Research In Motion financial probe becomes formal investigation

Friday, April 13, 2007

On Wednesday, Canadian BlackBerry maker Research In Motion Limited (RIM), reported preliminary fourth quarter and year-end financial results. Despite record profits, up from US$18 million in the same quarter last year to $188 million for the current quarter, the news was dampened by the revelation that the US Securities and Exchange Commission (SEC) had formalized its investigation into RIM’s accounting practices.

An internal review by RIM, initiated eight months ago, revealed irregularities with how the company accounted for stock options. On March 5 of 2007, RIM co-chief executive and chairman, Jim Balsillie, resigned his position of chairman, due to the irregularities.

RIM had indicated, until recently, that the SEC probe into the company’s stock option granting practices was an informal inquiry. In a press release April 11, RIM suggested that “the informal inquiry has been converted to a formal investigation.”

In its press release, RIM indicated it would restate financials for the second and third quarters of fiscal 2007, and the fiscal year ended March 3, 2007 only. Through its internal probe, RIM had determined that the accounting irregularities for recently filed Canadian Generally Accepted Accounting Principles (GAAP) statements would not result in a material adjustment. It would not, therefore, restate Canadian GAAP financial statements, filed previously.

Aside from the record profits just reported, RIM indicated that it had shipped approximately 6.4 million BlackBerry devices in fiscal 2007 and that 1.02 million subscriber accounts were added in the fourth quarter. At the end of the quarter, the total BlackBerry subscriber account base had increased to 8 million.

On the news of the formal SEC inquiry, RIM’s stock price was down over 8%, Thursday, on the NASDAQ.