Finisar Corporation Files Quarterly and Annual Reports, Including Restated Financial Statements
SUNNYVALE, CA, Dec 04, 2007 (MARKET WIRE via COMTEX News Network) -- Finisar Corporation (NASDAQ: FNSR), a technology leader in gigabit fiber optic solutions for high-speed data networks, today announced that it has completed and filed with the SEC its annual report on Form 10-K for the fiscal year ended April 30, 2007. The Company has also completed and filed with the SEC its previously delayed quarterly reports on Form 10-Q for the second and third quarters of fiscal 2007 and the first quarter of fiscal 2008. These reports contain financial statements that were restated as a result of the previously announced investigation of the Company's historical stock option granting practices conducted by the Audit Committee of the Company's Board of Directors.
With these filings, Finisar believes that it has complied with applicable Nasdaq rules and satisfied conditions imposed by Nasdaq for the continued listing of the Company's common stock on the Nasdaq Global Select Market; however, the Company awaits confirmation from Nasdaq.
Summary of Stock Option Investigation
In late August 2006, Finisar's management commenced a preliminary internal review of certain of Finisar's historical stock options granted since its initial public offering in November 1999. The review was voluntarily initiated by the Company due to widespread media attention concerning the stock option granting practices of many companies and was not in response to a news report or an investigation concerning Finisar by the SEC or any other governmental agency.
Following management's initial review, the Audit Committee determined to undertake a more comprehensive investigation of the Company's historical practices for granting and accounting for stock options from the date of Finisar's initial public offering through September 8, 2006. On November 30, 2006, Finisar issued a press release and filed a current report on Form 8-K announcing the commencement of this investigation and disclosing that its previously filed financial statements could no longer be relied upon. On June 12, 2007, Finisar issued a follow-up press release and filed a current report on Form 8-K summarizing the initial findings of the investigation as of that date. With the filing today of its previously delayed SEC reports, the Company has completed its investigation.
Based on the results of its investigation, the Audit Committee determined that measurement dates used by the Company when accounting for certain stock option grants were incorrect under the applicable provisions of APB 25 and related interpretations. The Audit Committee determined that the incorrect measurement dates were the result of process-related deficiencies and that the individuals involved in the option granting process lacked a thorough understanding of the relevant accounting rules. The Audit Committee found no evidence of intentional misconduct or malfeasance on the part of Company personnel involved in selecting and approving the grant dates or administering the stock option granting process. A detailed description of the scope and findings of the investigation can be found in the Company's annual report on Form 10-K that was filed today.
On the basis of the Audit Committee's initial findings, the Company stated in its June 12, 2007 press release that options granted to the Company's officers and directors during the review period had been properly approved and granted by the Board or the Board's Compensation Committee. Since June 12, 2007, management and its consultants, under the direction of the Audit Committee, performed additional detailed work to establish the proper measurement dates for grants for which the original measurement dates had been determined to be incorrect and to determine the proper accounting for these grants. In the course of this additional work, it was discovered that a broad-based annual performance grant of options to purchase a total of 2,540,000 shares made in June 2000 by the Chief Executive Officer, acting as the Stock Plan Committee, had erroneously included grants of options to purchase an aggregate of 235,000 shares to three of Finisar's officers (including its Chief Financial Officer). The Audit Committee has not located conclusive evidence that the three officer grants were separately approved by the Board of Directors or the Compensation Committee; however, the Audit Committee considers the officer grants to be a valid obligation of the Company. The measurement dates for these grants were revised along with the grants to non-officers with which they were included. None of the three officers exercised the options related to these grants.
Summary of Financial Statement Impact
Based on the results of the investigation by the Audit Committee, and the additional work performed by management and its consultants, the Company revised option grant measurement dates resulting in total additional non-cash stock-based compensation expense of $107.6 million, to be recognized in fiscal years 2000 through 2006. Approximately 85% of this total additional stock-based compensation expense, or $91.1 million, is attributable to six key granting actions that occurred between November 1999 and August 2003, representing a total of approximately 21 million shares, or 20% of all options granted during the review period. Approximately 82% of the additional stock-based compensation expense was recognized prior to fiscal 2004. In addition, the Company identified modifications to certain stock options related to extended leaves of absence that resulted in additional non-cash compensation expense of $5.0 million.
The impact of these adjustments over fiscal years 2000 through 2006 is summarized as follows (in thousands):
Fiscal Year End April 30, ---------------------------------------------------- 2000 2001 2002 2003 2004 2005 2006 Total ------ ------- ------- ------- ------- ------ ------ -------- Stock-based compensation expense resulting from revised measurement dates $5,416 $27,160 $31,741 $24,441 $ 8,296 $3,257 $7,303 $107,614 Other - leaves of absence - - 39 41 4,791 183 - 5,054 ------ ------- ------- ------- ------- ------ ------ -------- Total $5,416 $27,160 $31,780 $24,482 $13,087 $3,440 $7,303 $112,668 ====== ======= ======= ======= ======= ====== ====== ========
Including related payroll taxes and inventory capitalization effects, the Company recognized a total of $113.6 million in additional pretax expense for fiscal years 2000 through 2006, all but $1.6 million of which was non-cash. Approximately $3.6 million of deferred stock-based compensation expense remained to be amortized as of April 30, 2006. The Company did not recognize any significant tax benefit associated with this pretax charge.
For stock option grants that were awarded at less than fair market value and vest after December 31, 2004, employees may be subject to excise tax of up to 40% under Internal Revenue Code Section 409A and comparable state tax provisions (calculated on the intrinsic value of the award on the date of vesting). The Board of Directors has determined that it would be in the best interests of the Company's stockholders and employees to reduce or eliminate this Section 409A tax liability for the Company's employees. The Board's decision in this regard will result in additional charges totaling approximately $7 million which will be recognized in the Company's upcoming third fiscal quarter.
Finisar will host a conference call to discuss these financial statements in addition to its regular earnings conference call scheduled for tomorrow, Wednesday, December 5, 2007 at 2:00 p.m., Pacific Time. To listen to the call you may connect to the investor page of Finisar at www.finisar.com or dial 877-407-0890 (domestic) or 201-689-7827 (international) and enter passcode 264132.
A replay will be available approximately one hour after the call for two weeks following the call's conclusion. To access the replay, dial 877-660-6853 (domestic) or 210-612-7415 (international), and then following the prompts to enter Account number 2791 followed by Conference ID number 264132. A Web archive will be made available at www.finisar.com until the next conference call to be held approximately 90 days following the call's conclusion.
Finisar Corporation (NASDAQ: FNSR) is a global technology leader for fiber optic components and subsystems and network test and monitoring systems. These products enable high-speed voice, video and data communications for networking, storage and wireless applications over Local Area Networks (LANs), Storage Area Networks (SANs), and Metropolitan Area Networks (MANs) using Ethernet, Fibre Channel, IP, SAS, SATA and SONET/SDH protocols. The Company is headquartered in Sunnyvale, California, USA. More information can be found at www.finisar.com.
Contact: Steve Workman Chief Financial Officer 408-548-1000 Investor Relations 408-542-5050 investor.relations@Finisar.com
SOURCE: Finisar Corporation
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