SafeNet reports options impact

Belcamp firm puts noncash charges at less than $20 million

September 29, 2006|By Stacey Hirsh | Stacey Hirsh,SUN REPORTER

SafeNet Inc., the Harford County technology company facing federal probes into its stock option grants, said yesterday that total noncash charges resulting from restating financial results over a five-year period will not exceed $20 million.

The Belcamp company, which makes encryption technologies, said earlier this month that it would have to revise financial statements from 2000 through March 31, 2006, because some options grants made between 2000 and 2005 were accounted for "using incorrect measurement dates under applicable accounting rules in effect at the time."

The company has not said which quarters would have to be restated. But SafeNet disclosed yesterday in filings with the Securities and Exchange Commission that the noncash charges to be included in the restatements would "be no more than $20 million for the periods from 2000 through 2005 before giving effect to forfeitures and cancellations, which would tend to reduce the cumulative amount of the charges."

Forfeitures and cancellations refer to former employees' options that were never exercised and reverted to the company when the employees left, said Ian Dix, SafeNet's chief marketing officer.

The company has not calculated how much the restatements will affect the first quarter of 2006. SafeNet has said the restatements would not affect its cash position or previously reported revenues.

Sean Jackson, an analyst with Avondale Partners in Nashville, Tenn., who doesn't own SafeNet shares, said the adjustment of $20 million or less will not affect SafeNet's business going forward.

"I don't think it's a whole lot, considering it's a cumulative number from the year 2000 to 2005," Jackson said.

"It's basically noncash as well, which basically means some accounting adjustments," Jackson said.

Shares rise

Shares of SafeNet rose 84 cents yesterday to $18.23, less than half of its 52-week high.

Jackson said Wall Street reacted well to the news because the filing indicates SafeNet is closer to putting the accounting issues behind it.

"The sooner they can do it the better, because their business is actually turning around and nobody is actually paying attention to it because of these ancillary issues," Jackson said.

Dix said the fact that SafeNet has reiterated its third-quarter revenue guidance to be between $70 million and $74 million shows the company remains focused.

"We're looking to get this behind us and get on with the business," Dix said.

SafeNet is one of dozens of publicly traded companies that have come under federal investigation for possibly illegal backdating option awards. Backdating is when options are awarded with an effective date earlier than their grant date to take advantage of previous declines in the stock. The effect is to make the option potentially more valuable.

SEC documents show that on several occasions SafeNet's Chief Executive Officer Anthony A. Caputo was issued immediately exercisable grants of stock options at or near the bottom of short-term dips in the stock price or at yearly lows.

Chronology

SafeNet announced in May that it was subpoenaed by the U.S. attorney's office for the Southern District of New York for information about stock option awards and received an informal inquiry from the SEC. The company formed a board committee to investigate, and the committee retained counsel and forensic accountants to help.

In SEC filings earlier this month, SafeNet said its internal investigation could cost $12 million this year, with about $6 million of that cost coming in the third quarter. SafeNet reported total earnings of $12.4 million for 2003, 2004 and 2005 combined.

Last month, the company disclosed that it received a letter from Nasdaq saying it could be delisted for failing to file a timely financial report for the quarter that ended June 30.

stacey.hirsh@baltsun.com

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