenue earned from a business
acquisition in fiscal 2011, partially offset by a decrease in BES and CALs revenue. |
|
Other revenue, which includes non-warranty repairs, accessories, NRE and gains and losses
on revenue hedging instruments, decreased by $96 million to $33 million in the first quarter
of fiscal 2012 compared to $129 million in the first quarter of fiscal 2011. The majority of
the decrease was attributable to losses realized from revenue hedging
instruments in contrast to the same period in the prior fiscal year which experienced realized gains from revenue hedging instruments, as well as a
decrease in non-warranty repairs revenue when compared to the same period in the prior fiscal
year. See Market Risk of Financial Instruments Foreign Exchange for additional
information on the Companys hedging instruments. |
Sales outside the United States, United Kingdom and Canada comprised approximately 56% of the total consolidated revenue during
the first quarter of fiscal 2012. Sales in the United States represented approximately 27% of total consolidated revenue during
the quarter, a decrease as a percentage of total consolidated revenue resulting from the factors described above and continuous growth
in international markets. Sales in the United Kingdom represented approximately 10% of total consolidated revenue and sales in Canada represented the remainder.
Gross Margin
Consolidated gross margin increased by $233 million, or 12.1%, to $2.2 billion, or 43.9% of
revenue, in the first quarter of fiscal 2012, compared to $1.9 billion, or 45.4% of revenue, in the
first quarter of fiscal 2011. This year-over-year decline in consolidated gross margin percentage
was primarily attributable to new full-featured RIM products that have higher cost structures,
which was partially offset by an increase in service revenue as a result of additional subscriber
accounts, which comprised 19.8% of the total revenue mix for the first quarter of fiscal 2012
compared to 16.4% in the first quarter of fiscal 2011. Gross margin also reflects a reduction in
warranty costs relating to the Companys contractual obligations to carriers and distributors to
provide replacement devices for returns that are covered by warranty
and the impact of a reduction on royalties payable on certain BlackBerry handheld devices, which resulted in gross margin percentage for the first quarter of fiscal 2012 being higher than expected.
Typically, the Companys
contractual obligation to provide replacement units is higher in periods where new products are
launched and tend to decrease closer to the end of product lifecycles which impacts warranty costs.
A portion of the reduction which impacted the first quarter will also
benefit future periods. Gross margin percentage for BlackBerry handheld devices and BlackBerry
PlayBook tablets are generally lower than the Companys consolidated gross margin percentage.
The Company expects consolidated gross margin percentage to be approximately 39% in the second quarter of
fiscal 2012, primarily as a result of the product mix shifting towards lower priced handsets to
support growth in prepaid and entry level markets as well as the late stage of the BlackBerry
product life cycle for the Companys current portfolio of smartphones as the Company anticipates
the planned launch of next generation versions of smartphones in the second quarter of fiscal 2012
and beyond.
11
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
The
Company currently expects its consolidated gross
margin to decrease slightly in fiscal 2012. As the BlackBerry PlayBook tablet increases as a
percentage of the product mix, the Company expects consolidated gross margin percentage to decrease from
current levels as the BlackBerry PlayBook tablet has a lower than corporate average gross margin,
but on a higher revenue base.
Operating Expenses
The table below presents a comparison of research and development, selling, marketing and
administration, and amortization expenses for the quarter ended May 28, 2011, compared to the
quarter ended February 26, 2011 and the quarter ended May 29, 2010. The Company believes it is
meaningful to provide a comparison between the first quarter of fiscal 2012 and the fourth quarter
of fiscal 2011 given that RIMs quarterly operating results vary substantially.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
(in millions) |
|
|
May 28, 2011 |
|
February 26, 2011 |
|
May 29, 2010 |
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
|
Revenue |
|
|
|
|
|
Revenue |
|
|
|
|
|
Revenue |
|
|
|
Revenue |
|
$ |
4,908 |
|
|
|
|
|
|
$ |
5,556 |
|
|
|
|
|
|
$ |
4,235 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
423 |
|
|
|
8.6 |
% |
|
$ |
383 |
|
|
|
6.9 |
% |
|
$ |
288 |
|
|
|
6.8 |
% |
Selling, marketing and administration |
|
|
704 |
|
|
|
14.3 |
% |
|
|
705 |
|
|
|
12.7 |
% |
|
|
483 |
|
|
|
11.4 |
% |
Amortization |
|
|
132 |
|
|
|
2.7 |
% |
|
|
125 |
|
|
|
2.2 |
% |
|
|
94 |
|
|
|
2.2 |
% |
|
|
|
Total |
|
$ |
1,259 |
|
|
|
25.6 |
% |
|
$ |
1,213 |
|
|
|
21.8 |
% |
|
$ |
865 |
|
|
|
20.4 |
% |
|
|
|
Operating
expenses increased by 3.8% in the first quarter of fiscal 2012 when
compared to the fourth quarter of fiscal 2011. Operating expenses as
a percentage of revenue grew to 25.6% in the first quarter of fiscal
2012 primarily reflecting the lower consolidated revenue in the first
quarter of fiscal 2012 as noted above.
As noted above, on June 16, 2011, the Company announced that it will begin a program
to streamline operations across the organization, which will include a headcount reduction.
The Company expects to implement this program beginning in the second quarter of fiscal 2012, with the benefits impacting results primarily in the third quarter of fiscal 2012 and beyond. Any one-time charges associated with this initiative will be identified and disclosed in the Companys
unaudited interim consolidated financial statements for the second quarter of fiscal 2012.
Research and Development Expenses
Research and development expenditures consist primarily of salaries and benefits for technical
personnel, new product development costs, travel, office and building infrastructure costs and
other employee costs.
Research and development expenditures increased by $40 million to $423 million, or 8.6% of revenue,
in the first quarter of fiscal 2012, compared to $383 million, or 6.9% of revenue, in the fourth
quarter of fiscal 2011. The majority of the increase was attributable to an increase in materials
usage as well as increases in salaries and benefits due to an increase in the number of employees
associated with research and development activities.
12
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
Selling, Marketing and Administration Expenses
Selling, marketing and administration expenses consist primarily of marketing, advertising and
promotion, salaries and benefits, external advisory fees, information technology costs, office and
related staffing infrastructure costs and travel expenses.
