SANM » Topics » Stock-based Compensation Expense

This excerpt taken from the SANM 8-K filed Nov 4, 2009.
Stock-based Compensation Expense, which consists of non-cash charges for the estimated fair value of stock options and unvested restricted stock units granted to employees, is excluded in order to permit more meaningful period-to-period comparisons of the Company’s results since the Company grants different amounts and value of stock options in each quarter. In addition, given the fact that competitors grant different amounts and types of equity award and may use different option valuation assumptions, excluding stock-based compensation permits more accurate comparisons of the Company’s core results with those of its competitors.

 

This excerpt taken from the SANM 8-K filed Jul 22, 2009.
Stock-based Compensation Expense, which consists of non-cash charges for the estimated fair value of stock options and unvested restricted stock units granted to employees, is excluded in order to permit more meaningful period-to-period comparisons of the Company’s results since the Company grants different amounts and value of stock options in each quarter. In addition, given the fact that competitors grant different amounts and types of equity award and may use different option valuation assumptions, excluding stock-based compensation permits more accurate comparisons of the Company’s core results with those of its competitors.

 

This excerpt taken from the SANM 10-K filed Jan 3, 2007.
Stock-Based Compensation Expense.   In May 2006, two analyst research reports were published wherein it was suggested that based on their analysis of the Company’s proxy statements that were filed with the Securities and Exchange Commission (“SEC”), the Company may have backdated stock option grants (the “Reports”) with respect to the officers of the Company.

Shortly after the Reports were published, the Company was contacted by the SEC with respect to its option practices for the years mentioned in the Reports. As a result of the publication of the Reports and concurrent with the SEC’s informal inquiry, a special meeting of the Board of Directors was convened on June 8, 2006. In response to these circumstances, the Board of Directors immediately created a Special Committee, which was comprised of independent disinterested directors, to conduct a comprehensive review of grants of stock options and restricted stock. The investigation was conducted with the assistance of a law firm and outside accounting consultants not previously involved with the Company’s stock option plans and Equity Plan administration. The review focused on the following:

·                    Option grants made to all employees, directors and consultants during the period from January 1997 through June 2006 (the “Investigation Period”);

·                    Restricted stock grants during the period from September 2003 (the date of the first grant of restricted stock) through July 2006; and

·                    Stock option grant modifications connected with employee terminations during the Investigation Period.

The Special Committee investigated substantially all of the option and restricted stock grants issued to individuals at all levels of the Company, including its directors and officers, during the Investigation Period. As a result of the investigation, it was determined that the original measurement date used by the Company for accounting purposes (the “Record Date”) for most of the options and restricted stock issued by the Company from January 1997 to June 2006 did not correspond to the closing price of the Company’s common stock on the appropriate measurement date. In nearly all such cases, the Record Date preceded the appropriate measurement date and the stock price on the Record Date was lower than the price on the appropriate measurement date.

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In assessing how the errors relating to stock option accounting occurred, the investigation report identified concerns with respect to the actions of two former executives of the Company who were each involved in the authorization, recording and reporting of stock option grants, restricted stock grants and stock option modifications related to employee terminations. In addition, the investigation report also identified deficiencies in internal controls, including the process of preparing and retaining accurate documentation relating to the Company’s stock option plan administration activities.

The Company’s historical procedures and methodologies for determining the number of shares and the Record Date of stock option and restricted stock grants made during the Investigation Period varied depending on the classification of the recipients of such awards. The following discusses, by category, the stock-based compensation processes generally followed by the Company to authorize and approve stock-based compensation awards:

This excerpt taken from the SANM 10-Q filed Dec 13, 2006.
Stock-Based Compensation Expense.  In May 2006, two analyst research reports were published wherein it was suggested that based on their analysis of the Company’s proxy statements that were filed with the Securities and Exchange Commission (“S.E.C”), the Company may have backdated stock option grants (the “Reports”) with respect to the officers of the Company.

