JBL » Topics » Stock-Based Compensation

These excerpts taken from the JBL 10-Q filed Apr 8, 2009.

Note 4. Stock-Based Compensation

The Company applies the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS 123R”), for its share-based compensation plans. Under SFAS 123R, all share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in operations over the requisite service period.

The Company applies a lattice valuation model for all stock options and stock appreciation rights (collectively known as “Options”), excluding those granted under the Company’s employee stock purchase plan (“ESPP”), granted subsequent to August 31, 2005. The lattice valuation model is a more flexible analysis to value employee Options because of its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of Option holders. The Company uses the Black-Scholes model for valuing the shares granted under the ESPP and Options granted prior to September 1, 2005. Compensation for restricted stock awards (both restricted stock and restricted stock units) is measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. Compensation cost for all awards is recognized in operations, net of estimated forfeitures, on a straight-line basis over the requisite service period.

The Company recorded $8.6 million and $19.2 million of stock-based compensation expense in the Condensed Consolidated Statements of Operations for the three months and six months ended February 28, 2009, respectively, net of related tax effects of $(3.4) million and $0.8 million, respectively. The Company recorded $14.3 million and $16.1 million of stock-based compensation expense in the Condensed Consolidated Statements of Operations for the three months and six months ended February 29, 2008, respectively, net of related tax effects of $0.6 million and $4.0 million, respectively. The Company capitalizes stock-based compensation costs related to awards granted to employees whose compensation costs are directly attributable to the cost of inventory. At February 28, 2009, $0.5 million of stock-based compensation was classified as inventory costs on the Condensed Consolidated Balance Sheets.

The fair-value method is applied to non-employee awards in accordance with SFAS 123R. The measurement date for equity awards granted to non-employees is the earlier of the performance commitment date or the date the services required under the arrangement have been completed. The Company generally considers the measurement date for such non-employee

 

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awards to be the date that the award has vested. The Company re-measures the awards at each interim reporting period between the grant date and the measurement date. Non-employee awards are classified as liabilities on the Condensed Consolidated Balance Sheets and are therefore remeasured at each interim reporting period until the options are exercised, cancelled or expire unexercised. At February 28, 2009, $4.0 thousand related to non-employee stock-based awards was classified as a liability on the Company’s Condensed Consolidated Balance Sheets. The Company recognized a gain in the Condensed Consolidated Statement of Operations related to remeasuring the awards for the three months and six months ended February 28, 2009 of $12.0 thousand and $0.2 million, respectively. The Company recognized a gain of $0.1 million and $0.4 million in the Condensed Consolidated Statement of Operations, respectively, related to remeasuring the awards for the three months and six months ended February 29, 2008.

Cash received from options exercises under all share-based payment arrangements, including the Company’s ESPP, for the six months ended February 28, 2009 and February 29, 2008 was $3.4 million and $9.2 million, respectively. These proceeds for the six months ended February 28, 2009 and February 29, 2008 are off-set by $0.2 million and $1.2 million, respectively, in market value of restricted shares withheld by the Company to satisfy the minimum amount of its income tax withholding requirements. This market value was determined on the date that the restricted shares vested and resulted in the withholding of 23,988 shares of the Company’s common stock. The amount has been classified as treasury stock on the Condensed Consolidated Balance Sheets. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

As described in Note 6 – “Commitments and Contingencies,” the Company is involved in a putative shareholder class action and has received a subpoena from the U.S. Attorney’s office for the Southern District of New York in connection with certain historical stock option grants. The Company has cooperated and intends to continue to cooperate with the U.S. Attorney’s office. The Company cannot, however, predict the outcome of the litigation or that investigation.

Stock-Based Compensation

In accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payments (“SFAS 123R”) and the Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of operations on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right, risk-free rate, expected dividend yield and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements and “Risk Factors – We are involved in reviews of our historical stock option grant practices.”

These excerpts taken from the JBL 10-Q filed Jan 9, 2009.

Note 4. Stock-Based Compensation

The Company applies the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS 123R”), for its share-based compensation plans. Under SFAS 123R, all share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in operations over the requisite service period.