Selling, marketing and administration expenses decreased by $1 million to $704 million for the
first quarter of fiscal 2012 compared to $705 million for the fourth quarter of fiscal 2011. As a
percentage of revenue, selling, marketing and administration expenses increased to 14.3% in the
first quarter of fiscal 2012 versus 12.7% in the fourth quarter of fiscal 2011. The increase in
sales, marketing and administration expenses as a percentage of revenue was primarily attributable
to significant upfront investments in channel development and seeding activities, as well as launch
events, development of marketing collateral and the development of advertising creatives and
television slots in advance of actual launch dates and revenue realization for the BlackBerry
PlayBook tablet, which was launched mid-way through the first quarter of fiscal 2012, as well as
similar investments for upcoming handheld launches.
Amortization Expense
The table below presents a comparison of amortization expense relating to property, plant and
equipment and intangible assets recorded as amortization or cost of sales for the first quarter of
fiscal 2012 compared to the first quarter of fiscal 2011. Intangible assets are comprised of
acquired technology, licenses and patents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
(in millions) |
|
|
Included in Amortization |
|
Included in Cost of Sales |
|
|
May 28, 2011 |
|
May 29, 2010 |
|
Change |
|
May 28, 2011 |
|
May 29, 2010 |
|
Change |
|
|
|
Property, plant and equipment |
|
$ |
82 |
|
|
$ |
60 |
|
|
$ |
22 |
|
|
$ |
68 |
|
|
$ |
47 |
|
|
$ |
21 |
|
Intangible assets |
|
|
50 |
|
|
|
34 |
|
|
|
16 |
|
|
|
155 |
|
|
|
45 |
|
|
|
110 |
|
|
|
|
Total |
|
$ |
132 |
|
|
$ |
94 |
|
|
$ |
38 |
|
|
$ |
223 |
|
|
$ |
92 |
|
|
$ |
131 |
|
|
|
|
Amortization
Amortization expense relating to certain property, plant and equipment and certain intangible
assets increased by $38 million to $132 million for the first quarter of fiscal 2012 compared to
$94 million for the comparable period in fiscal 2011, which primarily reflects the impact of
certain property, plant and equipment and intangible asset additions made over the last four
quarters.
Cost of sales
Amortization expense relating to certain property, plant and equipment and certain intangible
assets employed in the Companys manufacturing operations and BlackBerry service operations
increased by $131 million to $223 million for the first quarter of fiscal 2012 compared to $92
million for the comparable period in fiscal 2011. This increase primarily reflects the impact of
renewed or amended licensing agreements over the last four quarters as well as the impact of
certain property, plant and equipment asset additions made over the last four quarters.
13
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
Investment Income
Investment income decreased to $7 million in the first quarter of fiscal 2012, from $10
million in the first quarter of fiscal 2011. The decrease primarily reflects a decrease in the
Companys average cash, cash equivalents and investment balances, as well as a decrease in the
average yield due to lower interest rates when compared to the same period in fiscal 2011. See
Financial Condition Liquidity and Capital Resources.
Income Taxes
For the first quarter of fiscal 2012, the Companys income tax expense was $209 million,
resulting in an effective tax rate of 23.1%, which was slightly lower
than anticipated, compared to income tax expense of $299 million and an
effective tax rate of 28.0% for the same period last year. The
Company expects the full year fiscal 2012 tax rate to be
approximately 24%. The Companys effective tax rate
reflects the geographic mix of earnings in jurisdictions with different tax rates. The lower
effective tax rate in the first quarter of fiscal 2012 is primarily a result of enacted tax
changes.
The Company has not provided for Canadian income taxes or foreign withholding taxes that would
apply on the distribution of the earnings of its non-Canadian subsidiaries, as these earnings are
intended to be reinvested indefinitely by these subsidiaries.
Net Income
The Companys net income for the first quarter of fiscal 2012 was $695 million, a decrease of
$74 million, or 9.6%, compared to net income of $769 million in the first quarter of fiscal 2011.
The decrease of $74 million in net income in the first quarter of fiscal 2012 primarily reflects an
increase in the Companys operating expenses in the amount of $394 million. This increase was
partially offset by an increase of $233 million in the Companys gross margin, resulting primarily
from the increased number of BlackBerry handheld device shipments, the introduction of the
BlackBerry PlayBook tablet, as well as an increase in service revenue as a result of additional
subscriber accounts. In addition, a decrease of $90 million in the provision for income taxes also
contributed to offsetting the increase in the Companys operating expenses for the first quarter of
fiscal 2012.
As noted above, the Company expects the weakness it encountered in the first quarter of fiscal 2012 to continue into
the second quarter of fiscal 2012, and delays in new product introductions to lead to a lower than expected growth.
The Company expects the mix of BlackBerry handheld devices in the second quarter to be heavily weighted towards existing
products, particularly at the low end of the range, which have a lower average selling price and contribution margin
than that anticipated for the new products that are not expected to ship until late in the quarter.
With the new products scheduled for launch in the next few
months and the Companys cost optimization program, the
Company believes it will see improvements to its net income in the latter part of fiscal 2012.
Basic EPS was $1.33 and diluted EPS was $1.33 in the first quarter of fiscal 2012, compared to
$1.39 basic EPS and $1.38 diluted EPS in the first quarter of fiscal 2011, a 3.6% decrease in
diluted EPS when compared to the first quarter of fiscal 2011.
The weighted average number of shares outstanding was 524 million common shares for basic EPS and
525 million common shares for diluted EPS for the quarter ended May 28, 2011 compared to 555
million common shares for basic EPS and 558 million common shares for diluted EPS for the quarter
ended May 29, 2010.
14
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
Common Shares Outstanding
On June 15, 2011, there were 524 million voting common shares, options to purchase 4 million
voting common shares, 3 million restricted share units and 53,207 deferred share units outstanding.
The Company has not paid any cash dividends during the last three fiscal years.
Share Repurchase Program
On June 16, 2011, RIMs Board of Directors approved a share repurchase program to purchase for cancellation through the facilities of NASDAQ or by way of private agreement up to 5% of RIMs outstanding common shares (representing approximately 26 million common shares as of
the date hereof). The share repurchase program may commence after July 10, 2011 and will remain in place for up to 12 months or until the purchases are
completed or the program is terminated by RIM.
The price that RIM will pay for any shares purchased over NASDAQ will be the prevailing market price at the time of purchase. The share repurchase
program will be effected in accordance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934, as amended, which contains restrictions on
the number of shares that may be purchased on a single day, subject to certain exceptions for block purchases, based on the average daily trading volumes
of RIMs shares on NASDAQ. Any purchases made by way of private agreement may be at a discount to the prevailing market price at the time of purchase,
and would be subject to regulatory approval.
