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| The Home Depot reports results of stock option investigation The Home Depot disclosed the principal conclusions of an investigation into its stock option practices. In August 2006, the Atlanta home-improvement giant announced that it had asked the Board of Directors to review its historical stock option practices. A subcommittee of the Audit Committee undertook the review with the assistance of independent outside counsel, Hogan & Hartson, and it has now completed its review. The review encompassed the entire 26-year history of the company as a public company. It involved examining more than 3 million documents and conducting more than 60 interviews with current and former officers, directors, and employees. The principal findings of the review are as follows: All options granted in the period from 2002 through the present had an exercise price based on the market price of the Home Depot 's stock on the date the grant was approved by the Board of Directors or an officer acting pursuant to delegated authority. During this period, the stock administration department corrected administrative errors retroactively and without separate approvals. The administrative errors included inadvertent omissions of grantees from lists that were approved previously and miscalculations of the number of options granted to particular employees on approved lists. All options granted from December 1, 2000 through the end of 2001 had an exercise price based on the market price of the Home Depot's stock on the date of a meeting of the Board of Directors or some other date selected without the benefit of hindsight. The February 2001 annual grant was not finally allocated to recipients until several weeks after the grant was approved. During this period, the stock administration department also corrected administrative errors retroactively and without separate approvals as in the period 2002 to the present. For annual option grants and certain quarterly option grants from 1981 through November 2000, the stated grant date was routinely earlier than the actual date on which the grants were approved by a committee of the Board of Directors. In almost every instance, the stock price on the apparent approval date was higher than the price on the stated grant date. The backdating occurred for grants at all levels of the Home Depot . Management personnel, who have since left the company, generally followed a practice of reviewing closing prices for a prior period and selecting a date with a low stock price to increase the value of the options to employees on lists of grantees subsequently approved by a committee of the Board of Directors. The annual option grants in 1994 through 2000, as well as many quarterly grants during this period, were not finally allocated among the recipients until several weeks after the stated grant date. Because of the absence of records prior to 1994, it is unclear whether allocations also postdated the selected grant dates from 1981 through 1993. Moreover, for many of these annual and quarterly grants from 1981 through December 2000, there is insufficient documentation to determine with certainty when the grants were actually authorized by a committee of the Board of Directors. Finally, the Home Depot's stock administration department also retroactively added employees to lists of approved grantees, or changed the number of options granted to specific employees, without authorization of the Board of Directors or a board committee, to correct administrative errors. Numerous option grants to rank-and-file employees were made pursuant to delegations of authority that may not have been effective under Delaware law. In numerous instances, and primarily prior to 2003, beneficiaries of grants who were required to report them to the Securities and Exchange Commission failed to do so in a timely manner or at all. The subcommittee concluded that there was no intentional wrongdoing by any current member of the Home Depot's management team or its board of directors. The Home Depot believes that, because of these errors, it had unrecorded expense over the affected period (the 26 years from 1981 through the present), excluding related tax consequences, of approximately $200 million in the aggregate. The company does not consider these errors to have a material impact on its financial statements. Currently, the Home Depot believes that correction of these errors will result in an increase to paid-in capital of approximately $200 million and a decrease to retained earnings of the same amount. Total Stockholders' Equity, which totaled $27.8 billion at October 29, 2006, is not expected to be affected when adjustments to these accounts are made in the company's Form 10-K for the fiscal year ending January 28, 2007. The Home Depot is also reviewing the potential tax implications relating to its stock options granting practices. write your comments about the article :: © 2006 Construction News :: home page |