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Stock-Option Grants Trip Cablevision

Cablevision Systems said it may have to restate prior results after an internal investigation disclosed discrepancies in stock-option grants awarded for the years 1997-2002. As a result, Cablevision said it would not release full second-quarter results while it continues its investigation.

Stock-option-grant discrepancies have become a big issue in the past few months as more than 80 large corporations, such as Home Depot and Apple Computer, have been part of an ongoing Securities and Exchange Commission investigation.

Stock options usually allow holders to buy a specific number of shares at a later date at a preset price. The holder stands to reap more money if the stock price on that later date exceeds that of the preset price. At issue with Home Depot and Apple is whether those companies improperly changed the dates of the options in order to ensure that the holders experienced a gain.

It was because of those concerns that Cablevision decided to launch its own investigation of its options and stock-appreciation-rights grants, Cablevision said in an 8-K filing with the SEC Tuesday. According to the filing, Cablevision said it determined that the date and exercise price assigned to a number of its stock-option and SAR grants during the 1997-2002 period did not correspond to the actual grant date and the closing price of its common stock on that day.

Cablevision said in the filing that it has not yet determined how big an adjustment it will have to make to its financial statements or the resulting tax and accounting impacts, but the company added, “Management has concluded that the financial statements for all of the periods beginning Jan. 1, 1997, should not be relied upon.”

Cablevision executives declined to answer questions regarding the options investigation on a conference call with analysts Tuesday morning regarding its second-quarter results.

The revelation marred what was a strong quarter for Cablevision -- revenue was up 15.6% and the Bethpage, N.Y.-based cable operator added about 35,000 basic subscribers during the quarter. Digital subscribers rose by 143,499, high-speed-Internet additions were 84,819 and telephony additions were 122,234.

The strong basic-subscriber growth forced Cablevision to increase guidance for the full year to 3.5%-4% basic-subscriber gains for the full year compared with previous guidance of 2.5%-3% growth.

Banc of America Securities cable and satellite analyst Doug Shapiro -- who had estimated that Cablevision would add about 20,000 basic customers during the quarter -- said the MSO hasn’t experienced that level of basic-customer growth since the mid-1990s.

In a research report, Shapiro wrote that while he expected the option investigation to pressure the stock, he anticipated that it would be largely offset by continued strong financial results.

“We think [Cablevision] is supported by the underlying asset value and, perversely, should the option issue prove material, it could even raise the likelihood, or at least the perceived likelihood, of a sale,” Shapiro wrote. “As a result, we think any sustained weakness in the stock would prove a buying opportunity.”

Investors must have been listening. Although Cablevision shares were down 58 cents each (2.6%) in early trading Tuesday to $21.50 per share, they rebounded almost immediately, priced at $22.30 each (up 22 cents) as of 10:05 a.m. (EST).