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0.018 14000000 55000 3093000 64.56 2.26 3565000 3408000 3737000 7.60 8.87 17.83 758837 391292 170000 859000 676000 60.25 15.03 46.08 0 559000 0 64.14 33.02 65000 16466000 12731000 9023000 3056000 4610000 1517000 28.66 27.51 44.18 70.36 2.55 64000 4496000 70.06 2.53 0 0 1458950 1470703 8000000 3933000000 1653000000 30000000 0 2250000000 5875000000 0 2328000000 3546000000 1000000 7603000000 -94000000 5274000000 51000000 2372000000 8938000000 2359000000 -160000000 -10000000 6749000000 2000 2000 3565000 3408000 3737000 27000000 27000000 30000000 30000000 67000000 67000000 12300000 5900000 18200000 37199000 31300000 775000000 46000000 729000000 410000000 2077000000 1700000000 1200000000 141000000 1936000000 0 0 1458950 2752890 1459000 1471000 -177000 0 0 94000000 160000000 -94000000 -94000000 -76000000 -76000000 10000000 -10000000 10000000 161000000 164000000 0 0 8000000 -2000000 9000000 12000000 574156000 569759000 538330000 565059000 564492000 535986000 <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 1 - us-gaap:SignificantAccountingPoliciesTextBlock--> <!-- xbrl,ns --> <!-- xbrl,nx --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"><b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1. RESEARCH IN MOTION LIMITED AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Research In Motion Limited (&#8220;RIM&#8221; or the &#8220;Company&#8221;) 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. RIM&#8217;s 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<sup style="font-size: 85%; vertical-align: text-top">&#174;</sup> wireless solution, the RIM Wireless Handheld&#8482; product line, software development tools and other software and hardware. The Company&#8217;s 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. The Company was incorporated on March&#160;7, 1984 under the Ontario Business Corporations Act. The Company&#8217;s shares are traded on the Toronto Stock Exchange under the symbol &#8220;RIM&#8221; and on the NASDAQ Global Select Market under the symbol &#8220;RIMM&#8221;. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Basis of presentation and preparation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The consolidated financial statements include the accounts of all subsidiaries of the Company with intercompany transactions and balances eliminated on consolidation. All of the Company&#8217;s subsidiaries are wholly-owned. These consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (&#8220;U.S. GAAP&#8221;) on a basis consistent for all periods presented except as described in note 2. Certain of the comparative figures have been reclassified to conform to the current year presentation. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company&#8217;s fiscal year end date is the 52 or 53&#160;weeks ending on the last Saturday of February, or the first Saturday of March. The fiscal years ended February&#160;26, 2011, February 27, 2010, and February&#160;28, 2009 comprise 52&#160;weeks. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The significant accounting policies used in these U.S. GAAP consolidated financial statements are as follows: </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Use of estimates</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. Significant areas requiring the use of management estimates relate to the determination of reserves for various litigation claims, provisions for excess and obsolete inventories and liabilities for purchase commitments with contract manufacturers and suppliers, fair values of assets acquired and liabilities assumed in business combinations, royalties, amortization expense, implied fair value of goodwill, provision for income taxes, realization of deferred income tax assets and the related components of the valuation allowance, provisions for warranty and the fair values of financial instruments. Actual results could differ from these estimates. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Foreign currency translation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The U.S. dollar is the functional and reporting currency of the Company. Foreign currency denominated assets and liabilities of the Company and all of its subsidiaries are translated into U.S. dollars. Accordingly, monetary assets and liabilities are translated using the exchange rates in effect at the consolidated balance sheet date and revenues and expenses at the rates of exchange prevailing when the transactions occurred. Remeasurement adjustments are included in income. Non-monetary assets and liabilities are translated at historical exchange rates. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Cash and cash equivalents</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Cash and cash equivalents consist of balances with banks and liquid investments with maturities of three months or less at the date of acquisition. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Accounts receivable, net</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The accounts receivable balance which reflects invoiced and accrued revenue is presented net of an allowance for doubtful accounts. The allowance for doubtful accounts reflects estimates of probable losses in accounts receivables. The Company is dependent on a number of significant customers and on large complex contracts with respect to sales of the majority of its products, software and services. The Company expects the majority of its accounts receivable balances to continue to come from large customers as it sells the majority of its devices and software products and service relay access through network carriers and resellers rather than directly. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company evaluates the collectability of its accounts receivables based upon a combination of factors on a periodic basis such as specific credit risk of its customers, historical trends and economic circumstances. The Company, in the normal course of business, monitors the financial condition of its customers and reviews the credit history of each new customer. When the Company becomes aware of a specific customer&#8217;s inability to meet its financial obligations to the Company (such as in the case of bankruptcy filings or material deterioration in the customer&#8217;s operating results or financial position, and payment experiences), RIM records a specific bad debt provision to reduce the customer&#8217;s related accounts receivable to its estimated net realizable value. If circumstances related to specific customers change, the Company&#8217;s estimates of the recoverability of accounts receivables balances could be further adjusted. The allowance for doubtful accounts as at February&#160;26, 2011 is $2&#160;million (February 27, 2010 &#8212; $2&#160;million). </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">While the Company sells its products and services to a variety of customers, there were two customers that comprised 11% each of the Company&#8217;s revenue (February&#160;27, 2010 &#8212; three customers comprised 20%, 13% and 10%; February&#160;28, 2009 &#8212; three customers comprised 23%, 14% and 10%). </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Investments</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company&#8217;s cash equivalents and investments, other than cost method investments of $15 million (February&#160;27, 2010 &#8212; $3&#160;million) and equity method investments of $11&#160;million (February 27, 2010 &#8212; $4&#160;million), consist of money market and other debt securities, and are classified as available-for-sale for accounting purposes. The Company does not exercise significant influence with respect to any of these investments. