Another day, another preliminary earnings report. This time, the hesitant handout comes from communications gadget maker Research In Motion
Driven by strong sales of new products such as the BlackBerry Pearl, RIM grew its subscriber base by a solid 14.3% during the quarter. That led to a 49% year-over-year revenue increase and a 52.5% EPS boost. Cash flow numbers were similarly positive, but if you back out a large inventory increase and other balance sheet items, the yearly gain was a somewhat less impressive 18%. Try out Tom Gardner's owner earnings procedure on RIM's numbers to see what I mean. But again, everything here except revenues and subscriber counts could change at any minute, depending on the findings of the stock options review committee.
RIM's options review started out as a voluntary action back in September, with no SEC or DOJ involvement. But by the end of October, the SEC had launched an informal inquiry, raising the company's stakes a bit. So far, RIM has found at least $45 million of overstated historical earnings, mostly before the year 2002. Management says that the impact of any restatements on 2007 results, including the just-completed third quarter, will be "immaterial." The process is expected to run its course before the year-end report comes due, covering a fiscal period ending March 3, 2007. There's your deadline, then.
Options accounting problems and the resulting late SEC filings annoy the heck out of me, particularly when the perpetrators are otherwise stable, well-respected businesses. Examples include Apple Computer and Marvell Technology, but the malaise spread far beyond tech circles. Home Depot is another company conducting investigations; homebuilder KB Home is another.
The patent infringement lawsuit days are behind the company, and the stock doesn't even look that expensive at a P/E valuation of 28 times forward earnings. And RIM has a hefty moat around its competitive advantage. Rivals such as Samsung and Nokia
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