The Company applies a lattice valuation model for all stock options and stock appreciation rights (collectively known as “Options”), excluding those granted under the Company’s employee stock purchase plan (“ESPP”), granted subsequent to August 31, 2005. The lattice valuation model is a more flexible analysis to value employee Options because of its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of Option holders. The Company uses the Black-Scholes model for valuing the shares granted under the ESPP and Options granted prior to September 1, 2005. Compensation for restricted stock awards (both restricted stock and restricted stock units) is measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. Compensation cost for all awards is recognized in operations, net of estimated forfeitures, on a straight-line basis over the requisite service period.

The Company recorded $10.6 million and $1.7 million of stock-based compensation expense in the Condensed Consolidated Statements of Operations for the three months ended November 30, 2008 and 2007, respectively, net of related tax effects of $4.2 million and $3.4 million, respectively. The Company capitalizes stock-based compensation costs related to awards granted to employees whose compensation costs are directly attributable to the cost of inventory. At November 30, 2008, $0.3 million of stock-based compensation was classified as inventory costs on the Condensed Consolidated Balance Sheet.

The fair-value method is applied to non-employee awards in accordance with SFAS 123R. The measurement date for equity awards granted to non-employees is the earlier of the performance commitment date or the date the services required under the arrangement have been completed. The Company generally considers the measurement date for such non-employee awards to be the date that the award has vested. The Company re-measures the awards at each interim reporting period between the grant date and the measurement date. Non-employee awards are classified as liabilities on the Condensed Consolidated Balance Sheet and are therefore remeasured at each interim reporting period until the options are exercised, cancelled or expire unexercised. At November 30, 2008, $16.0 thousand related to non-employee stock-based awards was classified as a liability on the Company’s Condensed Consolidated Balance Sheet. The Company recognized a gain in the Condensed Consolidated Statement of Operations related to remeasuring the awards for the three months ended November 30, 2008 and 2007 of $0.1 million and $0.3 million, respectively.

 

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Cash received from Options exercises under all share-based payment arrangements, including the Company’s ESPP, for the three months ended November 30, 2008 and 2007 was $65.0 thousand and $2.1 million, respectively. These proceeds for the three months ended November 30, 2008 are off-set by $0.2 million in market value of restricted shares withheld by the Company to satisfy the minimum amount of its income tax withholding requirements. This market value was determined on the date that the restricted shares vested and resulted in the withholding of 23,988 shares of the Company’s common stock. The amount has been classified as treasury stock on the Condensed Consolidated Balance Sheet. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

As described in Note 6 – “Commitments and Contingencies,” the Company is involved in a putative shareholder class action and has received a subpoena from the U.S. Attorney’s office for the Southern District of New York in connection with certain historical stock option grants. The Company has cooperated and intends to continue to cooperate with the U.S. Attorney’s office. The Company cannot, however, predict the outcome of the litigation or that investigation.

Stock-Based Compensation

In accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payments (“SFAS 123R”) and the Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of operations on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right, risk-free rate, expected dividend yield and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements and “Risk Factors – We are involved in reviews of our historical stock option grant practices.”

These excerpts taken from the JBL 10-K filed Oct 29, 2008.

o. Stock-Based Compensation

The Company applies the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS 123R”), for its share-based compensation plans. Under SFAS 123R, all share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in operations over the requisite service period.

 

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The Company applies a lattice valuation model for all stock options and stock appreciation rights (collectively known as “Options”), excluding shares granted under the Company’s employee stock purchase plan (“ESPP”), granted subsequent to August 31, 2005. The lattice valuation model is a more flexible analysis to value employee Options because of its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of Option holders. The Company uses the Black-Scholes model for valuing the shares granted under the ESPP and Options granted prior to September 1, 2005. Compensation for restricted stock awards is measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. Compensation cost for all awards is recognized in operations, net of estimated forfeitures, on a straight-line basis over the requisite service period.

The Company recorded $30.6 million, $32.5 million and $32.4 million of stock-based compensation expense in the Consolidated Statements of Earnings for the fiscal years ended August 31, 2008, 2007, and 2006, respectively, net of related tax effects of $5.8 million, $10.8 million and $11.5 million, respectively. The Company capitalizes stock-based compensation costs related to awards granted to employees whose compensation costs are directly attributable to the cost of inventory. At August 31, 2008, $0.3 million of stock-based compensation was classified as inventory costs on the Consolidated Balance Sheet.