RIMs Board of Directors believes that a share repurchase program at this time is in the best interests of RIM and its shareholders, and will not
impact RIMs ability to execute its growth plans. Any shares purchased under the program will increase the proportionate interest of, and may be
advantageous to, all remaining shareholders of RIM.
The actual number of shares purchased, the timing of purchases, and the price at which the shares would be bought under the share repurchase program
will depend on future market conditions and upon potential alternative uses for cash resources. There is no assurance that any shares will be purchased
under the share repurchase program and RIM may elect to suspend or discontinue the program at any time. See Cautionary Note Regarding Forward-Looking
Statements.
Selected Quarterly Financial Data
The following table sets forth RIMs unaudited quarterly consolidated results of operations
data for each of the eight most recent quarters, including the quarter ended May 28, 2011. The
information in the table below has been derived from RIMs unaudited interim consolidated financial
statements that, in managements opinion, have been prepared on a basis consistent with the audited
consolidated financial statements of the Company and include all adjustments necessary for a fair
presentation of information when read in conjunction with the audited consolidated financial
statements of the Company. RIMs quarterly operating results have varied substantially in the past
and may vary substantially in the future. Accordingly, the information below is not necessarily
indicative of results for any future quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2012 |
|
|
Fiscal Year 2011 |
|
|
|
|
|
Fiscal Year 2010 |
|
|
|
First |
|
Fourth |
|
Third |
|
Second |
|
First |
|
Fourth |
|
Third |
|
Second |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
|
(in millions, except per share data) |
|
|
|
Revenue |
|
$ |
4,908 |
|
|
$ |
5,556 |
|
|
$ |
5,495 |
|
|
$ |
4,621 |
|
|
$ |
4,235 |
|
|
$ |
4,080 |
|
|
$ |
3,924 |
|
|
$ |
3,526 |
|
|
|
|
Gross margin |
|
|
2,156 |
|
|
|
2,453 |
|
|
|
2,394 |
|
|
|
2,055 |
|
|
|
1,923 |
|
|
|
1,863 |
|
|
|
1,675 |
|
|
|
1,554 |
|
Operating expenses (1) |
|
|
1,259 |
|
|
|
1,213 |
|
|
|
1,138 |
|
|
|
973 |
|
|
|
865 |
|
|
|
851 |
|
|
|
791 |
|
|
|
903 |
|
Investment income (loss), net |
|
|
7 |
|
|
|
3 |
|
|
|
(11 |
) |
|
|
6 |
|
|
|
10 |
|
|
|
5 |
|
|
|
6 |
|
|
|
8 |
|
|
|
|
Income before income taxes |
|
|
904 |
|
|
|
1,243 |
|
|
|
1,245 |
|
|
|
1,088 |
|
|
|
1,068 |
|
|
|
1,017 |
|
|
|
890 |
|
|
|
659 |
|
Provision for income taxes |
|
|
209 |
|
|
|
309 |
|
|
|
334 |
|
|
|
291 |
|
|
|
299 |
|
|
|
307 |
|
|
|
262 |
|
|
|
184 |
|
|
|
|
Net income |
|
$ |
695 |
|
|
$ |
934 |
|
|
$ |
911 |
|
|
$ |
797 |
|
|
$ |
769 |
|
|
$ |
710 |
|
|
$ |
628 |
|
|
$ |
475 |
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.33 |
|
|
$ |
1.79 |
|
|
$ |
1.74 |
|
|
$ |
1.46 |
|
|
$ |
1.39 |
|
|
$ |
1.27 |
|
|
$ |
1.11 |
|
|
$ |
0.84 |
|
Diluted |
|
$ |
1.33 |
|
|
$ |
1.78 |
|
|
$ |
1.74 |
|
|
$ |
1.46 |
|
|
$ |
1.38 |
|
|
$ |
1.27 |
|
|
$ |
1.10 |
|
|
$ |
0.83 |
|
|
Research and development |
|
$ |
423 |
|
|
$ |
383 |
|
|
$ |
357 |
|
|
$ |
323 |
|
|
$ |
288 |
|
|
$ |
267 |
|
|
$ |
242 |
|
|
$ |
236 |
|
Selling, marketing and administration |
|
|
704 |
|
|
|
705 |
|
|
|
666 |
|
|
|
546 |
|
|
|
483 |
|
|
|
498 |
|
|
|
466 |
|
|
|
430 |
|
Amortization |
|
|
132 |
|
|
|
125 |
|
|
|
115 |
|
|
|
104 |
|
|
|
94 |
|
|
|
86 |
|
|
|
83 |
|
|
|
73 |
|
Litigation (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
|
Operating expenses |
|
$ |
1,259 |
|
|
$ |
1,213 |
|
|
$ |
1,138 |
|
|
$ |
973 |
|
|
$ |
865 |
|
|
$ |
851 |
|
|
$ |
791 |
|
|
$ |
903 |
|
|
|
|
|
|
|
|
(1) |
|
In the second quarter of fiscal 2010, the Company settled all Visto Corporation (Visto)
outstanding |
15
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
worldwide patent litigation (the Visto Litigation). The key terms of the settlement involved the
Company receiving a perpetual and fully-paid license on all Visto patents, a transfer of certain
Visto intellectual property, a one-time payment by the Company of $268 million and the parties
executing full and final releases in respect of the Visto Litigation. Of the total payment by the
Company, $164 million was expensed as a litigation charge in the second quarter of fiscal 2010.
The remainder of the payment was recorded as intangible assets. |
Financial Condition
Liquidity and Capital Resources
Cash, cash equivalents, and investments increased by $169 million to $2.9 billion as at May 28,
2011 from $2.7 billion as at February 26, 2011.
