Atlanta, GA, June 23, 2006--Home Depot disclosed Friday that the Securities and Exchange Commission had begun an informal inquiry into its practices for granting stock options.
The disclosure by the nation's largest home-improvement chain came a week after it said its own review had turned up five instances of options having been awarded to executives at below-market prices. In three of the five instances, the market price of company stock on the award date was higher than that on the date the exercise price was determined. In all five, the company's board of directors approved the options grants retroactively.
Home Depot's internal review, going back to 1996, also found about $10 million in unrecorded stock option expenses.
The Atlanta-based company disclosed the SEC inquiry in a regulatory filing Friday.
Home Depot said it will cooperate fully with the SEC staff in the inquiry. "Although the company cannot predict the outcome of this matter, it does not expect that this informal inquiry will have a material adverse effect on the company's consolidated financial position or its results of operations," it said in the filing.
Home Depot is one of the biggest companies among the nearly 50 under scrutiny by the SEC or federal prosecutors in a growing investigation of stock options practices.
Most of the cases under investigation appear to have involved backdating options grants to a low point in the company's stock price--thereby fattening the spread and the payoff for executives when they sell.
While backdating of options can be legal if properly disclosed to shareholders, SEC chairman Christopher Cox said recently that companies may have broken the law if there wasn't proper disclosure or the options weren't accounted for correctly in financial statements.
