Risk Management

Sanmina Puts Backdating Woes Behind It

Settlement of federal and state litigation requiries new governance measures, creates a benefit of $16.5 million.
Stephen TaubMarch 10, 2009

Sanmina-SCI Corp. settled federal and state litigation from 2006 that stemmed from some of its stock-option grant practices. Under the deal, certain options and cash payments will be repriced and cancelled, resulting in a $16.5 million benefit to the electronics contract manufacturer.

In addition, the San Jose, Calif.-based provider of electronics manufacturer services agreed to implement corporate governance measures that include enhanced stock option granting and compliance procedures. And Sanmina-SCI will pay $4 million of plaintiffs’ attorney fees.

In October 2006, Sanmina-SCI said without identifying any individuals that an internal probe into its stock-option practices had unearthed “concerns regarding the actions of a former and a current member of management,” and that the company had accepted the resignation of the current manager. The current and former manager were “involved in the authorization, recording, and reporting of stock option grants,” according to the company.

Conducted by a special committee of the company, the investigation found that most option grants to executives and other employees between 1997 and 2006 had been neither dated nor accounted-for correctly, the company said in a press release. The lapses will require the company to restate its historical financial results and record non-cash compensation charges.

Sanmina’s special committee also immediately acted to remediate “weaknesses in the company’s internal controls over its stock administration practices,” according to the company. The shortcomings had led to the incorrect dating and accounting, it said.

The actions the committee took include setting fixed grant dates for all stock-based awards; barring officers and other identified executives from getting equity-based awards during blackout periods; requiring auditable and verifiable proof of the approval date grants connected to routine new hires, promotions and certain discretionary awards; and requiring compensation committee approval for issuing all other grants.

“I regret that our stock options program was not properly administered in the past and I apologize to our stockholders, employees, and customers for any impact or concerns these issues may have caused,” Sanmina-SCI CEO Jure Sola said at the time.

In August 2006, Sanmina-SCI first reported that the special committee found potential discrepancies between the actual dates of measurement used for financial accounting purposes and the recorded grant dates of certain stock option awards.