Are BlackBerry providing full, plain and true disclosure to shareholders?

The BlackBerry Q3 financial report made the August disaster look good. Sales of devices to end users of 4.3 million did not all make it into revenue despite the August change in accounting policy to recognize sales only when the devices were sold to end users. The August report was at its highest misleading.

In its September 27, 2013 release of the August 31, 2013 quarterly results, the company reported that:

“During the second quarter the company recognized hardware revenue on approximately 3.7 million BlackBerry smartphones. Most of the units recognized are BlackBerry 7 devices, in part because certain BlackBerry 10 devices that were shipped in the second quarter of fiscal 2014 will not be recognized until those devices are sold through to end customers. During the quarter, approximately 5.9 million BlackBerry smartphones were sold through to end customers, which included shipments made prior to the second quarter and which reduced the Company’s inventory in the channel.”

In the accompanying financial statements, BlackBerry reported:

Report 1

You could reasonably conclude that sales of BlackBerry 10 devices would only be recognized when those devices were sold through to end users.

Fast forward to the December 20, 2013 report for the quarter ended November 30, 2013.

Report 2

So, BlackBerry sold 4.3 million devices to end users in the November quarter and recognized only 1.9 million of them as revenues. What happened to the other 2.4 million devices?

Apparently, they were recognized in revenues before the end of the August 31, 2013 quarter. When? Why?

It cannot be a policy to recognize revenues when BB10 devices are sold through to end users and then go ahead and recognize revenues from 2.4 million such devices that have not been sold through to end users.

There may be some technical explanation as to why this is the case. But investors are entitled to better than an after-the-fact technical explanation (which they have yet to receive) on key items like revenues from more devices sold and not recognized than were sold and were recognized.

How will the arms length buyers of the $1 billion debentures react to this disclosure?

How will the board of directors and audit committee deal with this from a governance perspective. Are they satisfied the company is providing full, plain and true disclosure to shareholders?

It’s guaranteed that the class action bar will have a field day with this!

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