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Investments with maturities one year or less, as well as any investments that management intends to hold for less than one year, are classified as short-term investments. Investments with maturities in excess of one year are classified as long-term investments. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company determines the appropriate classification of investments at the time of purchase and subsequently reassesses the classification of such investments at each balance sheet date. Investments classified as available-for-sale are carried at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss)&#160;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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company assesses individual investments in an unrealized loss position to determine whether the unrealized loss is other-than-temporary. The Company makes this assessment by considering available evidence, including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value has been less than cost, the financial condition, the near-term prospects of the individual investment and the Company&#8217;s intent and ability to hold the investments. In the event that a decline in the fair value of an investment occurs and the decline in value is considered to be other-than-temporary, an impairment charge is recorded in investment income equal to the difference between the cost basis and the fair value of the individual investment at the balance sheet date of the reporting period for which the assessment was made. The fair value of the investment then becomes the new cost basis of the investment. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Effective in the second quarter of fiscal 2010, if a debt security&#8217;s market value is below its amortized cost and the Company either intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to investment income for the entire amount of the impairment. For other-than-temporary impairments on debt securities that the Company does not intend to sell and it is not more likely than not that the entity will be required to sell the security before its anticipated recovery, the Company would separate the other-than-temporary impairment into the amount representing the credit loss and the amount related to all other factors. The Company would record the other-than-temporary impairment related to the credit loss as a charge to investment income and the remaining other-than-temporary impairment would be recorded as a component of accumulated other comprehensive income. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Derivative financial instruments</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company uses derivative financial instruments, including forward contracts and options, to hedge certain foreign currency exposures. The Company does not use derivative financial instruments for speculative purposes. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">For derivative instruments designated as cash flow hedges, the effective portion of the derivative&#8217;s gain or loss is initially reported as a component of accumulated other comprehensive income, net of tax, and subsequently reclassified into income in the same period or periods in which the hedged item affects income. The ineffective portion of the derivative&#8217;s gain or loss is recognized in current income. In order for the Company to receive hedge accounting treatment, the cash flow hedge must be highly effective in offsetting changes in the fair value of the hedged item and the relationship between the hedging instrument and the associated hedged item must be formally documented at the inception of the hedge relationship. 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. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company formally documents relationships between hedging instruments and associated hedged items. This documentation includes: identification of the specific foreign currency asset, liability or forecasted transaction being hedged; the nature of the risk being hedged; the hedge objective; and the method of assessing hedge effectiveness. 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 are recognized in income at that time. Any future changes in the fair value of the instrument are recognized in current income. The Company did not reclassify any significant gains (losses) from accumulated other comprehensive income into income as a result of the de-designation of any derivative instrument as a hedge during fiscal 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Inventories</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Raw materials are stated at the lower of cost and replacement cost. Work in process and finished goods inventories are stated at the lower of cost and net realizable value. Cost includes the cost of materials plus direct labour applied to the product and the applicable share of manufacturing overhead. Cost is determined on a first-in-first-out basis. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Property, plant and equipment, net</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Property, plant and equipment is stated at cost less accumulated amortization. No amortization is provided for construction in progress until the assets are ready for use. 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Goodwill is allocated as at the date of the business combination. Goodwill is not amortized, but is tested for impairment annually, or more frequently if events or changes in circumstances indicate the asset may be impaired. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company is organized and managed as a single reportable business segment (&#8220;reporting unit&#8221;). The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit including goodwill is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired, and the second step is unnecessary. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In the event that the fair value of the reporting unit, including goodwill, is less than the carrying value, the implied fair value of the reporting unit&#8217;s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determined in a business combination using the fair value of the reporting unit as if it were the purchase price. When the carrying amount of the reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess and is presented as a separate line item in the consolidated statements of operations. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Impairment of long-lived assets</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company reviews long-lived assets such as property, plant and equipment and intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the excess of the carrying amount over the fair value of the asset. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Income taxes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company uses the liability method of tax allocation to account for income taxes. Deferred income tax assets and liabilities are recognized based upon temporary differences between the financial reporting and tax bases of assets and liabilities, and measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred income tax assets to the amount that is more likely than not to be realized. The Company considers both positive evidence and negative evidence, to determine whether, based upon the weight of that evidence, a valuation allowance is required. Judgment is required in considering the relative impact of negative and positive evidence. