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The Home Depot Reports Results of Investigation Into Options Practices

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  • 1. The Home Depot Reports Results of Investigation Into Options Practices ATLANTA, Dec 06, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- The Home Depot(R) disclosed today the principal conclusions of an investigation into its stock option practices. In August 2006, the Company 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. (Logo: http://www.newscom.com/cgi-bin/prnh/20030502/HOMEDEPOTLOGO ) 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 Company'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 Company'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 Company. 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 Company'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
  • 2. 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 Company's management team or its Board of Directors. The Company 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 the Company's financial statements. Currently, the Company 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 Company is also reviewing the potential tax implications relating to its stock options granting practices. The effect of such tax implications is not expected to materially impact the Company's financial statements. As previously disclosed, the staff of the Securities and Exchange Commission has begun an informal inquiry into the Company's stock option practices, and the U.S. Attorney for the Southern District of New York has also requested information on the subject. The Company is continuing to cooperate with these agencies. While the Company cannot predict the outcome of these matters, it does not believe that they will have a material adverse impact on its financial position or results of operations. At the end of the third quarter, the Company operated a total of 2,104 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces and Mexico. Through its HD Supply(SM) businesses, The Home Depot is also one of the largest diversified wholesale distributors in the United States, with more than 950 branches in the United States and Canada offering products and services for building, improving and maintaining homes, businesses and municipal infrastructures. In fiscal 2005, The Home Depot had sales of $81.5 billion and earnings of $5.8 billion. The Company employs approximately 355,000 associates and has been recognized by FORTUNE magazine as the No. 1 Most Admired Specialty Retailer and the No. 13 Most Admired Corporation in America for 2006. The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index. HDE Certain statements contained herein may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on currently available information as of their dates and are subject to risks and uncertainties that may cause actual results to differ materially. Information regarding these risks and uncertainties is contained in the Company's periodic filings with the Securities and Exchange Commission, including the Company's most recently filed Annual Report on Form 10-K. Forward-looking statements speak only as of their respective dates, and the Company specifically disclaims any obligation to update them except as may be required under the federal securities laws. SOURCE The Home Depot Financial Community, Diane Dayhoff, Senior Vice President, Investor Relations, +1-770-384-2666, or diane_dayhoff@homedepot.com, or News Media, Jerry Shields, +1-770-384-2741, or jerry_shields@homedepot.com, or Ron DeFeo, +1-770-384-3179, or ron_defeo@homedepot.com, all of The Home Depot http://www.homedepot.com Copyright (C) 2006 PR Newswire. All rights reserved News Provided by COMTEX