A comparative summary of cash, cash equivalents, and investments is set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
(in millions) |
|
|
May 28, 2011 |
|
February 26, 2011 |
|
Change |
|
|
|
Cash and cash equivalents |
|
$ |
1,986 |
|
|
$ |
1,791 |
|
|
|
$195 |
|
Short-term investments |
|
|
403 |
|
|
|
330 |
|
|
|
73 |
|
Long-term investments |
|
|
478 |
|
|
|
577 |
|
|
|
(99) |
|
|
|
|
Cash, cash equivalents, and investments |
|
$ |
2,867 |
|
|
$ |
2,698 |
|
|
|
$169 |
|
|
|
|
The increase in cash, cash equivalents, and investments was primarily due to net cash flows
provided from operating activities, which was partially offset by net cash flows used in investing
activities and financing activities, as set out below:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
(in millions) |
|
|
May 28, 2011 |
|
May 29, 2010 |
|
|
|
Net cash flows provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
1,020 |
|
|
$ |
1,123 |
|
Investing activities |
|
|
(782 |
) |
|
|
(386 |
) |
Financing activities |
|
|
(20 |
) |
|
|
(409 |
) |
Effect of foreign exchange loss on cash and cash equivalents |
|
|
(23 |
) |
|
|
(29 |
) |
|
|
|
Net increase in cash and cash equivalents |
|
$ |
195 |
|
|
$ |
299 |
|
|
|
|
Cash flows for the three months ended May 28, 2011
Operating Activities
Net cash flows provided by operating activities were $1.0 billion for the first quarter of fiscal
2012, which was relatively consistent with net cash flows provided by operating activities of $1.1
billion in the first quarter of fiscal 2011. The slight decrease in the first quarter of fiscal
2012 was mainly attributable to net changes in working capital when compared to the same period in the prior
fiscal year.
16
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
The table below summarizes the current assets, current liabilities, and working capital of the
Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
(in millions) |
|
|
May 28, 2011 |
|
May 29, 2010 |
|
Change |
|
|
|
Current assets |
|
$ |
8,100 |
|
|
$ |
6,228 |
|
|
$ |
1,872 |
|
Current liabilities |
|
|
3,967 |
|
|
|
2,521 |
|
|
|
1,446 |
|
|
|
|
Working capital |
|
$ |
4,133 |
|
|
$ |
3,707 |
|
|
$ |
426 |
|
|
|
|
The increase in current assets of $1.9 billion at the end of the first quarter of fiscal 2012
from the end of the first quarter of fiscal 2011 was primarily due to an increase in accounts
receivable of $1.1 billion as well as an increase in inventories of $387 million and an increase in
other receivables of $327 million. At May 28, 2011, accounts receivable was $3.8 billion, an
increase of $1.1 billion from May 29, 2010. The increase was primarily due to increased revenues
and the increasing international mix of business where payment terms tend to be longer as well as
the timing of shipments in the quarter. Days sales outstanding increased to 70 days in the first
quarter of fiscal 2012 from 65 days at the end of fiscal 2011 due primarily to a higher mix of
revenue in international markets. The increase in inventories of $387 million is mainly
attributable to an increase in raw materials, work in progress and finished goods related to the
BlackBerry PlayBook tablet as well as new product launches for BlackBerry handheld devices expected
in the second quarter of fiscal 2012. The increase in other receivables of $327 million when
compared to the same period in the prior fiscal year was primarily due to advances that the Company
made to third party manufacturers during the
quarter, as well as increased receivables due to new distributor relationships entered into subsequent to the first quarter of fiscal 2011.
The increase in current liabilities of $1.4 billion at the end of the first quarter of fiscal 2012
from the end of the first quarter of fiscal 2011 was primarily due to increases in accrued
liabilities and accounts payable. As at May 28, 2011, accrued liabilities was $2.7 billion, an
increase of $952 million from the end of the first quarter of fiscal 2011 primarily due to
increases in operating accruals, accrued rebates and accrued royalties as well as an increase in
accrued warranty reserve reflecting the increase in the number of devices currently under warranty. The increase in accounts payable of $564 million from the end of the
first quarter of fiscal 2011 was primarily attributable to the timing of purchases during the first
quarter of fiscal 2012 compared to the first quarter of fiscal 2011.
Investing Activities
During the three months ended May 28, 2011, cash flows used in investing activities were $782
million and included intangible asset additions of $560 million, acquisitions of property, plant
and equipment of $222 million and business acquisitions of $27 million, offset by cash flows
provided by transactions involving the proceeds on sale or maturity of short-term and long-term
investments, net of the costs of acquisitions, in the amount of $27 million. For the same period
of the prior fiscal year, cash flows used in investing activities were $386 million and included
property, plant, and equipment additions of $226 million, acquisitions of short-term and long-term
investments, net of proceeds on sale or maturity, of $104 million, intangible asset additions of
$42 million, and business acquisitions of $14 million.
During the three months ended May 28, 2011, the additions to intangible assets primarily consisted
of payments relating to amended or renewed licensing agreements, a patent license agreement with IV
International, as well as agreements with third parties for the use of intellectual property,
software, messaging services and other BlackBerry related features and intangible assets associated
with the acquisition of a
17
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
company whose acquired technologies will be incorporated into the
Companys products to enhance calendar scheduling capabilities. Property, plant and equipment
additions for the three months ended May 28, 2011 were comparable to the additions during the three
months ended May 29, 2010 as the level of investment in manufacturing equipment, building expansion
and renovations to existing facilities remained relatively consistent.
As noted above, on June 16, 2011, the Company announced a cost optimization
program. In addition to its focus on operating expenses, the Company intends to review proposed capital expenditures to enable the Company
to focus on areas that offer the highest growth opportunities and align with RIMs strategic objectives.
Financing Activities
Cash flows used in financing activities were $20 million for the first quarter of fiscal 2012 and
were primarily attributable to the purchase of treasury stock. Cash flows used in financing
activities were $409 million for the first quarter of fiscal 2011 and were primarily attributable
to the common share repurchase program authorized by the Companys Board of Directors on November
4, 2009 (2010 Repurchase Program), where the Company repurchased and cancelled 5.9 million common
shares at a cost of $410 million, which together with previous common share repurchases under this
program, resulted in the effective completion of the 2010 Repurchase Program.
As noted above, on June 16, 2011, RIMs Board of Directors approved a new share
repurchase program. See Common Shares Outstanding Share Repurchase Program.