Shortly after the Reports were published, the Company was contacted by the SEC with respect to its option practices for the years mentioned in the Reports. As a result of the publication of the Reports and concurrent with the SEC’s informal inquiry, a special meeting of the Board of Directors was convened on June 8, 2006. In response to these circumstances, the Board of Directors immediately created a Special Committee, which was comprised of independent disinterested directors, to conduct a comprehensive review of grants of stock options and restricted stock. The investigation was conducted with the assistance of a law firm and outside accounting consultants not previously involved with the Company’s stock option plans and Equity Plan administration.  The review focused on the following:

·      Option grants made to all employees, directors and consultants during the period from January 1997 through June 2006 (the “Investigation Period”);

·      Restricted stock grants during the period from September 2003 (the date of the first grant of restricted stock) through July 2006; and

·      Stock option grant modifications connected with employee terminations during the Investigation Period.

The Special Committee investigated substantially all of the option and restricted stock grants issued to individuals at all levels of the Company, including its directors and officers, during the Investigation Period. As a result of the investigation, it was determined that the original measurement date used by the Company for accounting purposes (the “Record Date”) for most of the options and restricted stock issued by the Company from January 1997 to June 2006 did not correspond to the closing price of the Company’s common stock on the appropriate measurement date. In nearly all such cases, the Record Date preceded the appropriate measurement date and the stock price on the Record Date was lower than the price on the appropriate measurement date.

In assessing how the errors relating to stock option accounting occurred, the investigation report identified concerns with respect to the actions of two former executives of the Company who were each involved in the authorization, recording and reporting of stock option grants, restricted stock grants and stock option modifications related to employee terminations. In addition, the investigation report also identified deficiencies in internal controls, including the process of preparing and retaining accurate documentation relating to the Company’s stock option plan administration activities.

The Company’s historical procedures and methodologies for determining the number of shares and the Record Date of stock option and restricted stock grants made during the Investigation Period varied depending on the classification of the recipients of such awards. The following discusses, by category, the Equity Award processes generally followed by the Company to authorize and approve equity-based compensation awards:

Board of Director Grants.  Non-employee Directors generally received automatic option grants pursuant to the 1995 Director’s Option Plan on October 1, or the first trading day thereafter.

Officer Grants.  Equity awards issued to employees of the Company were issued pursuant to the Company’s 1990 and 1999 Stock Option Plans. Equity awards issued to “reporting persons” as that term is defined under Section 16 of the Securities Exchange Act of 1934, as amended (“Officers”) were issued by authority of the Compensation Committee. Officer stock option grants were generally awarded annually at the October meeting of the Compensation Committee.

Non-Officer Grants.  Equity awards issued to non-Officer employees of the Company were generally administered as follows.  First, the Compensation Committee met and authorized a “pool” of stock options and restricted stock to be set aside for issuance to employees and delegated to management the responsibility for allocating the awards to specific recipients pursuant to the stock plan.  Upon management’s conclusion of this allocation process, a final list of award recipients, along with the number of stock options and/or restricted stock to be awarded to each individual was presented to executive management for final review and approval.

Results of the Special Committee’s investigation generally concluded that the Record Date used to account for most of the equity awards issued by the Company from January 1997 to June 2006 differed from the appropriate

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measurement date.  In nearly all such cases, the stock price on the appropriate measurement date was higher than the price on the Record Date.  The types of grant discrepancies uncovered by the investigation and the financial statement impact of these errors is summarized as follows:

Misdated Grants. From Fiscal 1997 through June 2006, the Company granted options on eleven different dates to its Officers. The investigation identified that the Record Date required revision on all seven (7) Officer Grants issued prior to October 2002 and no revisions were necessary for Officer Grants issued from October 2002 to the present. It was also determined that the Record Dates required revision with respect to nineteen (19) of the twenty-one (21) non-Officer Grants issued during the Investigation Period.  In nearly all cases, the Record Date preceded the appropriate measurement date and the stock price on the Record Date was lower than the price on the appropriate measurement date. With regard to these discrepancies, the Record Date originally used by the Company in some cases preceded the date a definitive list of equity award recipients was approved.  In other cases the stock price declined and the Record Date used was subsequent to the completion of the definitive list.  As such, the revised measurement date  was based on the date when the granting process of each of the Company’s grants was finalized.  As a result, the Company has recognized pre-tax compensation expense of $115.2 million, (including restricted shares) relating to correcting the Record Date for the fiscal period 1997 through 2005. For the three and nine month periods ended July 2, 2005, the Company recognized pre-tax incremental stock based compensation of approximately $15.0 million and $17.0 million, respectively.

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