RIM to Restate Financials, Lose Chairman

Probes into stock option grants claim more victims, as Canada's Research in Motion announces it will restate earnings back to 2004 and Jon Balsillie is stepping down as chairman.

Canada’s Research in Motion (RIM), makers of the popular BlackBerry mobile email and smartphone devices, is the latest company to be bruised by investigations into the granting of stock options and the impact of those options on corporate financial statements. In an announcement today, RIM says it will restate its financials going as far back as its 2004 fiscal year to correct reporting errors in the way stock option grants were handled; further, co-CEO Jim Balsillie is stepping down from his role as chairman of the company’s board of directors.

The announcement stems from the investigation of a special committee looking into RIM’s handling of stock option grants. The committee report indicates that all stock options granted before February 27, 2002, did not apply variable accounting and were therefore reported incorrectly. The committee did not find the errors were the result of any intentional misconduct on the part of RIM officers, but noted that option grant dates were deliberately selected to offer favorable pricing. Co-CEO Balsillie was found to have been directly involved in approving grants for the company’s IPO in 1997, including grants which were reported incorrectly; however, Balsillie’s role in approving grants decreased over time as the responsibility was shifted to other employees.

RIM says that it had planned to separate the roles of CEO and board chairman to conform to “current best practices in corporate governance” which separate the CEO and chairman roles. Balsillie will retain his positions as co-CEO and Director at RIM; John Richardson will be the new chairman of RIM’s board, which will expand from seven to nine members.

Overall, RIM expects restatement of financial earnings for fiscal 2004, 2005, 2006, and first quarter of 2007 is expected to reduce its aggregate earnings by as much as $250 million. The company will also make an adjustment of about $8 million to increase its tax expense for accounting for the options.

A number of technology companies are currently investigating the granting of stock options on their own, or after having been contacted by federal investigators.