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Significant judgment is required in evaluating the Company&#8217;s uncertain tax positions and provisions for income taxes. Liabilities for uncertain tax positions are recognized based on a two-step approach. The first step is to evaluate whether a tax position has met the recognition threshold by determining if the weight of available evidence indicates that it is more likely than not to be sustained upon examination. The second step is to measure the tax position that has met the recognition threshold as the largest amount that is more than 50% likely of being realized upon settlement. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provisions, income tax payable and deferred taxes in the period in which the facts that give rise to a revision become known. The Company recognizes interest and penalties related to uncertain tax positions as interest expense that is netted and reported within investment income. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company uses the flow-through method to account for investment tax credits (&#8220;ITCs&#8221;) earned on eligible scientific research and experimental development expenditures. Under this method, the ITCs are recognized as a reduction to income tax expense. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Revenue recognition</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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 Company&#8217;s major categories of revenue. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Hardware</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Revenue from the sale of BlackBerry wireless devices is recognized when title has transferred to the customer and all significant contractual obligations that affect the customer&#8217;s 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 records reductions to revenue for estimated commitments related to price protection and for customer incentive programs. The estimated cost of the 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. Price protection is accrued as a reduction to revenue based on estimates of future price reductions, provided the price reduction can be reliably estimated and all other revenue recognition criteria have been met. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Service</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Software</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Other</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Revenue from the sale of accessories is recognized when title has transferred to the customer and all significant contractual obligations that affect the customer&#8217;s 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 customer&#8217;s final acceptance have been fulfilled. Revenue for non-recurring engineering contracts is recognized as specific contract milestones are met. The attainment of milestones approximates actual performance. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Shipping and handling costs</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Amounts billed to customers related to shipping and handling are classified as revenue, and the Company&#8217;s shipping and handling costs are included in cost of sales. Shipping and handling costs that can&#8217;t be reasonably attributed to certain customers are included in selling, marketing and administration. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Multiple-element arrangements</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company enters into revenue arrangements that may consist of multiple deliverables of its product and service offerings. The Company&#8217;s typical multiple-element arrangements involve: (i) handheld devices with services and (ii)&#160;software with technical support services. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">For the Company&#8217;s 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 (&#8220;VSOE&#8221;). In certain limited instances when the Company is unable to establish the selling price using VSOE, the Company attempts to establish selling price of each element based on acceptable third party evidence of selling price (&#8220;TPE&#8221;); 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 (&#8220;BESP&#8221;) 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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 Company&#8217;s management, taking into consideration the Company&#8217;s marketing strategy. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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)&#160;delivery of those elements for which VSOE did not exist; or (ii)&#160;when VSOE can be established. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company regularly reviews VSOE, TPE and BESP, and maintains internal controls over the establishment and updates of these estimates. There were no material impacts to the amount of revenue recognized during the year, nor does the Company expect a material impact in the near term, from changes in VSOE, TPE or BESP. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Research and development</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Research costs are expensed as incurred. Development costs for BlackBerry devices and licensed software to be sold, leased or otherwise marketed are subject to capitalization beginning when a product&#8217;s technological feasibility has been established and ending when a product is available for general release to customers. The Company&#8217;s products are generally released soon after technological feasibility has been established and therefore costs incurred subsequent to achievement of technological feasibility are not significant and have been expensed as incurred. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Comprehensive income</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company&#8217;s reportable items of comprehensive income are cash flow hedges as described in note 15 and changes in the fair value of available-for-sale investments as described in note 5. Realized gains or losses on available-for-sale investments are reclassified into investment income using the specific identification basis. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Earnings per share</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Earnings per share is calculated based on the weighted-average number of shares outstanding during the year. The treasury stock method is used for the calculation of the dilutive effect of stock options. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Stock-based compensation plans</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has stock-based compensation plans, which are described in note 9(b). </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has an incentive stock option plan for officers and employees of the Company or its subsidiaries. Under the terms of the plan, as revised in fiscal 2008, no stock options may be granted to independent directors. The Company measures stock-based compensation expense at the grant date based on the award&#8217;s fair value as calculated by the Black-Scholes-Merton (&#8220;BSM&#8221;) option-pricing model and is recognized rateably over the vesting period. The BSM model requires various judgmental assumptions including volatility and expected option life. In addition, judgment is also applied in estimating the amount of stock-based awards that are expected to be forfeited, and if actual results differ significantly from these estimates, stock-based compensation expense and our results of operations would be impacted. