Adaptec 2006 Annual Report Download - page 104

Table of Contents
• we treated unanimous written consents approving stock option grants as effective on the date stated on the consent, instead of the date upon which we
received the consent form containing the last signature required for unanimity; and
• we treated option grants to multiple employees as effective prior to the date upon which we had determined the exact number of options that would be
granted to each individual employee, or we failed to assure that lists of grantees and amounts of stock option grants could not be changed following
the date of grant; and
• we failed to assure that there were written minutes for all meetings of the Compensation Committee or Board of Directors that documented the grant
of stock options rather than relying on verbal approvals or failed to assure that there would be no missing documents with respect to stock option
grants;
• we failed to assure that our Stock Administration and Human Resources personnel received adequate supervision and training on how to comply with
the requirements of accounting standard APB 25 and that our personnel entered stock option grants into our share management accounting software
on a timely basis; and
• we failed to assure that there was proper delegation of authority to grant stock options and that documents evidencing delegation of authority and
selection of dates for stock grants were completed on a timely basis.
These actions and failures led to the restatement of our financial statements and therefore constitute material weaknesses in our internal controls at the time the
first stock option awards were first recorded.
Restatement of the Consolidated Financial Statements
In the second quarter of 2006, after an internal review of past option grants, we identified certain stock option grants, primarily from the years 1998-2001, where
evidence to support selected measurement dates was unclear. The Audit Committee of the Board of Directors completed a review of the Company’s stock option
practices with the assistance of independent counsel. The Audit Committee concluded that, while the Company used incorrect accounting measurement dates for
certain stock option grants, as more fully discussed above, those errors were not a product of any deliberate misconduct by the Company’s executives, staff or
members of the Board of Directors.
The Company has, however, restated certain financial results. In cases where the closing market price on the revised measurement date exceeded the NASDAQ
closing market price on the original measurement date, we have determined compensation expense equal to this excess to be recognized over the vesting term of
each option or until the option was surrendered during our “six month and a day” option exchange program, at which point any unamortized compensation
expense was accelerated into the period in which the options were surrendered for our 2002 option exchange program. By September 30, 2002, all options
granted between 1998 and 2001 for which we determined we would recognize additional stock based compensation expense were either fully vested or were
surrendered by employees so that all such stock-based compensation expense was recognized.
As a result, we adjusted the components of our opening stockholders’ equity on the balance sheet for 2003 and subsequent years. The effect of the adjustments
was to increase each of capital stock and paid-in capital and accumulated deficit on 2003 and subsequent balance sheets by approximately $89 million. These are
offsetting reclassification entries within stockholders’ equity on the balance sheet and the total opening amount of stockholders’ equity in 2003 did not change.
The restatement had no impact on our statements of operations or statements of cash flows in 2003 or subsequent periods.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