RIM reports revenue gains despite litigation, "non-settlement" costs

Waterloo (Ontario) - If the fate of BlackBerry truly faces a crisis, in the wake of a possible court injunction preventing its sale in the US, you’d never know it from the sales and revenue figures released today by its manufacturer, Research in Motion, Ltd.

For the third quarter of its fiscal year 2006, RIM posted revenues of $560.6 million, a 53% year-to-year gain. But the big news is that net income managed to increase 33% over Q3 FY2005, even though the company faced unusual accounting hurdles in the wake of last month’s ruling by US District Judge James R. Spencer, invalidating RIM’s March 2005 settlement with patent holder NTP, Inc. NTP had claimed that the $450 million settlement wasn’t worth the paper it was written on, literally - that the format of the settlement documents themselves, including their paper, did not meet the standard legal format for a settlement.

The dismissal of the settlement left RIM’s accountants in a quandary : How do they account for the money they believed to have actually spent, and what should they claim to have spent it on if what they believed they spent it on was invalid ? According to RIM’s press release this afternoon, the company had already assumed a $20 million charge toward the $450, as an acquired license on its balance sheet. After Judge Spencer’s ruling, RIM was forced to write down the entire $20 million after depreciation, bringing the charge down to a net book value of $18.3 million. Add to that charge an additional $7.9 million which RIM was ordered to pay for NTP’s legal fees, but then subtract $7.2 million in tax recovery, and RIM ended up taking a $19 million charge.

In all, RIM reported net income of $120.1 million, or 61¢ per share, an increase of one-third over the same quarter the previous year. If you "un-charge" the company for the writedown, net income becomes 71¢ per share.

In a statement this afternoon, RIM chairman and co-CEO Jim Balsillie credited RIM’s new alliances with mobile phone carriers as driving major subscriber growth this year. "The third quarter was an important period for RIM," Balsillie stated, "as we continued to launch BlackBerry with new carrier partners around the world and readied an extraordinary lineup of new handsets, software and services that once again raised the competitive bar and entrenched RIM’s technology leadership." This year, RIM announced a cell phone deal with Cingular Wireless on 1 November, and another deal that same month with Canada’s Rogers Wireless, to complement its existing arrangements with Verizon and Sprint Nextel.

In today’s statement, RIM is saying it added 645,000 to its worldwide subscriber base in the quarter just ended, raising its current total to 4.3 million.

For Q4, RIM is projecting even more growth, barring a legal catastrophe. It expects to report revenues next March of $590-$620 million, and subscriber growth of up to three quarters of a million people. Helping RIM to retain its positive outlook has been a series of unanticipated actions by the US Patent and Trademark Office, invalidating three of the eight patents NTP currently holds on wireless e-mail technology, though the Office’s review action is considered "non-final." Such action had been expected to take years, though may have been expedited when it was learned that the US Government already relies on BlackBerry devices for encrypted communications between federal employees.

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