Cnet to Restate Results Due to Options
Monday July 10, 4:44 pm ET
By Michael Liedtke, AP Business Writer
Cnet Acknowledges Mishandled Stock Option Distorted Results
SAN FRANCISCO (AP) -- Cnet Networks Inc. on Monday acknowledged its manipulation of employee stock options distorted its accounting for years, providing another example of how the mishandling of the popular awards can haunt companies.
The online publisher of technology news and reviews told investors to disregard all financial statements issued since the beginning of 2003 and warned the results of earlier years also might have to be revised.
Without providing specifics, Cnet said it will have to take significant charges to correct accounting errors that occurred because the timing of stock options given to its employees wasn't properly recorded.
The practice, known as "backdating," occurs when insiders look back in time for a low point in their company's stock price so the exercise price of the options could be set at that ebb.
Because stock options become more valuable as the market price rises above the exercise price, backdating to a low point fattens the recipient's profit.
By making the options more valuable, backdating can cause accounting and tax inaccuracies if the full costs and benefits aren't recognized -- a problem that apparently cropped up among the millions of stock options that Cnet distributed between 1998 and 2001.
Tougher disclosure rules adopted in August 2002 have narrowed the opportunities for companies to backdate options secretly.
Although the options were doled out years ago, backdating only recently turned into a headache for corporate America after academic research and news stories focused attention on the issue.
Since late last year, 64 companies nationwide have acknowledged internal or government probes into their past stock option awards.
Video game publisher Take Two Interactive Software Inc. joined the list Monday when it announced the Securities and Exchange Commission had opened an informal inquiry into stock options dating back to 1997. The New York-based company's shares fell 76 cents, or 7.5 percent, to close at $9.34 on the Nasdaq Stock Market.
More than one-third of the backdating inquiries are focused on companies based in Silicon Valley or other parts of the San Francisco Bay area -- a region that has long embraced stock options as a key component of employee compensation.
One Silicon Valley company, Mercury Interactive Corp., already has wiped out $525 million in previously reported profits to adjust for its backdating chicanery, and another, Rambus Inc., has warned it will have to erase some of its past years. KLA-Tencor Corp., yet another Silicon Valley company, has said it might have to restate some of its results because of backdating issues.
Cnet first disclosed its stock option trouble in late May when its board announced it had formed a special committee to investigate its past grants.
Since the company raised that red flag, Cnet's stock price has dropped by 20 percent, although it rallied slightly Monday. Cnet's shares gained 24 cents, or 3.2 percent, to close at $7.83 on the Nasdaq Stock Market.
Cnet didn't say how many of its stock options between 1998 and 2001 were improperly backdated. The company granted 43 million stock options during that time, according to Cnet's annual reports for those years.
The company sustained net losses totaling $2.4 billion from 1998 through 2003 before rebounding with a combined profit of $39 million during the past two years. |
