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11/6/2006
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Outsourcers Hit With Options Woes

CSC and ACS are delaying filing full quarterly financial reports because of internal investigations into the backdating of executive stock options.

Outsourcing vendors Computer Sciences Corp. and Affiliated Computer Services last week said they would delay filing full 10-Q quarterly financial reports with the Securities and Exchange Commission because of internal investigations into the backdating of executive stock options.

ACS said revenues for its fiscal first quarter increased 6% to $1.39 billion, while earnings per share fell 19% to $0.60. For its part, CSC reported that second quarter revenue was flat at $3.61 billion, while earnings per share were also flat year-over-year at $0.53. Both companies cautioned that those numbers could change once the internal reviews are complete.

CSC and ACS are the latest tech companies to be hit by an options scandal. The SEC and corporate watchdogs have accused executives at a number of large companies of intentionally backdating the purchase price of stock options to coincide with lows in their companies' share prices, a move that would allow them to realize maximum gains when the options are realized.

Last month, McAfee chairman and CEO George Samenuk resigned after the company found discrepancies in his stock option grants. Also in October, Monster.com chairman Andrew McKelvey stepped down because of an options probe, as did Shelby Bonnie, CEO of CNet Networks. Apple Computer has also acknowledged that CEO Steve Jobs was aware that some of his options had been backdated. But an internal board cleared Jobs of any wrongdoing, in part because he didn't realize any financial benefit from the backdating, Apple said.

Executive casualties at ACS or CSC because of options backdating could have a greater impact on those companies' sales prospects than would similar incidents at vendors that focus purely on selling products. Outsourcers typically engage in long-term relationships with customers and, as a result, their customers place a high priority on management stability. Both ACS and CSC also perform highly sensitive work for the federal government.

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