Blackberry 2007 Annual Report Download - page 78

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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
(1) Variable Accounting for the “Net Settlement” Feature
Under a “net settlement” feature that existed in the Stock
Option Plan prior to February 27, 2002, instead of paying
the total consideration of the options exercised in cash, an
employee could forgo the receipt of a number of Company
shares equal in value to the total exercise consideration
otherwise payable upon exercise of the options. Under
U.S. GAAP, the Company is required to apply variable plan
accounting for all stock options granted prior to February
27, 2002 because the total number of shares an individual
employee was entitled to receive under the “net settlement”
feature was not fixed. Variable plan accounting for these
options ceased on February 27, 2002 with the elimination of
the “net settlement” feature from the Stock Option Plan. On
that date, all unexercised awards became fixed awards and
the remaining unamortized compensation cost became fixed
and is required to be expensed over the remaining vesting
period of the related options. The variable plan accounting
compensation expense for options issued during the period
of the “net settlement” feature includes (1) all realized gains
on exercise of stock options prior to February 27, 2002, and
(2) an allocation of all unrealized gains for unexercised stock
options based on the stock’s trading price at each reporting
period. The application of variable plan accounting causes
significant fluctuations in the accounting expense/recovery
when the Company’s share price is experiencing periods of
high volatility. The accounting impact for the restatement
adjustments related to the variable plan accounting is set out
in the table above.
(2) Share-Based Awards Granted Prior to the Stock
Option Plan
Prior to the IPO and the Company’s adoption of the Stock
Option Plan, the Company issued 444,000 restricted Class A
Common Shares at a price of CAD $0.05 per share pursuant
to employee stock agreements and 1,306,000 options to
acquire shares at an exercise price of CAD $0.05 under
an employee stock plan (such agreements and such plan,
together, the “Pre-IPO Plans”). The terms of both awards
provided that employees could “put” the shares back to the
Company for per share book value while the Company was
private and for fair value when the Company became public.
Due to the put feature, under U.S. GAAP, the Company
was required to account for these awards under variable
plan accounting. Upon adoption of the Stock Option Plan
in 1996, all previously unexercised options under the Pre-
IPO Plans became subject to the terms and conditions of
the Stock Option Plan. As such, the awards issued under
the Pre-IPO Plans continued to be accounted for under
variable plan accounting subsequent to the Company’s IPO
as they were then subject to the “net settlement” feature as
described above. The accounting impact for the restatement
adjustment related to the stock based awards issued under
the Pre-IPO Plans is set out in the table above.
(3) Misapplication of the Determination of an Appropriate
Accounting Measurement Date
As a result of the Review, it has been determined that, in
many cases, incorrect measurement dates were used for
financial accounting purposes for certain stock option
grants in prior periods. For options issued prior to February
27, 2002, the determination of an appropriate accounting
measurement date does not impact the restated accounting
expense as all options issued prior to that date are accounted
for under variable plan accounting. For this reason, separate
disclosure is made of errors in measurement dates made
pre- and post-February 27, 2002. The determination of
the appropriate measurement dates for the period prior to
February 27, 2002 does, however, impact the Company’s
restated pro forma stock-based compensation disclosures
under SFAS 123, as set out in Note 12.
Consistent with the accounting literature and recent
guidance from the staff of the SEC, the Special Committee
undertook a process to categorize, based on grant type, each
option granted by the Company. The Special Committee
analyzed the evidence related to each grant and, based on
the relevant facts and circumstances, applied the accounting
standards to determine an appropriate measurement date
for each grant. Where the measurement date was found
to not be the originally assigned grant date, an accounting
adjustment was determined to account for the stock-
based compensation expense. The results of the work
conducted by the Special Committee were provided to the
Board of Directors, and the findings and the accounting
adjustments have been reviewed by and accepted by the
Company. Hereafter, reference to the Company’s actions and
determinations includes the actions and determinations of
the Special Committee.
For the purposes of identifying a measurement date with
finality for grants of options to persons other than the
C-level officers, the Company looked to objective evidence
supporting the approval of the number and exercise price