More trouble for Symbol Technologies Inc.
The bar-code giant, which is already restating five years of financials and is being investigated by at least two government agencies, Friday said it will delay releasing its 2002 annual report due to "two significant accounting issues."
Symbol had planned to file its annual report by the end of August, but the company now maintains that it is impossible to commit to a timetable.
The first new significant issue is related to the exercising of stock option; the second is related to the revenue recognition for two types of transactions occurring during the restatement period.
"Due to the unique nature of the stock option exercise issue, we are working together with the company's external auditors, as well as the staff of the SEC, to determine the appropriate accounting treatment for the company's stock option plans," said chief financial officer Mark Greenquist in a statement. "In addition, we are working with our external auditors to resolve the revenue recognition timing matters."
The company said that during its internal investigation — conducted by external legal and accounting firms — it discovered that a number of officers and directors broke company rules during the exercise of stock options in 2002 and prior periods.
Symbol explained that sometime during the early 1990s, the individuals used a "look-back" period to determine the market price to be used in connection with the exercise of their stock options. The look-back period generally extended back to the first day of the month in which the options were exercised, but usually no more than 30 days, permitting the retroactive designation of the exercise date and the associated market price.
In a sense, the individuals were able to name their own price for the options exercise.
In addition, the company said that it found instances in which option holders did not remit timely payment or shares when exercising stock options in order to hold the stock. Symbol added that this, too, was not in conformance with the provisions of the incentive stock option plans.
These undocumented practices ceased in July 2002 with the passage of the Sarbanes-Oxley Act of 2002, noted Symbol, which added that it has taken steps, including personnel changes, to ensure that they do not recur.
As a result of these practices, stated Symbol, in the company's restated financial statements a portion (and perhaps all) of the grants of stock options under the company's various plans will be accounted for using variable accounting.
Stock options subject to variable accounting are marked to market at the end of each accounting period, with the resulting change in value of outstanding stock options shown as compensation expense in the company's income statement, the company noted. While variable accounting would likely result in large period-to-period fluctuations in reported net income, the impact to the company's net worth would be minimal, it added, since changes in retained earnings would be negated by offsetting changes to other equity accounts. The company also said that variable accounting would have no effect on its cash or debt balances.
SEC Questions Governance of NYSE
The Securities and Exchange Commission has asked the New York Stock Exchange for "full and complete" details on how it determines the pay package of its chairman, Richard Grasso, according to Reuters.
In a letter, SEC Chairman William Donaldson said that approval of Grasso's pay package — which recently amounted to nearly $140 million in accrued savings, benefits, and incentives — "raises serious questions regarding the effectiveness of the NYSE's current governance structure."
Donaldson enclosed a list of questions with the letter to H. Carl McCall, an NYSE board member and head of the exchange's Human Resources and Compensation committee, requesting a response by September 9. A spokesman for the NYSE said that McCall received the letter and he will respond by the deadline, reported Reuters.
(Editor's note: For an extensive examination of CFO pay, see the annual CFO.com report on compensation, coming soon. Sign up today and we'll send you an email alert when we publish our report.)
NBC Wins Vivendi Auction
The NBC television network, a unit of General Electric, on Tuesday clinched exclusive negotiating rights to complete a merger with Vivendi, reported Reuters.
If the deal is concluded, it will "create an exceptional media company, which would rank among the most profitable in the U.S.," said Jean-Rene Fourtou, Vivendi's chairman and CEO, according to the wire service.
General Electric will control 80 percent of the merged entity, to be run by NBC CEO Bob Wright. In addition, noted Reuters, shareholders of Vivendi Universal Entertainment will receive a $3.8 billion "cash consideration."
According to the wire service, one source close to the deal said Vivendi valued its 20 percent stake at $9 billion, which implied a $45 billion valuation for the new company. (No word on how Vivendi is coping with the IRS tax hangover that we reported on last week.)
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