During the fiscal year ended August 31, 2007, the Company recorded an additional $4.9 million of compensation expense in the Consolidated Statements of Earnings, as a result of agreeing to pay certain 2006 personal tax liabilities incurred by certain option holders who have exercised Section 409A Affected Options as defined under Internal Revenue Code Section 409A.

The fair-value method is applied to non-employee awards in accordance with SFAS 123R. The measurement date for equity awards granted to non-employees is the earlier of the performance commitment date or the date the services required under the arrangement have been completed. The Company generally considers the measurement date for such non-employee awards to be the date that the award has vested. The Company re-measures the awards at each interim reporting period between the grant date and the measurement date. Non-employee awards are classified as liabilities on the Condensed Consolidated Balance Sheet and are therefore remeasured at each interim reporting period until the options are exercised, cancelled or expire unexercised. At August 31, 2008 and 2007, $0.2 million and $0.5 million, respectively, related to non-employee stock option awards was classified as a liability on the Company’s Consolidated Balance Sheet and a gain of $0.3 million and $0.3 million was recorded in the Consolidated Statement of Earnings for the twelve months ended August 31, 2008 and 2007, respectively, resulting from remeasurement of the awards.

Cash received from exercises under all share-based payment arrangements, including the Company’s ESPP, for the fiscal year ended August 31, 2008, 2007 and 2006 was $16.5 million, $25.1 million, and $131.6 million, respectively. The proceeds for the fiscal year ended August 31, 2008 were offset by $2.4 million of restricted shares withheld by the Company to satisfy the minimum amount of its income tax withholding requirements. The market value of the restricted shares withheld was determined on the date that the restricted shares vested and resulted in the withholding of 156,037 shares of the Company’s common stock. The amount has been classified as treasury stock on the Consolidated Balance Sheet. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

As a result of the Company meeting specific performance goals, as defined in certain stock option agreements, the vesting of 600,000 Options was accelerated in the first quarter of fiscal year 2006. The vesting acceleration resulted in the recognition of approximately $7.7 million in compensation expense during fiscal year 2006 that would have otherwise been recognized in fiscal years 2007 through 2010.

As described in Note 11 – “Commitments and Contingencies”, in connection with certain historical stock option grants the Company is involved in a putative shareholder class action and a Securities and Exchange Commission (“SEC”) informal inquiry, and has received a subpoena from the U.S. Attorney’s office for the

 

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Southern District of New York. The Company has cooperated and intends to continue to cooperate with the SEC and the U.S. Attorney’s office. The Company cannot, however, predict the outcome of the litigation or those investigations.

See Note 12 – “Stockholders’ Equity” for further discussion of stock-based compensation expense.

o. Stock-Based Compensation

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">The Company applies the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS 123R”), for
its share-based compensation plans. Under SFAS 123R, all share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in operations over the requisite service period.

 


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The Company applies a lattice valuation model for all stock options and stock appreciation rights
(collectively known as “Options”), excluding shares granted under the Company’s employee stock purchase plan (“ESPP”), granted subsequent to August 31, 2005. The lattice valuation model is a more flexible analysis to
value employee Options because of its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of Option holders. The Company uses the Black-Scholes model for valuing the
shares granted under the ESPP and Options granted prior to September 1, 2005. Compensation for restricted stock awards is measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of
the Company’s common stock. Compensation cost for all awards is recognized in operations, net of estimated forfeitures, on a straight-line basis over the requisite service period.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The Company recorded $30.6 million, $32.5 million and $32.4 million of stock-based compensation expense in the Consolidated Statements of Earnings for
the fiscal years ended August 31, 2008, 2007, and 2006, respectively, net of related tax effects of $5.8 million, $10.8 million and $11.5 million, respectively. The Company capitalizes stock-based compensation costs related to awards granted to
employees whose compensation costs are directly attributable to the cost of inventory. At August 31, 2008, $0.3 million of stock-based compensation was classified as inventory costs on the Consolidated Balance Sheet.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">During the fiscal year ended August 31, 2007, the Company recorded an additional $4.9 million of compensation expense in the Consolidated Statements
of Earnings, as a result of agreeing to pay certain 2006 personal tax liabilities incurred by certain option holders who have exercised Section 409A Affected Options as defined under Internal Revenue Code Section 409A.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The fair-value method is applied to non-employee awards in accordance with SFAS 123R. The measurement date for equity awards granted to non-employees is
the earlier of the performance commitment date or the date the services required under the arrangement have been completed. The Company generally considers the measurement date for such non-employee awards to be the date that the award has vested.
The Company re-measures the awards at each interim reporting period between the grant date and the measurement date. Non-employee awards are classified as liabilities on the Condensed Consolidated Balance Sheet and are therefore remeasured at each
interim reporting period until the options are exercised, cancelled or expire unexercised. At August 31, 2008 and 2007, $0.2 million and $0.5 million, respectively, related to non-employee stock option awards was classified as a liability on
the Company’s Consolidated Balance Sheet and a gain of $0.3 million and $0.3 million was recorded in the Consolidated Statement of Earnings for the twelve months ended August 31, 2008 and 2007, respectively, resulting from remeasurement of
the awards.

