Family Dollar Stores will record a $10.5 million charge for the fiscal year ended August 26, 2006, after a special committee found that the company did not properly account for certain stock options granted between 1995 and 2006.
The discount retailer stressed it will not restate prior results because the committee determined that the impact of the resulting accounting adjustments was not material in any one reporting period.
About $7.9 million of the $10.5 million charge relates to the annual grants made in fiscal years 1995 to 2004 to all stock option participants, Family Dollar explained. The remaining charge arises from grants made to newly hired employees and from interest expense as a result of certain related tax adjustments.
Family Dollar will also take a $12 million expense during the second quarter for legal, accounting, and other expenses related to the review.
The company elaborated that stock option grants were made to employees as part of its annual compensation review, which generally occurred over a number of weeks.
Family Dollar conceded that for most years, the available documentation of its grant process is incomplete. As a result, to determine the measurement dates for accounting purposes, the retailer will now use the dates that stock option agreements were delivered to employees rather than the original dates selected by the company.
Beginning in fiscal 2005, the company added, it revised the option grant process, and those measurement dates were correctly determined.