Aggregate Contractual Obligations
The following table sets out aggregate information about the Companys contractual obligations and
the periods in which payments are due as at May 28, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
Less than One |
|
One to |
|
Four to Five |
|
Greater than |
|
|
Total |
|
Year |
|
Three Years |
|
Years |
|
Five Years |
|
|
|
Operating lease obligations |
|
$ |
249 |
|
|
$ |
44 |
|
|
$ |
77 |
|
|
$ |
55 |
|
|
$ |
73 |
|
Purchase obligations and commitments |
|
|
9,297 |
|
|
|
8,297 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,546 |
|
|
$ |
8,341 |
|
|
$ |
1,077 |
|
|
$ |
55 |
|
|
$ |
73 |
|
|
|
|
Purchase obligations and commitments amounted to approximately $9.5 billion as at May 28,
2011, with purchase orders with contract manufacturers representing approximately $9.3 billion of
the total. Total purchase obligations and commitments decreased when compared to the fourth quarter of fiscal 2011 mainly due to the Company's purchase of components necessary to support upcoming product launches, as well as the North American roll out of the BlackBerry PlayBook tablet in the first quarter of fiscal 2012 and the upcoming launches in certain international markets in the second quarter of fiscal 2012. In addition, also contributing to the decrease in purchase obligations and commitments when compared to the fourth quarter of fiscal 2011 was the lower than anticipated volumes resulting from new products in fiscal 2012 as described above. The Company also has commitments on account of capital expenditures of approximately
$116 million included in this total, primarily for manufacturing and information technology,
including service operations. The remaining balance consists of purchase orders or contracts with
suppliers of raw materials, as well as other goods and services utilized in the operations of the
Company. The expected timing of payment of these purchase obligations and commitments is estimated
based upon current information. The timing of payments and actual amounts paid may be different
depending upon the time of receipt of goods and services, changes to agreed-upon amounts for some
obligations or payment terms.
On May 31, 2011, the Company purchased for cash consideration 100% of the common shares of ubitexx Gmbh for $27 million. On June 7, 2011, the Company purchased for cash consideration 100% of the common shares of Scoreloop AG for $71 million.
The Company has not paid any cash dividends in the last three fiscal years.
Cash, cash equivalents, and investments were $2.9 billion as at May 28, 2011. The Company believes
its financial resources, together with expected future income, are sufficient to meet funding
requirements for current financial commitments, for future operating and capital expenditures not
yet committed, and also provide the necessary financial capacity to meet current and future growth
expectations. The Company expects its cash position to decrease slightly in the second quarter of
fiscal 2012 driven mainly by changes in working capital requirements, subject to any acquisitions or investments the Company may consider during the quarter, or purchases of common
shares during the quarter pursuant to the share repurchase program.
18
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
The Company has $150 million in unsecured demand credit facilities (the Facilities) to support
and secure operating and financing requirements. As at May 28, 2011, the Company has utilized $9
million of the Facilities for outstanding letters of credit, and $141 million of the Facilities are
unused.
The Company does not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K under the Securities Exchange Act of 1934, as amended, and under applicable Canadian
securities laws.
Legal Proceedings
The Company is involved in litigation in the normal course of its business, both as a
defendant and as a plaintiff. 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 these claims that it provides to certain of its partners. In particular, the
industry in which the Company competes has many participants that own, or claim to own,
intellectual property, including participants that have been issued patents and may have filed
patent applications or may obtain additional patents and proprietary rights for technologies
similar to those used by the Company in its products. The Company has received, and may receive in
the future, assertions and claims from third parties that the Companys products infringe on their
patents or other intellectual property rights. Litigation has been and will likely continue to be
necessary to determine the scope, enforceability and validity of third-party proprietary rights or
to establish the Companys proprietary rights. Regardless of whether claims that the Company is
infringing patents or other intellectual property rights have any merit, those claims could be
time-consuming to evaluate and defend, result in costly litigation, divert managements attention
and resources, subject the Company to significant liabilities and could have the other effects that
are described in greater detail under Risk Factors Risks Related to Intellectual Property in
RIMs Annual Information Form, which is included in RIMs Annual Report on Form 40-F.
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 managements 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.
A
description of certain of the Companys legal proceedings is
included in RIMs Annual
Information Form under Legal Proceedings and Regulatory Actions. The following is a
summary of developments since March 29, 2011, the date of RIMs Annual Information Form,
and should be read in conjunction with the more detailed information
contained in RIMs Annual
Information Form.
On March 7, 2008, FlashPoint Technology Inc. (FlashPoint) filed a patent infringement lawsuit
against the Company and 14 other defendants in the District of Delaware. The patents-in-suit
include United States (U.S.) Patent Nos. 6,118,480, 6,177,956, 6,222,538, 6,223,190 (the 190
Patent), 6,249,316, 6,486,914 and 6,504,575. These patents are generally directed to digital
camera and imaging technologies. On May 31, 2008, FlashPoint dismissed its complaint as to 6 of
the 7 patents-in-suit, leaving only the 190 Patent in the litigation against RIM. On February 6,
2009, FlashPoint filed an amended complaint adding Patent Nos. 5,903,309, 6,278,447 (the 447
Patent) and 6,400,471 (the 471 Patent). Only the 447 Patent and the 471 Patent were
asserted against RIM. The complaint sought an injunction and monetary damages. On December 17,
2009, the Court stayed the entire litigation pending completion of all re-examinations of the
patents-in-suit.
19
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
On May 13, 2010, FlashPoint filed a complaint with the U.S. International Trade Commission (ITC)
against the Company, as well as three other defendants, alleging infringement of U.S. Patent Nos.
6,134,606; 6,163,816; and 6,262,769. These patents are generally directed to digital camera and
imaging technologies. The ITC set the trial for April 7-13, 2011. The initial determination was
expected to be provided on July 13, 2011 and the target date for completion of the investigation was
November 14, 2011. The Company and FlashPoint settled all outstanding litigation on March 30, 2011 for an amount
immaterial to the Consolidated Financial Statements.
On November 20, 2008, the Company filed a lawsuit for declaratory judgment of non-infringement,
invalidity and unenforceability against four Eastman Kodak (Kodak) patents in the U.S. District
Court for the Northern District of Texas (Dallas Division). The patents-in-suit include U.S.
Patent Nos. 5,493,335, 6,292,218 (the 218 Patent) and 6,600,510 (the 510 Patent) which are
generally directed to digital camera technologies and U.S. Patent No. 5,226,161 which is directed
to data sharing in applications. Kodak counterclaimed for infringement of these same patents
seeking an injunction and monetary damages. The claim construction hearing was held on March 23,
2010. On July 23, 2010, Kodak dismissed the 510 Patent from the case without prejudice. The
court set an initial trial date in December 2010. The court also ordered mediation to seek to
settle the case. Mediation was unsuccessful and on November 29, 2010 the court reset the trial date
for August 1, 2011. Proceedings are ongoing.
