Outdoor Channel Holdings said it will restate its financials for the first two quarters of this year to correct the amortization period for some executive compensation costs.

While the adjustments will materially impact those two financial statements, the full-year compensation expense is expected to remain at $6.6 million, the company said.

Outdoor Channel explained that during the 2006 fourth quarter, it granted its new CEO two traunches of performance units that would vest upon the company’s stock price reaching stipulated levels.

The traunches were calculated, using the lattice model, to have fair values of approximately $4.5 million each, with expected service periods — the estimated time it will take the stock price to reach the vesting thresholds — of seven months and 13.3 months. As a result, for 2006 the company recognized $1.655 million and $841,000 of compensation expense for the traunches, covering 2.5 months of the service periods, from the middle of October through December 2006.

Outdoor Channel then amortized the balance of the compensation expense for the two traunches of performance units over a 12-month period in 2007. That was a mistake. The costs should have been amortized over the remaining balance of the estimated service period for each traunch — 4.5 months for one, 10.8 months for the other. This resulted in the incorrect recognition of $1.653 million in compensation expense for each of the first two quarters of 2007.

As a result, the company said it will adjust its compensation expense for the CEO’s performance units from $1.653 million quarterly to $2.995 million for the first quarter and $2 million for the second quarter.

The company also noted that when it files its restated financial statements, additional adjustments may be required. It also said that because of the adjustments, it does not expect to file its September quarterly report on time.

Leave a Reply

Your email address will not be published. Required fields are marked *