Quest Software to Restate Financial Results

A special committee of independent directors, assisted by independent legal counsel and independent forensic accounting consultants, has been reviewing the company’s historical stock option grant practices and related accounting, according to a company press release. The committee’s initial review found the administrative approvals required to establish the accounting measurement dates for many of the company’s stock option grants awarded from the fall of 1999 into 2002 were actually obtained subsequent to the measurement dates used for financial reporting purposes.

Based on its findings, the committee determined that non-cash stock-based compensation expense should have been recorded with respect to those stock option grants and recognized over the vesting period of the options, and that the amount of such additional expense is expected to be material, Quest said in the release. The committee has not determined the aggregate amount of additional non-cash stock-based compensation expense, nor the amount of such expense to be recorded in any specific prior period or in any future period. It also has not identified all stock option grants whose accounting measurement dates may have been incorrectly determined.

Quest also said it expects that expenses arising from the investigation, the restatement and related activities, which will be recorded in the periods incurred, will be significant.

Additionally, the company said it has not yet determined the possible tax consequences of its findings or whether tax consequences will give rise to monetary liabilities which may have to be satisfied in any future period.

The special committee’s investigation is ongoing.