On January 14, 2010, Kodak filed a complaint with the ITC against the Company and Apple Inc.
alleging infringement of the 218 Patent and requesting the ITC to issue orders prohibiting certain
RIM products from being imported into the U.S. and sold in the U.S. On February 23, 2010, the ITC
published a Notice of Investigation in the Federal Register. The
administrative law judge (ALJ) set a trial date of September
1, 2010 and a target date for completion of the investigation by the ITC of May 23, 2011. A claim
construction hearing was held on May 24-25, 2010. The Chief Judge issued his claim construction
order as an Initial Determination on June 22, 2010. In accordance with the ALJs ruling, the trial
was held and lasted for six days. On January 24, 2011, the ALJ ruled that RIMs smartphones do not
infringe the 218 Patent and that the only asserted claim is invalid as obvious. Kodak and the
ITC Staff separately petitioned for Commission review on February 7, 2011. The Company also filed a
contingent petition for review on February 7, 2011. The petitions for review filed by Kodak, the
ITC Staff and the Company were granted on March 25, 2011. The Commission delayed the target date
for completion of the investigation by the ITC. The new target date is June 23, 2011. Proceedings
are ongoing.
On May 5, 2009, Fractus, S.A. (Fractus) filed a lawsuit against the Company and eight other
defendants in the U.S. District Court for the Eastern District of Texas alleging infringement of
nine patents (U.S. Patent Nos. 7,015,868; 7,123,208; 7,148,850; 7,202,822; 7,312,762; 7,394,432;
7,397,431; 7,411,556; and 7,528,782). These patents generally relate to antennae technology. The
complaint sought an injunction and monetary damages. The Court issued a claim construction order on
November 9, 2010. The Company and Fractus settled on April 6, 2011 for an amount immaterial to
the Consolidated Financial Statements.
On August 21, 2009, Xpoint Technologies (Xpoint) filed a lawsuit against the Company and
twenty-eight other defendants, in the U.S. District Court for the District of Delaware alleging
infringement of U.S. Patent No. 5,913,028. The patent is generally directed to data traffic
delivery. The complaint sought an injunction and monetary damages. The Company and Xpoint
settled on April 4, 2011 for an amount immaterial to the Consolidated Financial Statements.
20
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
On September 23, 2009, SimpleAir, Inc. filed a lawsuit against the Company and ten other defendants
in the U.S. District Court for the Eastern District of Texas alleging infringement of U.S. Patent
Nos. 6,021,433; 7,035,914; 6,735,614; and 6,167,426. The patents are generally directed to the
generation, processing and/or delivery of content, notifications and updates for computing devices.
The complaint seeks an injunction and monetary damages. The claim construction hearing is
scheduled for June 15, 2011, and the trial is scheduled to begin on December 5, 2011. On June 3,
2011, the Court reset the Markman Hearing for June 17, 2011. Proceedings are ongoing.
On September 2, 2010, Innovative Sonic Limited filed suit against the Company in the U.S. District
Court for Eastern District of Texas (Tyler Division) asserting infringement of U.S. Patent Nos.
6,925,183; RE 40,077; and 7,436,795. The patents are generally directed to window based polling
and timing as well as security keys in a wireless communication system. The complaint seeks an
injunction and monetary damages. The claim construction hearing is scheduled for November 10,
2011, and trial is scheduled to begin June 4, 2012.
Subsequently, the case was transferred from the Eastern District of Texas to the Northern District
of Texas (Dallas Division). The Dallas Court issued a scheduling order stating that it does not
intend to hold a Markham hearing and set a trial date in March 2013. Proceedings are ongoing.
On October 28, 2010, Alfred Levine amended his complaint to add the Company to a suit filed in the
U.S. District Court for the Eastern District of Texas (Marshall Division). Fourteen other
defendants are named in the suit. The complaint alleged infringement of U.S. Patents Nos.
6,243,030 and 6,140,943. The patents are generally directed to wireless navigation systems. The
complaint sought an injunction and monetary damages. The Company and Alfred Levine settled on June
13, 2011 for an amount immaterial to the Consolidated Financial Statements.
On March 11, 2011, OGMA, LLC (OGMA) filed a lawsuit against the Company as well as 13 other
defendants in the U.S. District Court for the Eastern District of Texas (Marshall Division). The
complaint asserted infringement of U.S. Patent No 6,150,947 generally directed to programmable
motion-sensitive sound effect devices. The complaint sought monetary damages and other relief the
Court decides is just and appropriate. The Company and OGMA settled on May 6, 2011 for an amount
immaterial to the Consolidated Financial Statements.
On March 30, 2011, TierraVision, Inc. filed a lawsuit against the Company as well as two other
defendants in the U.S. District Court for the Southern District of California asserting
infringement of U.S. Patent No. Re 41,983, generally relating to compression method technology.
The complaint seeks an injunction and money damages. Proceedings are ongoing.
On March 30, 2011, H-W Technology L.C. filed a lawsuit against the Company as well as nineteen
other defendants in the Northern District of Texas (Dallas Division) asserting infringement of U.S.
Patent No. 7,525,955 generally directed relating to technologies involving converging data and
voice services. The complaint seeks an injunction and money damages. Proceedings are ongoing.
On April 19, 2011, Hybrid Audio LLC filed a lawsuit against the Company as well as seven other
defendants in the U.S. District Court for the Eastern District of Texas (Tyler Division) asserting
infringement of U.S. Patent No. Re: 40,281 which is generally directed to MPEG-1 Layer III
technology. The complaint seeks an injunction and money damages. Proceedings are ongoing.
21
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
On May 13, 2011, MyPort IP, Inc. filed a lawsuit against the Company as well as six other
defendants in the U.S. District Court for the Eastern District of Texas (Tyler Division) asserting
infringement of U.S. Patent No. 7,778,440 which is generally directed to forensic communication
method. The complaint seeks money damages. Proceedings are ongoing.
On June 15, 2011, Dolby International AB filed a lawsuit against the Company in the U.S. District
Court for the Northern District of California asserting infringement of U.S. Patent Nos. 6,978,236;
7,003,451; 7,382,886; 7,469,206; and 7,590,543 which are generally relate to High Efficiency
Advanced Audio Coding (HE AAC) technologies. The complaint seeks an
injuction and money damages. Proceedings are
ongoing.
In May 2011, a purported class action lawsuit was filed
against the Company and certain of its officers in the U.S. District Court for the Southern District of
New York. In June 2011, the lawsuit was voluntarily dismissed by the plaintiff and the same law firms named in the
initial complaint subsequently filed two other lawsuits in the same court using the same form of complaint but naming
different plaintiffs. The lawsuits allege that during the period from December 16, 2010 through April 28, 2011, the
Company and certain of its officers made materially false and misleading statements regarding the Companys financial
condition and business prospects, and seek unspecified damages on behalf of an alleged class of purchasers of the Companys
common shares during this period. RIM believes that the allegations are without merit and intends to vigorously defend itself.
