This excerpt taken from the SAPE 10-K filed Jun 12, 2007.
Related Tax Adjustments.
The Company reviewed the tax effect associated with the Adjusted Options. Certain of the Adjusted Options were originally intended to be Incentive Stock Options (ISOs), under U.S. tax regulations. However, by definition, ISOs may not be granted with an exercise price less than the fair market value of the underlying stock on the date of grant. Due to the impact of the measurement date changes on the qualified status of affected ISOs, they may no longer qualify as ISOs under the regulations. Therefore, the affected ISOs were accounted for as if these options were non-qualified stock options for income tax accounting purposes. The Company recorded a liability for the unpaid income and employment taxes plus potential penalties and interest based upon the change in status of the affected options. The Company recorded a liability for the taxes, penalties and interest due based upon the change in status of the options in the amount of $17.8 million for the periods from 1996 through 2006. The Company recorded reversals of this accrual in the amount of $16.5 million through 2006 due to the expiration of the tax statute of limitations for years 2002 and prior. These adjustments resulted in a net charge to expense of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$1.3 million over the period 1997 to 2006. The net charge (benefit) recorded by the Company for these liabilities for the period indicated is as follow (in thousands):
Because the Company has a full valuation allowance against its deferred tax assets in the U.S., the income tax benefit of stock-based compensation adjustments described above were not material to any periods.
The following table sets forth, on a year-by-year basis, the impact of the Companys restatement and the related tax effects as a result of historical stock option practices, as well as other immaterial adjustments unrelated to historical stock option practices that were previously unrecorded. The Company recorded other immaterial adjustments that were not previously recorded in the financial statements which consisted primarily of corrections to restructuring related lease obligations, adjustments to the period in which leasehold improvement write-offs were recorded in connection with restructured facilities and other miscellaneous adjustments. The pre-tax impact of all adjustments are set forth below: