Home Depot 2007 Annual Report Download - page 63

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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 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 SEC 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 (1981 through 2005) of $227 million in
the aggregate, including related tax items. In accordance with the provisions of SAB 108, the Company decreased beginning Retained Earnings
for fiscal 2006 by $227 million within the accompanying Consolidated Financial Statements.
As previously disclosed, the staff of the SEC began in June 2006 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 consolidated financial condition or results of operations.
The Company does not believe that the effect of the stock option adjustment was material, either quantitatively or qualitatively, in any of the
years covered by the review of these items. In reaching that determination, the following quantitative measures were considered (dollars in
millions):
Vendor Credits
The Company records credits against vendor invoices for various issues related to the receipt of goods. The Company previously identified that
it was not recording an allowance for subsequent reversals of these credits based on historical experience. Beginning Retained Earnings for fiscal
2006 was decreased by $30 million in the accompanying Consolidated Financial Statements to reflect the appropriate adjustments to
Merchandise Inventories and Accounts Payable, net of tax.
46
Fiscal Year
Net After-tax
Effect of
Adjustment
Reported Net
Earnings
Percent of
Reported Net
Earnings
2005
$
11
$
5,838
0.19
%
2004
18
5,001
0.36
2003
18
4,304
0.42
2002
21
3,664
0.57
1981
-
2001
159
14,531
1.09
Total
$
227
$
33,338
0.68
%