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Any consideration paid by employees on exercise of stock options plus any recorded stock-based compensation within additional paid-in capital related to that stock option is credited to capital stock. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has a Restricted Share Unit Plan (the &#8220;RSU Plan&#8221;) under which eligible participants include any officer or employee of the Company or its subsidiaries. At the Company&#8217;s discretion, Restricted Share Units (&#8220;RSUs&#8221;) are redeemed for either common shares issued by the Company, common shares purchased on the open market by a trustee selected by the Company or the cash equivalent on the vesting dates established by the Board of Directors or the Compensation, Nomination and Governance Committee of the Board of Directors. The RSUs vest over a three-year period, either on the third anniversary date or in equal instalments on each anniversary date over the vesting period. The Company classifies RSUs as equity instruments as the Company has the ability and intent to settle the awards in shares. The compensation expense is calculated based on the fair value of each RSU as determined by the closing value of the Company&#8217;s common shares on the business day of the grant date. The Company recognizes compensation expense over the vesting period of the RSU. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Upon issuance of the RSU, common shares for which RSUs may be exchanged will be purchased on the open market by a trustee selected and funded by the Company. The trustee has been appointed to settle the Company&#8217;s obligation to deliver shares to individuals upon vesting. In addition, upon vesting, the trustee is required to sell enough shares to cover the individual recipient&#8217;s minimum statutory withholding tax requirement, with the remaining shares delivered to the individual. As the Company is considered to be the primary beneficiary of the trust, the trust is considered a variable interest entity and is consolidated by the Company. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has a Deferred Share Unit Plan (the &#8220;DSU Plan&#8221;), adopted by the Board of Directors on December&#160;20, 2007, under which each independent director will be credited with Deferred Share Units (&#8220;DSUs&#8221;) in satisfaction of all or a portion of the cash fees otherwise payable to them for serving as a director of the Company. Grants under the DSU plan replace the stock option awards that were historically granted to independent members of the Board of Directors. At a minimum, 50% of each independent director&#8217;s annual retainer will be satisfied in the form of DSUs. The director can elect to receive the remaining 50% in any combination of cash and DSUs. Within a specified period after such a director ceases to be a director, DSUs will be redeemed for cash with the redemption value of each DSU equal to the weighted average trading price of the Company&#8217;s shares over the five trading days preceding the redemption date. Alternatively, subject to receipt of shareholder approval, the Company may elect to redeem DSUs by way of shares purchased on the open market or issued by the Company. DSUs are accounted for as liability-classified awards and are awarded on a quarterly basis. These awards are measured at their fair value on the date of issuance, and remeasured at each reporting period, until settlement. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Warranty</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company provides for the estimated costs of product warranties at the time revenue is recognized. BlackBerry devices are generally covered by a time-limited warranty for varying periods of time. The Company&#8217;s warranty obligation is affected by product failure rates, differences in warranty periods, regulatory developments with respect to warranty obligations in the countries in which the Company carries on business, freight expense, and material usage and other related repair costs. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company&#8217;s estimates of costs are based upon historical experience and expectations of future return rates and unit warranty repair cost. If the Company experiences increased or decreased warranty activity, or increased or decreased costs associated with servicing those obligations, revisions to the estimated warranty liability would be recognized in the reporting period when such revisions are made. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Advertising costs</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company expenses all advertising costs as incurred. These costs are included in selling, marketing and administration. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 2 - us-gaap:ScheduleOfNewAccountingPronouncementsAndChangesInAccountingPrinciplesTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>2. ADOPTION OF ACCOUNTING POLICIES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In January&#160;2010, the Financial Accounting Standards Board (the &#8220;FASB&#8221;) issued authoritative guidance to improve disclosures about fair value measurements. The guidance amends previous literature to require an entity to provide a number of additional disclosures regarding fair value measurements including significant transfers between Level 1 and Level 2 on a gross basis and the reasons for such transfers, transfers in and out of Level 3 on a gross basis and the reasons for such transfers, the entity&#8217;s policy for recognizing transfers between Levels and to disclose information regarding purchases, sales, issuances and settlements on a gross basis in the Level 3 reconciliation of recurring fair value measurements. The guidance also further clarifies existing guidance on disclosure requirements around disaggregation and valuation techniques for both recurring and non-recurring fair value measurements in either Level 2 or Level 3. The new authoritative guidance is effective for interim and annual periods beginning after December&#160;15, 2009, except for the requirement to separately disclose purchases, sales, issuances, and settlements in the Level 3 reconciliation which is effective for interim and annual periods beginning after December&#160;15, 2010. The Company adopted this authoritative guidance in the first quarter of fiscal 2011, with the exception of the requirement to separately disclose purchases, sales, issuances, and settlements, which the Company will adopt in the first quarter of fiscal 2012. The adoption did not have a material impact on the Company&#8217;s results of operations, financial condition and the Company&#8217;s disclosures. The adoption of the remaining guidance in the first quarter of fiscal 2012 is not expected to have a material impact on the Company&#8217;s results of operations, financial condition and the Company&#8217;s disclosures. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In October&#160;2009, the FASB issued authoritative guidance on certain revenue arrangements that include software elements. The guidance amends previous literature to provide that software revenue recognition guidance should not be applied to tangible products containing software components and non-software components that function together to deliver the product&#8217;s essential functionality. As a result of this guidance, revenue from most of the Company&#8217;s devices and services, including its BlackBerry wireless devices, is no longer recognized using the industry-specific software revenue recognition guidance. