Research In Motion's Sales And Expenses Are Growing 'Increasingly Uncomfortable'

rim research in motion shadow

Photo: AP

Research In Motion Limited (RIM) decided to pay around $12 million to both Jim Balsillie and Mike Lazaridis, although the former co-CEOs had displeased their investors. As the BlackBerry maker falls from grace and its shareholders grow restive, its financial statements are looking shakier.Research in Motion is giving Balsillie nearly $8 million and Lazaridis slightly more than $4 million. “Messrs. Lazaridis and Balsillie revolutionised the worldwide wireless industry with the introduction of the BlackBerry and forever changed how the world communicates,” the company explained in a regulatory filing on Thursday. Research in Motion also said it recognised their leadership as founders and noted that its annual revenues increased to just under $20 billion from $294 million over the last decade.

The explosive growth happened in the good old days, when status seekers proudly waved their BlackBerrys and Research in Motion had plenty of money to share with its investors. As the company struggles to compete in the new market for smartphones, its stock price has plunged nearly 70% in the past year to trade at $10.81 per share intra-day on Friday.

After investors led by Northwest & Ethical Investments L.P. criticised Balsillie’s and Lazaridis’ being both co-CEO and co-chairmen, they stepped down from the co-CEO role in January but remained on the board. Meanwhile Thorsten Heins became the new CEO.

Lazaridis said in a statement this January that he and Balsillie had told the board to make the move. “There comes a time in the growth of every successful company when the founders recognise the need to pass the baton to new leadership,” he said.

Heins, who had joined Research in Motion from Siemens Communications Group in December 2007, is taking the reins of a company whose finances are deterioriating. Research in Motion’s sales amounted to $18.4 billion in the year ended this March, down from $19.9 billion in the previous annual period, according to a regulatory filing.

To be fair, Heins said this January that the company had a strong foundation on which to build, noting positives such as its cash and negligible debt.

But much now depends on an uncertain future. With new products including the PlayBook 2.0 and BlackBerry 10 in the works, Research in Motion’s inventory rose to $1.03 billion in the quarter ended March compared to only $618 million during the same period last year. As the company bets that its supplies will be worth much more once they’re sold, the amount it spent to make them slipped to $2.79 billion as of March compared to $3.10 billion the same period last year.

As the relationship between Research in Motion’s sales and expenses grows increasingly uncomfortable, its financial statements as of March reflect an AGR score of 3. This doesn’t mean that Research in Motion has done anything wrong – its overall corporate governance rating is actually a B – but it does suggest higher accounting risk. In the quarters up until June 2011, when the AGR was a 41, Research in Motion’s score had been much better.

Research in Motion also said in the regulatory filing on Thursday that Antonio Viana-Baptista would not stand for board re-election at the company’s next meeting, and it had nominated Timothy Dattels to take his place.  Maybe Dattels, who had worked in investment banking at Goldman Sachs and is now a senior partner at the private equity firm TPG Capital, L.P., will have a few ideas for Heins in the coming months.

Region:   North America

Sector:   Technology

Industry:  Communications Equipment

Market Cap:   CAD 5,598.0mm (Large Cap)

ESG Rating:   B

AGR:   Very Aggressive (3)

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