Home Depot Backdated Options
"In almost every instance, the stock price on the apparent approval date was higher than the price on the stated grant date," Home Depot said in a statement. However, the company insisted that there was "no intentional wrongdoing" by anyone involved. The company estimated that about $200 million, cumulatively, in expenses was not recorded from 1981 through this year, but said that it doesn't believe it will have a material impact on the financial statements.
The backdating apparently was widespread from 1981 to November 2000, with "insufficient documentation" about how egregious the backdating was, according to the company. The information was gleaned after a four-month internal investigation into the home-improvement giant's stock-option grants over the entire 26-year history as a public company. The Securities and Exchange Commission and the U.S. Attorney for the Southern District of New York also are investigating the matter.
A spokesman for Home Depot would not comment beyond the press statement. In a statement sent later, the company said that it was "pleased" that no one intended to wrong the company and that it was "inappropriate" to say more until after the government investigations are completed. It is unclear how many employees and options are involved in the alleged backdating or what the final value of all that might be.
To be sure, the numbers far exceed what Home Depot had expected in June after an initial probe. At that time, the company said that it had uncovered only five instances of backdating that accounted for some $10 million in unrecorded expenses. On Wednesday, the company said that top managers, who are no longer with Home Depot, "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."
Home Depot said that it is also reviewing potential tax implications tied to the apparent backdating and that it's cooperating with the SEC and U.S. attorney's office in their investigations. Probe gone wide Home Depot's audit committee and the Hogan & Hartson legal team interviewed more than 60 current and former officers, directors and employees and combed through more than 3 million documents.
The company would not disclose who was interviewed and who might be responsible for the alleged wrongdoings. Annual option grants in 1994 through 2000 as well as many quarterly grants were not fully allocated to employees until "several weeks after the stated grant date." Because there are no records before 1994, it is "unclear" if the allocations also were postdated from 1981 through 1993, the investigation found. In fact, Home Depot said that from 1981 through December 2000 there's nothing that tells when many of those grants and options were actually authorized.
What's more, the company's stock administration department "retroactively added employees to lists of approved grantees, or changed the number of options granted to specific employees, without authorization of the board or a board committee, to correct administrative errors," according to the retailer.
In "numerous instances"--and mostly before 2003--those who were required to report the grants to the Securities and Exchange Commission "failed to do so in a timely manner or at all." To rectify the accounting errors, Home Depot said the $200 million will just change sides of the balance sheet, moving from retained earnings to a credit in paid-in capital. The company indicated, however, that it doesn't expect total stockholders' equity to be affected when the adjustments are made in the annual filing to the SEC. As of Oct. 29, total stockholders' equity stood at $27.8 billion.