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72
RESEARCH IN MOTION LIMITED
notes to the consolidated financial statements continued
For the Years Ended March 3, 2007, March 4, 2006 and February 26, 2005
In thousands of United States dollars, except share and per share data, and except as otherwise indicated
on “a more likely than not” basis that it will be sustained
upon examination. If step one is satisfied the position is
then evaluated to determine the amount to be recognized
in the financial statements. It also provides guidance on
derecognition, classification, interest and penalties, interim
period accounting, disclosure and transition. FIN 48 is
effective for the Company as of the beginning of its fiscal
2008 year. The Company is currently evaluating the impact
FIN 48 will have on its financial statements.
The Fair Value Option for Financial Assets and Financial
Liabilities - Including an Amendment of SFAS 115.
In February 2007, the FASB issued SFAS 159 The Fair Value
Option for Financial Assets and Financial Liabilities -Including
an Amendment of SFAS 115. SFAS 159 permits entities to
measure many financial instruments and certain other items
at fair value that currently are not required to be measured
at fair value. If elected, unrealized gains or losses on certain
items will be reported in earnings at each subsequent
reporting period. SFAS 159 is effective for the Company as
of the beginning of its 2009 fiscal year. The Company has
not determined whether it will elect to adopt the fair value
measurement provisions of this statement, or what impact it
will have on its consolidated financial statements.
4. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
The Company has restated its consolidated balance sheet
as of March 4, 2006, and its consolidated statements of
operations, consolidated statements of cash flows and
consolidated statements of shareholders’ equity for the
fiscal years ended March 4, 2006 and February 26, 2005,
and the related note disclosures (the “Restated Financial
Statements”). The Restated Financial Statements have been
prepared to reflect additional stock compensation expense
relating to certain stock based awards granted prior to the
adoption of the Company’s stock option plan on December 4,
1996 (as amended from time to time, the “Stock Option Plan”)
and certain stock option grants during the 1997 through 2006
fiscal periods, as well as certain adjustments related to the
tax accounting for deductible stock option expenses. The
restatement does not result in a change in the Company’s
previously reported revenues or total cash and cash
equivalents or net cash provided from operating activities
shown in the Restated Financial Statements.
Background of the Review
The Company commenced a voluntary internal review
(the “Review”) of its stock option granting practices and
related accounting on August 8, 2006. The Review was
commenced under the direction of the Audit Committee of
the Company’s Board of Directors, at the initiative of Dennis
Kavelman, the Company’s former Chief Financial Officer (now
the Company’s Chief Operating Officer – Administration
and Operations), with the support of Jim Balsillie, the Co-
Chief Executive Officer of the Company, and the executive
management team of the Company. Following the recusal
of two Audit Committee members who also served on the
Compensation Committee, the Review was completed by
the remaining two members of the Audit Committee as a
special committee of independent directors of the Board
of Directors (the “Special Committee”). Any references to
actions by the Special Committee prior to January 16, 2007
are to the Audit Committee. The Special Committee was
assisted in the Review by outside legal counsel and outside
accounting advisors in both Canada and the United States.
Certain of the investigative actions by the Special Committee
described hereafter were carried out by the outside legal
counsel or outside accounting advisors under the direction of
the Special Committee.
On September 28, 2006, the Company publicly announced
that the Audit Committee had made a preliminary
determination that, under U.S. generally accepted accounting
principles (“GAAP”), accounting errors were made in
connection with the accounting for certain stock options
granted since the Company’s initial public offering in 1997
(the “IPO”) and that a restatement (the “Restatement”) of
the Company’s financial statements would therefore be
required. At that time, the Company also announced that
it had voluntarily informed the United States Securities and
Exchange Commission (the “SEC”) and the Ontario Securities
Commission (the “OSC”) about the Review.
Each of the SEC, the OSC and the office of the United
States Attorney for the Southern District of New York (the
“USAO”) has commenced investigations in connection
with the Company’s stock option granting practices. The
Company intends to continue to cooperate with each of these
agencies.
Scope of the Review
The Special Committee reviewed the facts and circumstances
surrounding the 3,231 grants of stock options to acquire