Market Risk of Financial Instruments
The Company is engaged in operating and financing activities that generate risk in three
primary areas:
Foreign Exchange
The Company is exposed to foreign exchange risk as a result of transactions in currencies other
than its functional currency, the U.S. dollar. The majority of the Companys revenues in the first
quarter of fiscal 2012 are transacted in U.S. dollars. Portions of the revenues are denominated in
Canadian dollars, Euros and British Pounds. Purchases of raw materials are primarily transacted
in U.S. dollars. Other expenses, consisting of the
majority of salaries, certain operating costs and manufacturing overhead are incurred primarily in
Canadian dollars. At May 28, 2011, approximately 50% of cash and cash equivalents, 25% of accounts
receivables and 2% of accounts payable are denominated in foreign currencies (February 26, 2011
59%, 25% and 8%, respectively). These foreign currencies primarily include the Canadian dollar,
Euro and British Pound. As part of its risk management strategy, the Company maintains net
monetary asset and/or liability balances in foreign currencies and engages in foreign currency
hedging activities using derivative financial instruments, including currency forward contracts and
currency options. The Company does not use derivative instruments for speculative purposes. The
principal currencies hedged include the Canadian dollar, Euro and British Pound.
The Company enters into forward and option contracts to hedge exposures relating to foreign
currency anticipated transactions. These contracts have been designated as cash flow hedges with
the effective portion of the change in fair value initially recorded in accumulated other
comprehensive income and subsequently reclassified to income when the hedged exposure affects
income. Any ineffective portion of the derivatives gain or loss is recognized in current period
income. For the three months ended May 28, 2011, there was $4 million in realized losses on
forward contracts which were ineffective upon maturity as the anticipated hedged transactions did
not occur (May 29, 2010 nil). The outstanding cash flow hedges were fully effective at May 28,
2011. As at May 28, 2011, the net unrealized losses on these forward contracts was approximately
$82 million (February 26, 2011 net unrealized losses of $20 million) and the net unrealized
losses on option contracts was $3 million (February 26,
2011 nil). Unrealized gains associated with these contracts were recorded in other current assets
and accumulated other comprehensive income. Unrealized losses were recorded in accrued liabilities
and accumulated other comprehensive income.
The Company enters into forward and option contracts to hedge certain monetary assets and
liabilities that are exposed to foreign currency risk. The principal currencies hedged include the
Canadian dollar, Euro and
22
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
British Pound. These contracts are not subject to hedge accounting; as
a result, gains or losses are recognized in income each period, generally offsetting the change in
the U.S. dollar value of the hedged asset or liability. As at May 28, 2011, net unrealized gains
of $7 million were recorded in respect of this amount (February 26, 2011 net unrealized losses
of $46 million). Unrealized gains associated with these contracts were recorded in other current
assets and selling, marketing and administration. Unrealized losses were recorded in accrued
liabilities and selling, marketing and administration.
Interest Rate
Cash, cash equivalents and investments are invested in certain instruments of varying maturities.
Consequently, the Company is exposed to interest rate risk as a result of holding investments of
varying maturities. The fair value of investments, as well as the investment income derived from
the investment portfolio, will fluctuate with changes in prevailing interest rates. The Company
does not currently use interest rate derivative financial instruments in its investment portfolio.
Credit and Customer Concentration
The Company has historically been dependent on an increasing number of significant
telecommunication carriers and distribution partners and on larger more complex contracts with
respect to sales of the majority of its products and services. The Company has experienced
significant sales growth, resulting in the growth in its carrier customer base in terms of numbers,
sales and accounts receivable volumes, and in some instances, new or significantly increased credit
limits. The Company, in the normal course of business, monitors the financial condition of its
customers and reviews the credit history of each new customer. The Company establishes an allowance
for doubtful accounts that corresponds to the specific credit risk of its customers, historical
trends, and economic circumstances. The allowance as at May 28, 2011 was $2 million (February 26,
2011 $2 million). The Company also places insurance coverage for a portion of its accounts
receivable balances. While the Company sells to a variety of customers, one customer comprised 13%
of accounts receivable as at May 28, 2011 (February
26, 2011 one customer comprised 15%). Additionally, one customer comprised 10% of the Companys
first quarter of fiscal 2012 revenue (first quarter of fiscal 2011 revenue two customers
comprised 16% and 12%).
The Company is exposed to credit risk on derivative financial instruments arising from the
potential for counterparties to default on their contractual obligations. The Company mitigates
this risk by limiting counterparties to highly rated financial institutions and by continuously
monitoring their creditworthiness. The Companys exposure to credit loss and market risk will vary
over time as a function of currency exchange rates. The Company measures its counterparty credit
exposure as a percentage of the total fair value of the applicable derivative instruments. Where
the net fair value of derivative instruments with any counterparty is negative, the Company deems
the credit exposure to that counterparty to be nil. As at May 28, 2011, the maximum credit
exposure to a single counterparty, measured as a percentage of the total fair value of derivative
instruments with net unrealized gains was 93% (February 26, 2011
59%).
The Company is exposed to market price and credit risk on its investment portfolio. The Company
reduces this risk by investing in liquid, investment grade securities and by limiting exposure to
any one entity or group of related entities. As at May 28, 2011, no single issuer represented more
than 11% of the total cash, cash equivalents and investments (February 26, 2011 no single issuer
represented more than 19% of the total cash, cash equivalents and investments).
23
Research In Motion Limited
Managements Discussion and Analysis of Financial Condition and Results of Operations
Market values are determined for each individual security in the investment portfolio. 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 Companys ability
and intent to hold the debt securities to maturity. During fiscal 2011, the Company recorded an
other-than-temporary impairment charge on its auction rate securities in the amount of $6 million.
In addition, during fiscal 2011 the Company also recorded an other-than-temporary impairment charge
on its Lehman Brothers International (Europe) bankruptcy trust claim in the amount of $11 million.
The Company did not record any other-than-temporary impairment charges for the three month period
ended May 28, 2011.
Impact of Accounting Pronouncements Not Yet Implemented
In May 2011, the FASB, as a result of work performed with the International Accounting
Standards Board (IASB), issued authoritative guidance to achieve common fair value measurement
and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (IFRS).
The guidance is expected to improve the comparability of fair value measurements presented and
disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The guidance
presents certain amendments to clarify existing fair value measurements and disclosure requirements
such as clarifying the application of the highest and best use and valuation premise concepts,
measuring the fair value of an instrument classified in a reporting entitys shareholders equity
and clarifying that a reporting entity should disclose quantitative information about the
unobservable inputs used in a fair value measurements that is categorized within Level 3 of the
fair value hierarchy. Furthermore, the guidance amends previous literature by requiring additional
disclosures about fair value measurements, specifically requesting more information about the
valuation processes used for fair value measurements categorized within Level 3 of the fair value
hierarchy as well as presenting sensitivity of the fair value measurements to changes in
unobservable inputs in Level 3 valuations. The guidance also amends previous literature around
measuring the fair value of financial instruments that are managed within a portfolio as well as
the application of premiums and discounts in a fair value measurement. The new authoritative
guidance is effective for interim and annual periods beginning after December 15, 2011. The Company
will adopt the guidance in the first quarter of fiscal 2013 and is currently evaluating the impact
that the adoption of this guidance will have on its results of operations, financial condition and
the Companys disclosures.
Changes in Internal Control Over Financial Reporting
During the three months ended May 28, 2011, no changes were made to the Companys internal
control over financial reporting that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
24
DOCUMENT 3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, James Balsillie, Co-Chief Executive Officer of Research In Motion Limited, certify the
following:
1. |
|
Review: I have reviewed the interim financial report and interim MD&A (together, the
interim filings) of Research In Motion Limited (the issuer) for the interim period ended
May 28, 2011. |
|
2. |
|
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the
interim filings do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the period covered by the
interim filings. |
|
3. |
|
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim
financial report together with the other financial information included in the interim filings
fairly present in all material respects the financial condition, financial performance and
cash flows of the issuer, as of the date of and for the periods presented in the interim
filings. |
|
4. |
|
Responsibility: The issuers other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (DC&P) and internal control
over financial reporting (ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. |
|
5. |
|
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the
issuers other certifying officer(s) and I have, as at the end of the period covered by the
interim filings |
|
(a) |
|
designed DC&P, or caused it to be designed under our supervision, to provide
reasonable assurance that |
|
(i) |
|
material information relating to the issuer is made known to us
by others, particularly during the period in which the interim filings are
being prepared; and |
|
|
(ii) |
|
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and reported within
the time periods specified in securities legislation; and |
|
(b) |
|
designed ICFR, or caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the
issuers GAAP. |
- 2 -
5.1 |
|
Control framework: The control framework the issuers other certifying officer(s) and I used
to design the issuers ICFR is the Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
|
5.2 |
|
N/A |
|
5.3 |
|
N/A |
|
6. |
|
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the
issuers ICFR that occurred during the period beginning on February 27, 2011 and ended on May
28, 2011 that has materially affected, or is reasonably likely to materially affect, the
issuers ICFR. |
DATE:
June 20, 2011
|
|
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/s/
James Balsillie
James Balsillie
|
|
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Co-Chief Executive Officer |
|
|
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Mike Lazaridis, Co-Chief Executive Officer of Research In Motion Limited, certify the
following:
1. |
|
Review: I have reviewed the interim financial report and interim MD&A (together, the
interim filings) of Research In Motion Limited (the issuer) for the interim period ended
May 28, 2011. |
|
2. |
|
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the
interim filings do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the period covered by the
interim filings. |
|
3. |
|
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim
financial report together with the other financial information included in the interim filings
fairly present in all material respects the financial condition, financial performance and
cash flows of the issuer, as of the date of and for the periods presented in the interim
filings. |
|
4. |
|
Responsibility: The issuers other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (DC&P) and internal control
over financial reporting (ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. |
|
5. |
|
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the
issuers other certifying officer(s) and I have, as at the end of the period covered by the
interim filings |
|
(a) |
|
designed DC&P, or caused it to be designed under our supervision, to provide
reasonable assurance that |
|
(i) |
|
material information relating to the issuer is made known to us
by others, particularly during the period in which the interim filings are
being prepared; and |
|
|
(ii) |
|
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and reported within
the time periods specified in securities legislation; and |
|
(b) |
|
designed ICFR, or caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the
issuers GAAP. |
- 2 -
5.1 |
|
Control framework: The control framework the issuers other certifying officer(s) and I used
to design the issuers ICFR is the Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
|
5.2 |
|
N/A |
|
5.3 |
|
N/A |
|
6. |
|
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the
issuers ICFR that occurred during the period beginning on February 27, 2011 and ended on May
28, 2011 that has materially affected, or is reasonably likely to materially affect, the
issuers ICFR. |
DATE: June 20, 2011
|
|
|
/s/ Mike Lazaridis |
|
|
|
|
|
Co-Chief Executive Officer |
|
|
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Brian Bidulka, Chief Financial Officer of Research In Motion Limited, certify the
following:
1. |
|
Review: I have reviewed the interim financial report and interim MD&A (together, the
interim filings) of Research In Motion Limited (the issuer) for the interim period ended
May 28, 2011. |
|
2. |
|
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the
interim filings do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the period covered by the
interim filings. |
|
3. |
|
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim
financial report together with the other financial information included in the interim filings
fairly present in all material respects the financial condition, financial performance and
cash flows of the issuer, as of the date of and for the periods presented in the interim
filings. |
|
4. |
|
Responsibility: The issuers other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (DC&P) and internal control
over financial reporting (ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. |
|
5. |
|
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the
issuers other certifying officer(s) and I have, as at the end of the period covered by the
interim filings |
|
(a) |
|
designed DC&P, or caused it to be designed under our supervision, to provide reasonable
assurance that |
|
(i) |
|
material information relating to the issuer is made known to us
by others, particularly during the period in which the interim filings are
being prepared; and |
|
|
(ii) |
|
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and reported within
the time periods specified in securities legislation; and |
|
(b) |
|
designed ICFR, or caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the
issuers GAAP. |
- 2 -
5.1 |
|
Control framework: The control framework the issuers other certifying officer(s) and I used
to design the issuers ICFR is the Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
|
5.2 |
|
N/A |
|
5.3 |
|
N/A |
|
6. |
|
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the
issuers ICFR that occurred during the period beginning on February 27, 2011 and ended on May
28, 2011 that has materially affected, or is reasonably likely to materially affect, the
issuers ICFR. |
DATE: June 20, 2011
|
|
|
/s/ Brian Bidulka |
|
|
|
|
|
Chief Financial Officer |
|
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
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Research In Motion Limited
(Registrant)
|
|
|
|
|
|
|
|
|
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Date: June 20, 2011
|
|
By:
|
|
/s/ Brian Bidulka
Name: Brian Bidulka
|
|
|
|
|
|
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Title: Chief Financial Officer |
|
|