Cash received from exercises under all share-based payment arrangements, including the Company’s ESPP, for the fiscal
year ended August 31, 2008, 2007 and 2006 was $16.5 million, $25.1 million, and $131.6 million, respectively. The proceeds for the fiscal year ended August 31, 2008 were offset by $2.4 million of restricted shares withheld by the Company
to satisfy the minimum amount of its income tax withholding requirements. The market value of the restricted shares withheld was determined on the date that the restricted shares vested and resulted in the withholding of 156,037 shares of the
Company’s common stock. The amount has been classified as treasury stock on the Consolidated Balance Sheet. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">As a result of the Company meeting specific performance goals, as defined in certain stock option agreements, the vesting of 600,000 Options was
accelerated in the first quarter of fiscal year 2006. The vesting acceleration resulted in the recognition of approximately $7.7 million in compensation expense during fiscal year 2006 that would have otherwise been recognized in fiscal years 2007
through 2010.

As described in Note 11 – “Commitments and Contingencies”, in connection with certain historical stock option
grants the Company is involved in a putative shareholder class action and a Securities and Exchange Commission (“SEC”) informal inquiry, and has received a subpoena from the U.S. Attorney’s office for the

 


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Southern District of New York. The Company has cooperated and intends to continue to cooperate with the SEC and the U.S. Attorney’s office. The Company
cannot, however, predict the outcome of the litigation or those investigations.

See Note 12 – “Stockholders’ Equity”
for further discussion of stock-based compensation expense.

This excerpt taken from the JBL 10-Q filed Jul 8, 2008.

Stock-Based Compensation

In accordance with the provisions of SFAS 123R and the Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of earnings on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements. See “Risk Factors – We are involved in reviews of our historical stock option grant practices.”

This excerpt taken from the JBL 10-Q filed Apr 9, 2008.

Stock-Based Compensation

In accordance with the provisions of SFAS 123R and the Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of earnings on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements. See “Risk Factors – We are involved in reviews of our historical stock option grant practices.”

This excerpt taken from the JBL 10-Q filed Jan 8, 2008.

Stock-Based Compensation

In accordance with the provisions of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment, (“SFAS 123R”) and the Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of earnings on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements. See “Risk Factors – We are involved in reviews of our historical stock option grant practices.”

 

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This excerpt taken from the JBL 10-K filed Oct 25, 2007.

Stock-Based Compensation

In accordance with the provisions of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment, (“SFAS 123R”) and the Security and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our Consolidated Statement of Earnings on September 1, 2005 based on the fair value of our stock-based awards. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 12 – “Stockholders’ Equity” to the Consolidated Financial Statements.

This excerpt taken from the JBL 10-Q filed Jul 6, 2007.

Stock-Based Compensation

In accordance with the provisions of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment, (“SFAS 123R”) and the Security and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of earnings on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements and “Risk Factors – We are involved in reviews of our historical stock option grant practices.”

This excerpt taken from the JBL 10-Q filed May 24, 2007.

