SAN JOSE, Calif. KLA-Tencor Corp. stunned the industry on Friday (June 30) by acknowledging irregularities in its stock-option practices and said that it "may" need to restate its financial results for a certain period.
Chip-equipment giant KLA-Tencor, based here, in May disclosed that U.S. federal prosecutors are investigating the timing of stock option grants made by the company. KLA-Tencor formed an independent board panel to probe options grants over the past 10 years.
As reported, the investigation has focused on ten options grants given by KLA-Tencor to Ken Levy, now chairman of the company, between 1994 and 2001. These grants all preceded sharp increases in the company's stock price, according to reports. One analysis found that the probability that the timing of these grants occurred randomly was roughly 20 million to one, according to reports.
Following those events, the company received notice from the U.S. Securities and Exchange Commission (SEC) of an informal inquiry relating to past stock option grants.
In a terse release on Friday, KLA-Tencor confirmed that there were some irregularities with its stock-option practices. The company said "that a special committee of the company's board of directors has reached a preliminary conclusion that the actual measurement dates for financial accounting purposes of certain stock option grants issued in prior years likely differ from the recorded grant dates of such awards."
KLA-Tencor was also quick to point out that the special committee has not completed its investigation and is continuing its review of these matters, but the company is also preparing for the worst.
"Based on the special committee's investigation to date, the company now anticipates that it may record additional non-cash charges for stock-based compensation expense," according to KLA-Tencor. "The company has not yet determined the amount of such charges or the resulting tax impact of these actions. In the event that the Company determines that these items are material, KLA-Tencor may be required to restate its financial statements for the relevant prior fiscal periods."
More than a dozen U.S. electronics companies have been caught up in the stock options . Earlier this week, Securities and Exchange Commission Chairman Christopher Cox said the agency would issue new guidelines on the backdating of stock options "that will more clearly circumscribe the bounds of acceptable conduct."