Altera Reviews Stock Option History
Staff Reporter -- EDN, May 9, 2006
As a result of Altera Corp.’s recent review of stock option practices and issues concerning options granted during the period 1996 through 2000, the company will be taking a peak inside their financial closet to see if it can root out any skeletons.
The company's board of directors has established a special committee of independent directors to review the company's historical stock option practices and related accounting.
The special committee will be assisted by independent legal counsel and outside accounting experts. Management initiated its review following recent media reports regarding stock option practices at other companies. Although the impact to the company's historical financial statements is not yet known, the company does not expect the review to result in material changes to its historical revenues or non-option related operating expenses.
The company noted in a statement that it would not be able to file its Form 10-Q for Q1, which is due on May 10. Altera is not seeking a five-day extension to file its Form 10-Q because it does not believe it can complete its review by the end of the allowed extension period. Altera does not anticipate that these developments will change the timing of its Q2 business update, currently scheduled for release after the market closes on May 30.
According to the Lehman Brothers, Altera's guidance for the June period has been for sales up 7 percent to 10 percent. The researcher continues to believe that Altera has been seeing solid business trends and estimates a price target of $23.
“We believe this investigation follows a review by the CEO John Daane and the general counsel of Altera's options practices,” Tim Luke, a managing director at Lehman, said in a research note this morning. “In terms of impact on Altera, the investigation seems focused on the period 1996 to 2000 and we would highlight that current CEO John Daane joined Altera in November of 2000. Separately, current CFO Nate Sarkisian announced in March 2006, he would be retiring by the end of this year. Mr. Sarkisian joined Altera Corp. in June 1992 as corporate controller. He was appointed vice president, finance and CFO in August 1995 and senior vice president and CFO in March 1998. We would expect any investigation to run for a period of at least two to three months.”
Altera is Not Alone
A number of companies have been investigating their stock option programs in the wake of a March 18 Wall Street Journal article published indicating potential options backdating activity at several companies, including Mercury Interactive Corp, Brooks Automation Inc. and Vitesse Semiconductor Corp.
On April 27, Camarillo, Calif.-based communications chip provider Vitesse announced its previously reported financial statements for the three months ended December 31, 2005 and the three years ended September 30, 2005 and possibly earlier periods should not be relied upon. The company appointed a special committee of independent directors to conduct an internal investigation to be assisted by an independent legal counsel. The company also announced that it had put on "administrative leave" Vitesse’s founder and current CEO Louis Tomasetta, CFO Yatin Mody and the Executive VP Eugene Hovanec.
Days later, Vitesse shareholders announced they were preparing a class action suit against the chip provider for omissions of faulty financial reporting.
“Given the headlines associated with vendors such as Mercury Interactive, Vitesse and Comverse, we would expect some pressure on the [Altera] shares near term,” Luke continued. “We recognize at Comverse, for example, the appointment of an internal investigation led to the recent resignation of the CEO and the CFO.”
Altera’s stock was down 4.82 percent to $20.95 in morning trading.