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In October&#160;2009, the FASB also issued authoritative guidance on revenue recognition for arrangements with multiple deliverables. The guidance amends previous literature to require an entity to use an estimated selling price when VSOE or TPE does not exist for products or services included in a multiple element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. The guidance also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying the guidance. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The new authoritative guidance described above is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June&#160;15, 2010, with early adoption permitted. The Company adopted this authoritative guidance in the first quarter of fiscal 2011 on a prospective basis for applicable transactions entered into or materially modified after February&#160;27, 2010. The adoption did not have a material impact on the Company&#8217;s results of operations and financial condition for the fiscal year ended February&#160;26, 2011, and the Company does not expect the adoption to have a material effect on financial statements in future periods. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has not significantly changed its view on units of accounting, allocation of arrangement consideration to the units of accounting or the timing of revenue recognition. Due to the new authoritative guidance implemented in the first quarter of fiscal 2011, the Company modified its revenue recognition accounting policy, which is described above. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In June&#160;2009, the FASB issued authoritative guidance to amend the manner in which an enterprise performs an analysis to determine whether the enterprise&#8217;s variable interest gives it a controlling interest in the variable interest entity (&#8220;VIE&#8221;). The guidance uses a qualitative risks and rewards approach by focusing on which enterprise has the power to direct the activities of the VIE, the obligation to absorb the entity&#8217;s losses and rights to receive benefits from the entity. The guidance also requires enhanced disclosures related to the VIE. The Company adopted this authoritative guidance in the first quarter of fiscal 2011 and the adoption did not have material impact on the Company&#8217;s results of operations and financial condition. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In June&#160;2009, the FASB issued authoritative guidance amending the accounting for transfers of financial assets. The guidance, among other things, eliminates the exceptions for qualifying special-purpose entities from the consolidation guidance, clarifies the requirements for transferred financial assets that are eligible for sale accounting and requires enhanced disclosures about a transferor&#8217;s continuing involvement with transferred financial assets. The Company adopted this authoritative guidance in the first quarter of fiscal 2011 and the adoption did not have a material impact on the Company&#8217;s results of operations and financial condition. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 3 - rimm:RecentlyIssuedPronouncementsTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>3. RECENTLY ISSUED PRONOUNCEMENTS</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In November&#160;2008, the Securities Exchange Commission (&#8220;SEC&#8221;) announced a proposed roadmap for comment regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (&#8220;IFRS&#8221;). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (&#8220;IASB&#8221;). On February&#160;24, 2010, the SEC issued a statement describing its position regarding global accounting standards. Among other things, the SEC stated that it has directed its staff to execute a work plan which will include consideration of IFRS as it exists today and after completion of various &#8220;convergence&#8221; projects currently underway between U.S. and international accounting standards setters. On October&#160;29, 2010, the SEC issued a progress report for its work plan considering the impact of incorporating IFRS on the U.S. financial reporting system. The SEC staff is currently using a sample of global jurisdictions to analyze how IFRS is being incorporated in other jurisdictions and to assess its potential impact on a variety of stakeholders including investors, regulators, and issuers. The Financial Accounting Standards Board, in conjunction with the IASB, have prioritized the completion of certain convergence projects, while certain other projects have been deferred beyond the original June&#160;2011 target completion date. In 2011, assuming completion of certain projects and the SEC staff&#8217;s work plan, the SEC is expected to decide whether to incorporate IFRS into the U.S. financial reporting system. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 4 - rimm:CashCashEquivalentsAndInvestmentsTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>4. 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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 classified $25 million of these holdings as other investments on the consolidated balance sheet as at February 26, 2011. Previously, these holdings were classified as bank balances on the consolidated balance sheet as at February&#160;27, 2010. The classification change is represented in the consolidated statement of cash flows for the year ended February&#160;26, 2011 as an acquisition of long-term investments. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 5 - us-gaap:FairValueDisclosuresTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>5. 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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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The fair values of money market funds were derived from quoted prices in active markets for identical assets or liabilities. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">For bankers&#8217; acceptances, 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company corroborates the fair values provided by the independent third party for bankers&#8217; 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&#8217; acceptances held by the Company are all issued by major banking organizations and all have investment grade ratings. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. 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The independent third party considers the information provided by the Company before determining whether a change in the original pricing is warranted. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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 includes an impairment charge of $4&#160;million recognized in fiscal 2008. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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&#160;million recognized in fiscal 2011 as discussed in note 4. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 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&#160;million recognized in fiscal 2011 as discussed in note 4. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 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. