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Progress' Regress: Backdating Study Not Yet Complete

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	8/31/2006 6:19 AM
Yesterday, Progress Software announced that its study of misdated options was not yet complete but far enough along to give some guidance on how bad things might be. The study began in June, about the same time that many companies were announcing regulatory investigations of one sort or another. Progress' conclusions to date: "... the Company currently expects to record additional non-cash charges in the range of $20 million to $30 million for stock-based compensation over the period from December 1, 1995 to February 28, 2006. The Company has not yet determined the amount to be recorded in any specific period, nor has the Company determined the tax consequences that may result from these matters or whether any tax consequences will give rise to additional tax liabilities. Earlier today, the Audit Committee, in consultation with management and after discussion with the Company's independent registered public accounting firm, concluded that the Company's financial statements, including the reports of the Company's independent registered public accounting firm thereon, and its earnings releases and similar communications for fiscal 1996 and subsequent periods should no longer be relied upon. The errors affected the accounting treatment of the Company's regular broad-based stock option grants as well as grants that occurred outside the Company's normal option grant cycle, and were not limited to stock option grants to executive officers, whose options were generally granted on the same date and at the same price as options granted to other employees. The Company expects that it will be unable to announce its financial results for the third quarter of fiscal 2006 or file its related Quarterly Report on Form 10-Q until a determination of the appropriate stock-based compensation expense has been made..." Progress' statement is probably a microcosm of the larger universe of companies investigating backdating issues. To the outsider, a couple months may seem like long enough to wade through option transactions. But Progress is talking about going back over ten years to review option grants that were part of the regularly scheduled programs and some that were not regularly scheduled. And they covered all employees, not just the top dogs. You have to wonder if adequate documentation even exists. Think of this: how quickly could you recover a mere bank statement from 1995? No wonder then, that Progress and its ilk are threatened with delisting and pummelling from hedge funds. Much as we'd all like to see this wrapped up quickly, just getting the facts is going to take a while. And "taking a while" to get the facts is leading to other unpleasant, unforeseen consequences.

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