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Stock options weigh on Ness

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midastouch017   Thursday, 03/16/06 02:36:19 PM
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Stock options weigh on Ness

16.3.06 | 16:43 By Shirley Yom-Tov

Financial statements season is winding down and it's time to take a breather and look at what the companies are saying. One of the most interesting aspects of the Wall Street-trade pack is how stock options expensing is hitting their bottom lines.
From 2006, options expensing has become a hot-button issue. It can't be hidden in the small print any more: it's become a part of the profit & loss statement as of this year.

Ness Technologies (Nasdaq: NSTC), a giant software outsourcing services provider, posted net profit of $21.7 million for 2005, or 61 cents per share. But its financial statement for the year indicates that if it had fully expensed options to management and employees, its net profit would have contracted to $15.4 million, or 42 cents per share.

Wall Street managers bellow that the cost of stock options isn't a true cost, but actually, they are. They are used to motivate workers in the stead of more money and everything has a price. In the case of stock options, the ones paying the price are the shareholders.

When workers convert their options into shares, they increase the float. If the company's profits grow slower than the number of floating shares, profit per share is hurt. That impacts on the company's market valuation, partly because of the profit multiples by which public companies are traded.

From April we will know the truth about what the companies are up to. At Ness, for instance, the float increased faster than profit. Options costs amounted to 37% of profit in 2005, compared with 25% in 2004. In 2004 the company netted $13 million but $3 million in options costs would be cut its profit to $10.3 million.

Ness has 5,945 employees, almost all of whom are IT experts. The company went public in September 2004 at $12 per share. Its present share price is $11.20, reducing its market capitalization to $390 million.



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