Stock-Based Compensation

In accordance with the provisions of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment, (“SFAS 123R”) and the Security and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of earnings on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements. See “Risk Factors – We are involved in reviews of our historical stock option grant practices.”

This excerpt taken from the JBL 10-Q filed May 24, 2007.

Stock-Based Compensation

In accordance with the provisions of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment, (“SFAS 123R”) and the Security and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of earnings on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements and “Risk Factors – We are involved in reviews of our historical stock option grant practices.”

This excerpt taken from the JBL 10-K filed May 15, 2007.

Stock-based compensation

The Company has made the adjustments reflected above that relate to stock-based compensation because it decided that it had made certain errors in accounting for certain options grants. The Company reached this conclusion in consultation with accounting experts and legal counsel and in consideration of the findings of the Special Committee and its internal review.

The accounting literature in effect during the relevant period was primarily Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). This guidance focused on the establishment of a “measurement date” for purposes of determining compensation cost relating to option awards. Under APB 25, “measurement date” is defined as the first date on which both of the following are known: (1) the number of shares that an individual employee is entitled to receive and (2) the option or purchase price, if any. This accounting guidance provided that companies would not have to record compensation expense in connection with options granted to employees, officers and directors if the quoted market price of the stock at the

 

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measurement date of the option award was equal to the amount the employee was required to pay. In contrast, companies would have to record compensation expense to the extent that the quoted market price of the stock at the measurement date exceeded the amount the employee is required to pay. Generally, the Company, as did other companies, historically set the exercise price for its option grants by reference to the closing price of the Company’s stock on the day before the date of the grant. We refer to this as the “measurement date” for the grant.

With this background, the errors that the Company made can be categorized as follows:

(a) Incorrect identification of measurement dates. As a general proposition, the Company identified the grant date, which it used to establish the measurement date, as the date that the Compensation Committee (or some other decision-maker, as permitted) met or otherwise acted to grant options. However, in some situations, the grant may not have been “final,” on that date, as defined in the accounting literature, because it may still have been subject to the exercise of discretion as to the individuals who were to receive the options or the amounts they were to receive. To identify these situations, the Company reviewed documentary and other evidence to determine the dates on which the Compensation Committee (or other decision-maker) decided the terms of the grants. In those situations where the Company determined that the grant had not been finalized until some date after the grant date that the Company previously had used to establish the measurement date for purposes of calculating compensation expense, the Company used the newly-identified grant date to establish the appropriate measurement date, and recalculated compensation expense based on that date. More specifically, the methodology that the Company used to identify new or to confirm previously identified grant dates, and to recalculate compensation expense, identified the point in time at which the exercise of discretion no longer applied to the grant. Many changes to lists of grant recipients after the originally identified measurement date were administrative in nature, such as changes to an individual’s name or employment status. The Company did not consider such administrative changes to represent the exercise of discretion. The Company did, however, consider other changes to grant lists to represent the exercise of discretion and recalculated compensation expense accordingly. The types of situations that the Company considered to be within this latter category included: (i) situations in which there were grants to groups of individuals, but subsequent changes to the grants to some members of those groups, with the continued use of the initial measurement date; (ii) situations in which there was a final grant to certain individuals and a subsequent grant to other individuals, with the use of the same measurement date as the initial grant; (iii) situations in which there was a final grant to individuals and a subsequent decision to grant additional options to some of the same individuals, with the use of the same measurement date as the initial grant; and (iv) a situation in which grants to certain officers and a small group of highly-valued non-officers were believed to be final when, in fact, they were subject to further discretionary adjustments, yet the Company continued to use the originally identified grant date for purposes of establishing the measurement date. Additionally, there was a situation in which a member of the administrative staff mistakenly believed that a grand had occurred on a particular date, and so identified a measurement date based on that date when the grant, in fact, had occurred on a different date. Other than as described below, the number of employees and grants affected by the errors was minimal.

In the Company’s fiscal years 2002 and 2003, grants to certain sub-groups of non-executive employees totaling 187 and 1,563 individuals, respectively, continued to change after the previously identified grant dates. Accordingly, the Company calculated the compensation expense associated with those grants based on the date on which the grants to any particular list of employees became final. The 187 individuals impacted in fiscal year 2002 represented a small portion of the total grants issued and the 1,563 individuals impacted in fiscal year 2003 represented substantially all non-executive employees receiving a grant.

