Backdating of options: what's coming next?

• Author: Marshall, Jeffrey
• Position: Stock options - Restoration Hardware's earnings - Financial report

Back on August 28, Restoration Hardware reported its second-quarter earnings--and announced that a review of its stock-options practices showed that it had misdated the accounting of certain previously granted options, mostly in 2002 to 2004.

It then added that the cumulative impact of the errors had created additional non-cash compensation of $600,000--which it deemed not material to the results of previously reported periods or the current fiscal year.

The California-based decorating chain's announcement is likely to be echoed in upcoming quarters as companies comb back through their options programs in an effort to decide whether or not they need to consider restating any earnings. That's the backwash from the ongoing options-backdating scandal that has been playing out in the business headlines for months, ensnaring well over 80 companies and raising the specter of criminal charges at some.

Restoration Hardware's tactic of releasing the information in conjunction with a normal quarterly filing could be part of a common pattern, says Frank Edelblut, CEO of Control Solutions, a New York-based consulting and software firm in the compliance area. Edelblut said in an interview that companies that do have backdating issues may consider doing "stealth restatements," in which they release information in footnotes to a conventional quarterly or annual filing and not as a separate 8-K filing for a material event. However, the Securities and Exchange Commission (SEC) has been telling companies...