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The following table presents the Company&#8217;s assets and liabilities that are measured at fair value on a recurring basis: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom"> <td width="52%">&#160;</td> <td width="5%">&#160;</td> <td width="3%">&#160;</td> <td width="1%">&#160;</td> <td width="3%">&#160;</td> <td width="5%">&#160;</td> <td width="3%">&#160;</td> <td width="1%">&#160;</td> <td width="3%">&#160;</td> <td width="5%">&#160;</td> <td width="3%">&#160;</td> <td width="1%">&#160;</td> <td width="3%">&#160;</td> <td width="5%">&#160;</td> <td width="3%">&#160;</td> <td width="1%">&#160;</td> <td width="3%">&#160;</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left">As at February 26, 2011</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="3">Level 1</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="3">Level 2</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="3">Level 3</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="3">Total</td> </tr> <!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000">&#160;</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; 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Under the 2011 Repurchase Program, the Company repurchased and cancelled 31.3 million common shares at a cost of $1.7 billion, resulting in the effective completion of the 2011 Repurchase Program. 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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 Company&#8217;s 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 Company&#8217;s 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 management&#8217;s attention and resources, subject the Company to significant liabilities and could have other effects. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Management reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if applicable, the amount of any potential loss. Where it is considered likely for a material exposure to result and where the amount of the claim is quantifiable, provisions for loss are made based on management&#8217;s assessment of the likely outcome. The Company does not provide for claims that are considered unlikely to result in a significant loss, claims for which the outcome is not determinable or claims where the amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when reasonably determinable. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Additional lawsuits and claims, including purported class actions and derivative actions, may be filed or made based upon the Company&#8217;s 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 management&#8217;s assessment of the likely outcome. The Company does not provide for claims that are considered unlikely to result in a significant loss, claims for which the outcome is not determinable or claims where the amount of the loss cannot be reasonably estimated. 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The Company&#8217;s 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. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The majority of the Company&#8217;s revenues in fiscal 2011 are 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 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. At February&#160;26, 2011 approximately 59% of cash and cash equivalents, 25% of accounts receivables and 8% of accounts payable and accrued liabilities are denominated in foreign currencies (February&#160;27, 2010 &#8212; 38%, 22% and 7%, respectively). </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company enters into forward and option contracts to hedge exposures relating to foreign currency anticipated transactions. 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margin-top: 6pt; margin-left: 2%"><b>Basis of presentation and preparation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The consolidated financial statements include the accounts of all subsidiaries of the Company with intercompany transactions and balances eliminated on consolidation. All of the Company&#8217;s subsidiaries are wholly-owned. These consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (&#8220;U.S. GAAP&#8221;) on a basis consistent for all periods presented except as described in note 2. Certain of the comparative figures have been reclassified to conform to the current year presentation. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company&#8217;s fiscal year end date is the 52 or 53&#160;weeks ending on the last Saturday of February, or the first Saturday of March. The fiscal years ended February&#160;26, 2011, February 27, 2010, and February&#160;28, 2009 comprise 52&#160;weeks. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The significant accounting policies used in these U.S. GAAP consolidated financial statements are as follows: </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table2 - rimm:UseOfEstimatesPolicyTextBlock--> <div align="left" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Use of estimates</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. Significant areas requiring the use of management estimates relate to the determination of reserves for various litigation claims, provisions for excess and obsolete inventories and liabilities for purchase commitments with contract manufacturers and suppliers, fair values of assets acquired and liabilities assumed in business combinations, royalties, amortization expense, implied fair value of goodwill, provision for income taxes, realization of deferred income tax assets and the related components of the valuation allowance, provisions for warranty and the fair values of financial instruments. 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Accordingly, monetary assets and liabilities are translated using the exchange rates in effect at the consolidated balance sheet date and revenues and expenses at the rates of exchange prevailing when the transactions occurred. Remeasurement adjustments are included in income. 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The Company does not exercise significant influence with respect to any of these investments. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Investments with maturities one year or less, as well as any investments that management intends to hold for less than one year, are classified as short-term investments. Investments with maturities in excess of one year are classified as long-term investments. </div> <!-- Folio --> <!-- /Folio --> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company determines the appropriate classification of investments at the time of purchase and subsequently reassesses the classification of such investments at each balance sheet date. 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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. </div> <!-- Folio --> <!-- /Folio --> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company formally documents relationships between hedging instruments and associated hedged items. This documentation includes: identification of the specific foreign currency asset, liability or forecasted transaction being hedged; the nature of the risk being hedged; the hedge objective; and the method of assessing hedge effectiveness. 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 are recognized in income at that time. Any future changes in the fair value of the instrument are recognized in current income. The Company did not reclassify any significant gains (losses) from accumulated other comprehensive income into income as a result of the de-designation of any derivative instrument as a hedge during fiscal 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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. </div> </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table8 - us-gaap:InventoryPolicyTextBlock--> <div align="left" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Inventories</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Raw materials are stated at the lower of cost and replacement cost. 