Beginning in our fiscal year 2004, the Company changed our process for determining option awards to non-executive employees. In that year, the Company began to use a job function classification, rather than a salary-based formula, to determine these awards. Beginning in the Company’s fiscal year 2004, management, acting with the Compensation Committee’s approval, retained limited discretion to adjust awards within groups of employees. Following these discretionary adjustments (as well as adjustments to reflect administrative changes),

 

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management compiled the various lists of employees into a final list and distributed the options. In recognition of this change in process, the Company has adjusted our methodology for determining the date the list associated with grants to non-officer employees issued in those years was final. Accordingly, in determining the measurement date the Company has treated lists of grants to 2,180 and 2,262 non-executive employees issued in our fiscal years 2004 and 2005, respectively, as not final until they were complied by management as final, regardless of whether any particular list, in fact, changed.

Due to the methodology used in fiscal years 2002 through 2005, changes to the measurement date of a few employees could cause the measurement date for a large number of employees to change.

As a result of the aforementioned, our historical financial statements have been restated to increase stock-based compensation expense by a total of $37.3 million recognized over the applicable vesting periods through fiscal year 2005. The adjustments have been recorded to selling, general and administrative expense in the Consolidated Statement of Earnings.

(b) Subsequent change to a finalized grant. After the Company decided on October 12, 2000 to grant stock options to approximately 1,510 non-executive, representing employees, the price of the Company’s stock declined. Rather than issue “underwater” options, the Company decided on December 22, 2000 to issue new grants. The Company did not do that with respect to officer grants approved at the same time. The Company has decided that it should have characterized this as a cancellation and re-pricing of the October 12, 2000 grant for non-executive employees. Under APB 25, as interpreted by FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB No. 25), and other related interpretations, such a repricing requires variable accounting for the awards until that award is exercised, is forfeited, or expires unexercised. This was not identified in the Company’s original financial reporting processes and, therefore, it was not properly accounted for in the financial statements as a variable award, which requires re-measurement at each interim reporting period. As a result, the Company’s historical financial statements have been restated to increase stock-based compensation expense by a total of $13.2 million which has been recognized beginning as of December 22, 2000, the date of modification, and over each interim reporting period thereafter through fiscal year 2005. The adjustments have been recorded to selling, general and administrative expense in the Consolidated Statement of Earnings.

(c) Stock option grants to a director in his capacity as a consultant. The Company has determined that from fiscal years 1998 through 2002, it did not properly account for stock option awards that were granted to a non-employee director who it retained to provide consulting services. These awards were not properly accounted for in accordance with Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, and related interpretations. As a result, the Company’s historical financial statements have been restated to increase stock-based compensation expense by a total of $3.7 million which has been recognized through fiscal year 2005. The adjustments have been recorded to selling, general and administrative expense in the Consolidated Statement of Earnings.

This excerpt taken from the JBL 10-Q filed Jul 10, 2006.

Stock-Based Compensation

In accordance with the provisions of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment, (“SFAS 123R”) and the Security and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of earnings on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements. As described herein, we are involved in shareholder derivative actions and a Securities and Exchange Commission (“SEC”) Informal Inquiry, and have received a subpoena from the U.S. Attorney’s office for the Southern District of New York in connection with certain historical stock option grants. We cannot predict the outcome of those investigations.

This excerpt taken from the JBL 10-Q filed Apr 7, 2006.

Stock-Based Compensation

In accordance with the provisions of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment, (“SFAS 123R”) and the Security and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), we began recognizing stock-based compensation expense in our consolidated statement of earnings on September 1, 2005. The fair value of options granted prior to September 1, 2005 were valued using the Black-Scholes model while the stock appreciation rights granted after this date were valued using a lattice valuation model. Option pricing models require the input of subjective assumptions, including the expected life of the option or stock appreciation right and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock awards that are expected to vest as a result of satisfaction of time-based vesting schedules or the achievement of certain performance conditions. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation could increase or decrease. For further discussion of our stock-based compensation, refer to Note 4 – “Stock-Based Compensation” to the Condensed Consolidated Financial Statements.

 

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