Contact Information: Company Contact: Steve Bailey +1 503.498.3547 www.flir.com
FLIR Systems Announces Results of Equity Grant Review
Expects to Restate Historical Financial Statements
| Source: FLIR Systems, Inc.
PORTLAND, OR -- (MARKET WIRE) -- March 1, 2007 -- FLIR Systems, Inc. (NASDAQ : FLIR ) announced
today the results of an ongoing voluntary review of the Company's equity
grant award practices and related accounting issues. As previously
disclosed, the Company has undertaken a voluntary review of its historical
stock option practices and related accounting treatment as a result of the
apparent issuance of options on favorable dates prior to 2000. Based upon
the preliminary results of this review, the Company's Board of Directors
(the "Board") formed a Special Committee, comprised of two outside
directors, to investigate stock option grants, practices and procedures
from 1995 to 2006. The Special Committee conducted its investigation with
the assistance of independent legal counsel from the law firm of Perkins
Coie, LLP and outside forensic accountants from Deloitte Financial Advisory
Services, LLP retained by counsel.
In the course of its investigation, the Special Committee and its legal and
accounting advisors reviewed approximately 135,000 documents, conducted
interviews with relevant management personnel and current and former
members of the Compensation Committee, and evaluated the accounting for and
documentation surrounding 26.3 million options, representing 94% of options
granted during the period from 1995 through 2006. With respect to stock
options granted during the period from early 1995 through the middle of
2000, the Special Committee found strong circumstantial evidence of the
improper selection of grant dates. With respect to stock options granted
during the period from the middle of 2000 through 2006, the Special
Committee identified certain procedural and corporate governance issues,
but did not find any evidence that grant dates were selected based upon an
attempt to seek a favorable price.
Based on the findings of its investigation, the Special Committee has
concluded that pursuant to the requirements of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
other authoritative accounting literature, the grant dates for certain
stock option grants made by the Company during the period 1995 to 2005
differ from the measurement dates previously used to account for such
option grants. Under APB 25, the measurement date for determining
compensation expense is the first date on which are known both the number
of shares that an individual is entitled to receive and the option or
purchase price, if any. The measurement date does not change the effective
date of a grant but does determine the compensation expense, if any,
required to be recognized for accounting purposes in connection with the
grant.
Based on the findings of the Special Committee's investigation, subsequent
internal analysis by the Company's management and discussions with the
Company's independent registered public accountants, on February 26, 2007,
the Audit Committee concluded, in consultation with and upon the
recommendation of the Company's management, that the Company will need to
restate certain of its annual historical consolidated financial statements
for the period from 1995 through 2005, primarily to record non-cash charges
for compensation expense relating to past stock option grants. Accordingly,
on February 26, 2007, the Audit Committee concluded that consolidated
financial statements and the related audit reports of its independent
registered public accounting firms, and all quarterly financial statements
and earnings press releases and similar communications issued by the
Company relating to periods beginning on or after January 1, 1995 should no
longer be relied upon. The Company has discussed this matter with KPMG
LLP, the Company's current independent registered public accounting firm.
Although the Company's independent registered public accountants have not
yet completed their review of the findings of the investigation and the
Company has not yet determined the exact amount of the non-cash
compensation charges and the resulting tax and financial accounting
impacts, the Company's management and Audit Committee currently believe
that the aggregate non-cash compensation charges will be approximately $14
million, excluding any tax consequences. Although the Company will restate
its annual financial statements for the entire period from 1995 through
2005, the Company's management and Audit Committee believe that such
impacts will be material for years 1995 through 2003 but will not be
material for the years 2004 and 2005.
The Company intends to file in its Annual Report on Form 10-K for the year
ended December 31, 2006 the restated information for prior periods. In
that filing, the Company will summarize the final results of the
investigation by the Special Committee and the review by Company's
management and the impact of the primary stock compensation accounting
errors underlying the final restatements. Based upon current information,
the Company and Audit Committee believe the primary accounting errors are
as follows:
Inaccurate measurement dates for certain stock options and restricted
shares granted between January 5, 1995 and the middle of 2000. The grant
dates used for certain stock option awards and restricted share awards
between January 5, 1995 and the middle of 2000 were likely selected based
upon stock price considerations, with certain dates from 1995 through 1999
likely selected in hindsight. The inaccurate use of measurement dates
during this period will result in non-cash compensation charges of
approximately $4 million, excluding any tax consequences, over the
respective vesting periods of the various stock compensation awards.
Inaccurate measurement dates for certain stock options and restricted
shares granted between September 12, 2001 and December 27, 2001.
Information obtained during the Special Committee's investigation indicated
that stock options granted to officers of the Company during a scheduled
meeting of the Compensation Committee on September 12, 2001 were subject to
certain financial performance criteria. Because the performance results
could not be determined until a subsequent date, a later measurement date
should have been used. The inaccurate use of the measurement date for the
September 12, 2001 option grants will result in non-cash compensation
charges of approximately $3 million, excluding any tax consequences, over
the periods of 2001 and 2002.
On December 27, 2001 the Compensation Committee, relying on information
provided to it as to the amount of shares that were available for grant
under the then existing incentive stock plan, awarded stock options to
officers of the Company in amounts that inadvertently exceeded the actual
number of shares available under the plan. After this error was
recognized, the officers voluntarily agreed to a cancellation of option
grants in an amount sufficient to bring the grants in line with shares
available under the plan. The date that the stock options were cancelled
should have been used as the measurement date. The inaccurate use of the
measurement date for the December 27, 2001 option grants will result in
non-cash compensation charges of approximately $6 million, not including
tax consequences, over the vesting periods in 2002 and 2003.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, including
statements regarding the status and determinations resulting from the
Special Committee's investigation, the Audit Committee's and Company
management's assessments of the results of that investigation, and the
Audit Committee's and Company management's estimates of the amount of
non-cash compensation charges that may be recognized, as well as other
expectations and beliefs. These forward-looking statements are subject to
various risks and uncertainties that could cause actual results to vary
materially from those stated, including the impact of any restatement of
financial statements, including but not limited to the determination, as a
result of the re-auditing of certain prior period financial statements, of
additional restatement items beyond the restatement of non-cash stock-based
compensation items, the impact of which may be material, or the effects of
other actions that may be taken or required as a result of such review; tax
issues or liabilities that relate to adjustments to the measurement dates
associated with Company stock options; effects relating to the Company's
inability to timely file reports with the Securities and Exchange
Commission; changes to the anticipated scope of the issues beyond the
timing and accuracy of measurement dates for option awards to issues that
the Company does not currently realize exist; risks of litigation or
governmental investigations or proceedings arising out of or related to the
Company's stock option grant practices or any restatement of its financial
statements; effects on the Company's ability to meet NASDAQ listing
requirements; and other risks identified from time to time in other reports
that the Company files or furnishes to the SEC. The statements made herein
are made only as of the date of this report. Except to the extent required
by law, the Company undertakes no obligation to update publicly any
forward-looking statements after the distribution of this report, whether
as a result of new information, future events, changes in assumptions, or
otherwise.
About FLIR Systems
FLIR Systems, Inc. is a world leader in the design, manufacture and
marketing of thermal imaging and stabilized camera systems for a wide
variety of thermography and imaging applications including condition
monitoring, research and development, manufacturing process control,
airborne observation and broadcast, search and rescue, drug interdiction,
surveillance and reconnaissance, navigation safety, border and maritime
patrol, environmental monitoring and ground-based security. Visit the
Company's web site at www.FLIR.com.