A five-month internal investigation has revealed that Home Dept backdated employee stock options between 1981 and 2000. These activities racked up $200 million in unrecorded expenses. The inquiry found no intentional wrongdoing on the part of previous management. However, it had become standard practice for managers to choose option grant dates that had a lower stock price than the actual date. These changes were approved by a board committee. No such grants were awarded to founders Arthur Blank, Bernard Marcus or any directors. Since 2002, the company has ensured that option exercise prices match the price of the grant date. The company admits the practice started about 25 years ago, which disproves the theory that options backdating is a product of the technology boom. Home Depot, which reported $81.5 billion in sales in 2006, is one of the largest companies to admit to options backdating.
• Sources: WSJ, Bloomberg, BussinessWeek, Reuters
• Related commentary: Private Equity Gone Wild: Home Depot In Play?, Home Depot's Dividend Increase: Not What Bob Nardelli Wants You To Believe, Home Depot Stalls Despite Strong Growth in its Supply Unit, Home Depot Rising Despite Disappointing Earnings
• Potentially impacted stocks and ETFs: Home Depot (HD) Competitors: Target (TGT), Lowe's (LOW), Best Buy (BBY) ETFs: Retail HOLDRS (RTH), Vanguard Consumer Discretionary VIPERs (VCR), Vanguard Dividend Appreciation VIPERs (VIG)
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