Accounting & Tax

BlackBerry Maker to ”Resend” Earnings

Research In Motion pins $250 million restatement on options-related errors; announces governance changes, including separation of the roles of chai...
Stephen TaubMarch 5, 2007

Research In Motion, the Waterloo, Ontario-based company best known for its BlackBerry device, will restate earnings by a total of about $250 million for fiscal years 2004 through 2006 and for the first quarter of fiscal 2007.

RIM stated that a special committee of its board of directors identified three major classes of errors: the accounting for certain grants made before the company’s stock option plan was adopted; the misapplication of U.S. GAAP to a “net settlement” feature that was part of the company’s option plan until February 27, 2002; and the misapplication of the determination of an accounting measurement date for options issued after that feature was eliminated.

The company asserted that co-chief executive officer Jim Balsillie was directly involved in approving grants, “including grants that have been found to have been accounted for incorrectly.” That involvement diminished, however, as more responsibility for approving certain grants was delegated, without explicit conditions or documentation, to chief financial officer Dennis Kavelman and other, less senior employees. Some of these grants were also “accounted for incorrectly,” the company added.

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The grant process was characterized by informality and a lack of definitive documentation, and “lacked safeguards to ensure compliance with applicable accounting, regulatory, and disclosure rules,” RIM conceded in a statement. The company stressed, however, that the special committee uncovered no intentional misconduct by any director, officer, or employee responsible for administering the stock option grant program.

All directors and C-level officers have agreed to re-price unexercised options that were incorrectly priced, the company stated, and to return any gain on previously exercised options, with interest.

RIM also announced a number of governance changes.

• Most notably, Co-CEO Balsillie has stepped down as chairman, though he will continue as a director. RIM named John Richardson to the new post of lead director.
• The board has established a new oversight committee composed exclusively of independent directors; its purview will include executive compensation, use of stock options as a compensation mechanism, trading by insiders, hiring practices, and a general review of activities within the accounting and finance groups. In 2009, the board and committee will reexamine the committee’s mandate and determine whether it should continue.
• The two members of the compensation committee, Kendall Cork and Doug Wright, have resigned from all committees and agreed to not stand for re-election at the upcoming annual meeting.
• The board will increase in size to nine members, from seven.
• RIM will establish an internal audit department, whose head will report directly to the audit committee.

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