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No amortization is provided for construction in progress until the assets are ready for use. 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Acquired technology consists of purchased developed technology arising from the Company&#8217;s business acquisitions. Licenses include licenses or agreements that the Company has negotiated with third parties upon use of third parties&#8217; technology. Patents comprise trademarks, internally developed patents, as well as individual patents or portfolios of patents acquired from third parties. 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Goodwill is allocated as at the date of the business combination. Goodwill is not amortized, but is tested for impairment annually, or more frequently if events or changes in circumstances indicate the asset may be impaired. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company is organized and managed as a single reportable business segment (&#8220;reporting unit&#8221;). The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit including goodwill is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired, and the second step is unnecessary. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In the event that the fair value of the reporting unit, including goodwill, is less than the carrying value, the implied fair value of the reporting unit&#8217;s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determined in a business combination using the fair value of the reporting unit as if it were the purchase price. When the carrying amount of the reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess and is presented as a separate line item in the consolidated statements of operations. </div> </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table11 - us-gaap:ImpairmentOrDisposalOfLongLivedAssetsPolicyTextBlock--> <div align="left" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Impairment of long-lived assets</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company reviews long-lived assets such as property, plant and equipment and intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the excess of the carrying amount over the fair value of the asset. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table12 - us-gaap:IncomeTaxPolicyTextBlock--> <div align="left" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Income taxes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company uses the liability method of tax allocation to account for income taxes. Deferred income tax assets and liabilities are recognized based upon temporary differences between the financial reporting and tax bases of assets and liabilities, and measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred income tax assets to the amount that is more likely than not to be realized. The Company considers both positive evidence and negative evidence, to determine whether, based upon the weight of that evidence, a valuation allowance is required. Judgment is required in considering the relative impact of negative and positive evidence. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Significant judgment is required in evaluating the Company&#8217;s uncertain tax positions and provisions for income taxes. Liabilities for uncertain tax positions are recognized based on a two-step approach. The first step is to evaluate whether a tax position has met the recognition threshold by determining if the weight of available evidence indicates that it is more likely than not to be sustained upon examination. The second step is to measure the tax position that has met the recognition threshold as the largest amount that is more than 50% likely of being realized upon settlement. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provisions, income tax payable and deferred taxes in the period in which the facts that give rise to a revision become known. The Company recognizes interest and penalties related to uncertain tax positions as interest expense that is netted and reported within investment income. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company uses the flow-through method to account for investment tax credits (&#8220;ITCs&#8221;) earned on eligible scientific research and experimental development expenditures. Under this method, the ITCs are recognized as a reduction to income tax expense. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table13 - us-gaap:RevenueRecognitionPolicyTextBlock--> <div align="left" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Revenue recognition</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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 Company&#8217;s major categories of revenue. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Hardware</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Revenue from the sale of BlackBerry wireless devices is recognized when title has transferred to the customer and all significant contractual obligations that affect the customer&#8217;s 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 records reductions to revenue for estimated commitments related to price protection and for customer incentive programs. The estimated cost of the 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. Price protection is accrued as a reduction to revenue based on estimates of future price reductions, provided the price reduction can be reliably estimated and all other revenue recognition criteria have been met. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Service</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Revenue from service is recognized rateably on a monthly basis when the service is provided. 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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. </div> <!-- Folio --> <!-- /Folio --> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Other</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Revenue from the sale of accessories is recognized when title has transferred to the customer and all significant contractual obligations that affect the customer&#8217;s 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 customer&#8217;s final acceptance have been fulfilled. Revenue for non-recurring engineering contracts is recognized as specific contract milestones are met. The attainment of milestones approximates actual performance. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Shipping and handling costs</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Amounts billed to customers related to shipping and handling are classified as revenue, and the Company&#8217;s shipping and handling costs are included in cost of sales. Shipping and handling costs that can&#8217;t be reasonably attributed to certain customers are included in selling, marketing and administration. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b><i>Multiple-element arrangements</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company enters into revenue arrangements that may consist of multiple deliverables of its product and service offerings. The Company&#8217;s typical multiple-element arrangements involve: (i) handheld devices with services and (ii)&#160;software with technical support services. