Options May Make Monster Restate Earnings
By: David Utter
The ever-growing stock-based employee compensation issues that have caught up companies like Apple are being experienced by online job-site Monster.com, as the company has begun an internal investigation into the practice.
The trio of lawsuits pending against Monster Worldwide (MNST) over option grants could be a good thing for buyers. An analyst cited by Classified Intelligence was not as worried about Monster restating its 2005 earnings as one might expect:
James Janesky, an analyst at Ryan Beck, said that pricing pressure from the investigation could present a good buying opportunity; "We believe that Monsters business trends are better than what is reflected in the current stock multiple," he said.
The company informed the Securities and Exchange Commission via an 8-K filing about the actions filed against the company, and its look into option granting practices:
Although the review is in its early stages, the Company believes that it may need to restate its financial statements for the year ended December 31, 2005 and prior years to record additional non-cash charges for stock based compensation expense relating to various stock option grants.
The Company has not yet determined which historical financial statements would be restated, the magnitude of the restatement, or the tax impact that may result from the matter. However the Company expects that a potential restatement would not have a material impact on 2006 earnings.
Monster closed at 37.83, up 59 cents for the day, but after hours trading has moved it down 12 cents according to ECN. The company did announce it would host a conference call on July 26th to discuss its financials and outlook. However, they may miss the scheduled 10-Q filing with the SEC as they are waiting for the independent review of the options issue to be completed.
Backdating of stock option grants had been a way for companies to sweeten the compensation provided to highly-paid executives. An adjustment of a single dollar in price could be worth millions to the fortunate recipient. However, the SEC takes a less than dim view of the practice, as do shareholders.
Perhaps the downward pricing pressure on Monster will allow some of those outside shareholders to take a measure of revenge, especially if the short numbers increase ahead of the July 26th call.
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