SafeNet estimates results, but not impact of option awards

October 26, 2006|By Stacey Hirsh | Stacey Hirsh,Sun Reporter

SafeNet Inc., the Harford County company whose stock option grants are under federal investigation, reported estimated third-quarter results yesterday that do not include restatements stemming from its review of option awards.

SafeNet said it expects to report quarterly numbers in the first quarter of 2007, calculated according to generally accepted accounting principles.

SafeNet's estimated earnings report comes a week after Anthony A. Caputo, former chairman and chief executive of the Belcamp encryption company, and Carole Argo, who was president, chief operating officer and acting chief financial officer, resigned as a result of the stock options investigation.

The company had an estimated net loss of $3.2 million, or 15 cents per diluted share, for the quarter that ended Sept. 30, compared with net income of $235,000, or a penny per diluted share, for the quarter last year. SafeNet's estimated revenue was $76.8 million in the third quarter, compared with $63 million in the comparable quarter last year.

The estimates include $6.4 million in expenses for legal and other fees surrounding SafeNet's stock option investigation, the company said.

A special board committee has hired independent counsel and forensic accountants to aid its investigation into the timing of option awards.

SafeNet is one of dozens of companies being investigated as to whether option grants were backdated to coincide with dips in its stock price, making them more valuable. The practice is illegal if it is not disclosed, accounted for and taxed.

Earlier this month, SafeNet said that it would have to revise financial statements from 2000 through March 31, 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."

In a conference call yesterday, SafeNet interim Chief Financial Officer John W. Frederick said it was too early to estimate probe-related expenses for next year.

Walter W. Straub, SafeNet's chairman and interim chief executive officer, said during the conference call that the search for a new CEO had not yet begun because the board was defining requirements for the job. Straub said he would remain as independent chairman once a new chief executive is in place.

Straub also said in a statement yesterday that the internal probe into the options awards had made progress.

"We have identified the impacted periods and estimated compensation expenses," he said. The company's goal is to file its second-quarter financial report this quarter, Straub said.

Shares of SafeNet closed at $21.79 yesterday, down 3 cents, before the estimated earnings were released.

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