BATON ROUGE, La. (AFX) - Engineering and construction company The Shaw Group Inc. said Tuesday it's started a review of stock-option awards for its 2000 fiscal year to make sure they comply with federal guidelines issued after a scandal involving options grants.
Shaw Group, which has become a major contractor in post-Hurricane Katrina reconstruction efforts on the Gulf Coast, said its audit committee and management concluded Aug. 16 that neither the company nor any employees had engaged in illegal 'backdating' activity dealing with past-option grants.
But the additional review began after the Securities and Exchange Commission provided more guidance on the measurement date for option grants, the company said.
The SEC and the Justice Department launched more than 80 investigations into companies nationwide over the possible manipulation and illegal reporting of stock option grants.
Many of those companies have revealed that they backdated grants, a practice in which options are issued retroactively to coincide with low points in a company's share price. The maneuver increases the potential windfall for the award recipient and could exaggerate a company's profit if not properly disclosed and recorded.
Options allow employees to buy shares of their company's stock in the future at a set 'strike price' -- typically the price on the day the option is issued. If that exercise price is equal to the price on the grant date, the options have no initial value. By backdating the grant, the exercise price can be set at the lower level, giving the options instant value.
Shaw said the awards under review totaled about 1 million shares at a strike price of $42 per share or $21 per share split-adjusted and were in connection with the company's acquisition of Stone & Webster Inc.
The SEC has suggested the proper date for the awards may be the date upon which the list of recipients was finalized, rather than the date a company's board approved the award, Shaw said.
Depending upon the outcome of the review, Shaw said, it could recognize additional compensation expenses for 2001 through 2004. Should an additional non-cash expense have to be recorded, Shaw said it would determine whether the cost is material and whether earnings restatements would be required.
Shaw Group planned a conference call Wednesday morning to discuss its full year earnings guidance and other business matters.
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