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">For the Company&#8217;s 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 (&#8220;VSOE&#8221;). In certain limited instances when the Company is unable to establish the selling price using VSOE, the Company attempts to establish selling price of each element based on acceptable third party evidence of selling price (&#8220;TPE&#8221;); 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 (&#8220;BESP&#8221;) 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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 Company&#8217;s management, taking into consideration the Company&#8217;s marketing strategy. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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)&#160;delivery of those elements for which VSOE did not exist; or (ii)&#160;when VSOE can be established. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company regularly reviews VSOE, TPE and BESP, and maintains internal controls over the establishment and updates of these estimates. There were no material impacts to the amount of revenue recognized during the year, nor does the Company expect a material impact in the near term, from changes in VSOE, TPE or BESP. </div> </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table14 - us-gaap:ResearchDevelopmentAndComputerSoftwarePolicyTextBlock--> <div align="center" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Research and development</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Research costs are expensed as incurred. Development costs for BlackBerry devices and licensed software to be sold, leased or otherwise marketed are subject to capitalization beginning when a product&#8217;s technological feasibility has been established and ending when a product is available for general release to customers. The Company&#8217;s products are generally released soon after technological feasibility has been established and therefore costs incurred subsequent to achievement of technological feasibility are not significant and have been expensed as incurred. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table15 - rimm:ComprehensiveIncomeLossPolicyTextBlock--> <div align="left" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Comprehensive income</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company&#8217;s reportable items of comprehensive income are cash flow hedges as described in note 15 and changes in the fair value of available-for-sale investments as described in note 5. Realized gains or losses on available-for-sale investments are reclassified into investment income using the specific identification basis. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table16 - us-gaap:EarningsPerSharePolicyTextBlock--> <div align="left" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Earnings per share</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Earnings per share is calculated based on the weighted-average number of shares outstanding during the year. The treasury stock method is used for the calculation of the dilutive effect of stock options. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Accounting Policy: RIMM-20110226_note1_accounting_policy_table17 - us-gaap:CompensationRelatedCostsPolicyTextBlock--> <div align="left" style="font-size: 10pt; font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><b>Stock-based compensation plans</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has stock-based compensation plans, which are described in note 9(b). </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has an incentive stock option plan for officers and employees of the Company or its subsidiaries. Under the terms of the plan, as revised in fiscal 2008, no stock options may be granted to independent directors. The Company measures stock-based compensation expense at the grant date based on the award&#8217;s fair value as calculated by the Black-Scholes-Merton (&#8220;BSM&#8221;) option-pricing model and is recognized rateably over the vesting period. The BSM model requires various judgmental assumptions including volatility and expected option life. In addition, judgment is also applied in estimating the amount of stock-based awards that are expected to be forfeited, and if actual results differ significantly from these estimates, stock-based compensation expense and our results of operations would be impacted. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Any consideration paid by employees on exercise of stock options plus any recorded stock-based compensation within additional paid-in capital related to that stock option is credited to capital stock. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has a Restricted Share Unit Plan (the &#8220;RSU Plan&#8221;) under which eligible participants include any officer or employee of the Company or its subsidiaries. At the Company&#8217;s discretion, Restricted Share Units (&#8220;RSUs&#8221;) are redeemed for either common shares issued by the Company, common shares purchased on the open market by a trustee selected by the Company or the cash equivalent on the vesting dates established by the Board of Directors or the Compensation, Nomination and Governance Committee of the Board of Directors. The RSUs vest over a three-year period, either on the third anniversary date or in equal instalments on each anniversary date over the vesting period. The Company classifies RSUs as equity instruments as the Company has the ability and intent to settle the awards in shares. The compensation expense is calculated based on the fair value of each RSU as determined by the closing value of the Company&#8217;s common shares on the business day of the grant date. The Company recognizes compensation expense over the vesting period of the RSU. </div> <!-- Folio --> <!-- /Folio --> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Upon issuance of the RSU, common shares for which RSUs may be exchanged will be purchased on the open market by a trustee selected and funded by the Company. The trustee has been appointed to settle the Company&#8217;s obligation to deliver shares to individuals upon vesting. In addition, upon vesting, the trustee is required to sell enough shares to cover the individual recipient&#8217;s minimum statutory withholding tax requirement, with the remaining shares delivered to the individual. As the Company is considered to be the primary beneficiary of the trust, the trust is considered a variable interest entity and is consolidated by the Company. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company has a Deferred Share Unit Plan (the &#8220;DSU Plan&#8221;), adopted by the Board of Directors on December&#160;20, 2007, under which each independent director will be credited with Deferred Share Units (&#8220;DSUs&#8221;) in satisfaction of all or a portion of the cash fees otherwise payable to them for serving as a director of the Company. Grants under the DSU plan replace the stock option awards that were historically granted to independent members of the Board of Directors. At a minimum, 50% of each independent director&#8217;s annual retainer will be satisfied in the form of DSUs. The director can elect to receive the remaining 50% in any combination of cash and DSUs. Within a specified period after such a director ceases to be a director, DSUs will be redeemed for cash with the redemption value of each DSU equal to the weighted average trading price of the Company&#8217;s shares over the five trading days preceding the redemption date. Alternatively, subject to receipt of shareholder approval, the Company may elect to redeem DSUs by way of shares purchased on the open market or issued by the Company. DSUs are accounted for as liability-classified awards and are awarded on a quarterly basis. These awards are measured at their fair value on the date of issuance, and remeasured at each reporting period, until settlement. </div> </div> </div> <