Blackberry 2007 Annual Report Download - page 18

16
RESEARCH IN MOTION LIMITED
management’s discussion and analysis of financial
condition and results of operations continued
FOR THE THREE MONTHS AND FISCAL YEAR ENDED MARCH 3, 2007
The Special Committee determined that the Company
failed to maintain adequate internal and accounting controls
with respect to the issuance of options in compliance with
the Stock Option Plan, both in terms of how options were
granted and documented, and the measurement date used
to account for certain option grants. The grant process
was characterized by informality and a lack of definitive
documentation as to when the accounting measurement
date for a stock option occurred, and lacked safeguards to
ensure compliance with applicable accounting, regulatory
and disclosure rules. The Special Committee did not find
intentional misconduct on the part of any director, officer
or employee responsible for the administration of the
Company’s stock option grant program.
Nature of the Errors
The period covered by the Review spans the inception of the
Stock Option Plan in December 1996 to August 2006. The
Special Committee also examined certain stock-based awards
granted prior to the adoption of the Stock Option Plan. As was
permitted prior to fiscal 2007, the Company elected to use
APB 25 to measure and recognize compensation cost for all
awards granted to employees for their service as employees,
as discussed in Note 1 to the Consolidated Financial
Statements. APB 25 is based upon an intrinsic value method
of accounting for stock-based compensation. Under this
method, compensation cost is measured as the excess, if any,
of the quoted market price of the stock at the measurement
date over the amount to be paid by the employee.
Under APB 25, the measurement date for determining
compensation cost of stock options is the first date on which
are known both (1) the number of shares that an individual
employee is entitled to receive and (2) the option exercise
price. If either the number of shares or the exercise price
(or both) of a particular award are not known on the grant
date, the Company must remeasure compensation cost at
each reporting date until both are known. The application
of this principle is referred to as variable plan accounting,
and requires the Company to remeasure compensation
cost at the award’s intrinsic value until a measurement date
is triggered. When both terms are known, the award is
referred to as a fixed award, and compensation cost is not
remeasured for any changes in intrinsic value subsequent to
the measurement date.
The Review identified three significant types of accounting
errors being: (1) the misapplication of U.S. GAAP as it
relates to a “net settlement” feature contained in the
Stock Option Plan until February 27, 2002, which resulted
in variable accounting treatment, (2) the misapplication
of U.S. GAAP in the accounting for certain share awards
granted prior to the adoption of the Stock Option Plan,
which also resulted in variable accounting treatment and
(3) the misapplication of U.S. GAAP in the determination of
an accounting measurement date for options granted after
February 27, 2002. As a result of these errors, the Company
has recorded additional non-cash adjustments for stock-
based compensation expense in accordance with APB 25.
In addition, the Restatement also records adjustments to
certain tax amounts related to the accounting for stock-based
compensation as more fully described below. The following
table sets forth the impact of the additional non-cash
charges for stock-based compensation expense (benefit) on
net income (loss) for the fiscal years ended March 4, 2006,
February 26, 2005, February 28, 2004, March 1, 2003,
March 2, 2002, February 28, 2001, February 29, 2000, and the
cumulative adjustment to the fiscal year ended February 28,
1999: