-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IeKq5XKaakvaRst4GTLs6fE/LO6EwKfoYvHG7h+Fy1ggDk+YKKYPwqsCjfocyc3v 6mrxwqpg32TyEgOGdrNzYA== 0000950144-98-005045.txt : 19980424 0000950144-98-005045.hdr.sgml : 19980424 ACCESSION NUMBER: 0000950144-98-005045 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980201 FILED AS OF DATE: 19980423 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOME DEPOT INC CENTRAL INDEX KEY: 0000354950 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-LUMBER & OTHER BUILDING MATERIALS DEALERS [5211] IRS NUMBER: 953261426 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08207 FILM NUMBER: 98599672 BUSINESS ADDRESS: STREET 1: 2455 PACES FERRY ROAD CITY: ATLANTA STATE: GA ZIP: 30339-4024 BUSINESS PHONE: 770-433-8211 MAIL ADDRESS: STREET 1: 2455 PACES FERRY ROAD CITY: ATLANTA STATE: GA ZIP: 30339-4024 10-K 1 THE HOME DEPOT, INC. 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 1, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-8207 THE HOME DEPOT, INC. (Exact name of Registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) IRS No. 95-3261426 (I.R.S. Employer Identification No.) 2455 Paces Ferry Road, Atlanta, Georgia (Address of principal executive offices) 30339-4024 (Zip Code) Registrant's telephone number, including area code: (770) 433-8211 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $.05 Par Value New York Stock Exchange 3-1/4% Convertible Subordinated Notes New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of the Registrant held by nonaffiliates of the Registrant on March 30, 1998, was $45,507,418,306. The aggregate market value was computed by reference to the closing price of the stock on the New York Stock Exchange on such date. For the purposes of this response, executive officers and directors are deemed to be the affiliates of the Registrant and the holdings by nonaffiliates was computed at 688,202,923 shares. The number of shares outstanding of the Registrant's Common Stock as of March 30, 1998 was 733,454,687 shares. 2 DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Proxy Statement for its Annual Meeting of Stockholders, to be held May 27, 1998, which has been filed pursuant to Regulation 14A within 120 days of the close of Registrant's fiscal year, is incorporated by reference in answer to Part III of this report but only to the extent indicated herein. In addition, pages 15 through 31 and the inside cover page of The Home Depot, Inc.'s 1997 Annual Report to Stockholders is incorporated by reference in answer to Items 6, 7 and 8 of Part II and Item 14(a) of Part IV of this report. PART I Item 1. BUSINESS General The Home Depot, Inc. including its subsidiaries ("Home Depot" or "Company") is the leading retailer in the home improvement industry and ranks among the 10 largest retailers in the United States based on net sales volume. At fiscal year end, the Company was operating 624 stores, including 587 Home Depot stores and 5 EXPO(R) Design Center stores in the United States and 32 Home Depot stores in Canada. The aggregate total square footage of selling space was approximately 66,361,000 at year end. Home Depot stores sell a wide assortment of building materials and home improvement and lawn and garden products and average approximately 106,300 square feet of enclosed space per store, with an additional 16,000 to 28,000 square feet in the outside garden center area. Home Depot's operating strategy for its Home Depot stores is to offer a broad assortment of high quality merchandise at competitive prices utilizing highly knowledgeable, service-oriented personnel and aggressive advertising. The Company regularly checks competitors' prices to ensure that Home Depot's low "Day-In, Day-Out" warehouse prices are competitive within each market. Since a large portion of the Company's customers are individual homeowners, many of whom may have limited experience in do-it-yourself ("D-I-Y") projects, management considers its associates' knowledge of products and home improvement techniques and applications to be very important to its marketing approach and its ability to maintain customer satisfaction. Many D-I-Y customers take advantage of "how-to" classes taught by associates and vendors in Home Depot stores. Another segment of the Company's business activity is the buy-it-yourself ("B-I-Y") customer. The B-I-Y customer chooses products, makes the purchase and contracts with others to complete or install the project. For these customers, Home Depot offers installation services for a variety of products through third-party providers. Home Depot also devotes significant marketing, advertising and service efforts toward attracting professional remodelers and commercial users. The Company's EXPO Design Centers range from 81,000 to 145,000 square feet of selling space and provide products and services primarily related to design and renovation projects. The Company also offers, via direct mail facilities, maintenance and repair products through Maintenance Warehouse and wallpaper and custom window treatments through National Blind & Wallpaper Factory, both wholly-owned subsidiaries of The Home Depot, Inc. The Company's 2 3 Store Support Center (corporate office) is located at 2455 Paces Ferry Road, Atlanta, Georgia 30339-4024, telephone number (770) 433-8211. Products A typical Home Depot store stocks approximately 40,000 to 50,000 product items, including variations in color and size. Each Home Depot store carries a wide selection of high quality and nationally advertised brand name merchandise. The table below shows the percentage of sales of each major product group for each of the last three fiscal years. These percentages may not necessarily be representative, however, of future product mix due to, among other things, the effects of promotional activities associated with opening additional Home Depot stores, changes in selling seasons due to unusual or delayed weather patterns and ongoing merchandising product line reviews conducted by management. Also, newly opened stores did not operate through a complete seasonal product cycle for all periods presented:
Percentage of Sales for Fiscal Year Ended ----------------- Jan. 28, Feb. 2, Feb. 1, 1996 1997 1998 ---- ---- ---- Product Group ------------- Building materials, lumber, floor and wall coverings...... 33.9% 34.0% 34.2% Plumbing, heating, lighting and electrical supplies....... 27.7 27.4 27.1 Seasonal and specialty items.............................. 14.8 14.7 14.8 Hardware and tools........................................ 13.2 13.4 13.5 Paint and other........................................... 10.4 10.5 10.4 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
The Company sources its store merchandise from approximately 5,700 vendors worldwide, of which no single vendor accounts for as much as five percent of total purchases. The Company is not dependent on any single vendor. A substantial majority of merchandise is purchased directly from manufacturers, thereby eliminating costs of intermediaries. Management believes that competitive sources of supply are readily available for substantially all products the Company purchases for resale. Store Growth At fiscal year end, Home Depot had stores in 41 states and four Canadian provinces, with approximately 50 percent of the U.S. stores being concentrated in California, Florida, Texas, Georgia, New York, New Jersey and Illinois. Although new Home Depot store openings for fiscal 1997 occurred primarily in existing markets, the Company continued its geographic expansion by opening stores in a number of new markets, including Prescott, Arizona; Pueblo, Colorado; Rockford, Illinois; Evansville, Indiana; Portland, Maine; Traverse City, Michigan; Kansas City, Missouri; Syracuse, New York; Akron, Canton, Cleveland, Toledo and Youngstown, Ohio; Beaumont and Lubbock, Texas; Williston, Vermont and Spokane, Washington. In addition, Home Depot stores were opened in two new Canadian markets: Winnipeg, Manitoba and Ottawa, Ontario. 3 4 From the end of fiscal 1992 to the end of fiscal 1997, the Company increased its store count by an average of approximately 24 percent per year (from 214 to 624 stores) and increased the total store square footage by an average of approximately 26 percent per year (from 20,897,000 to 66,361,000 total square feet). Home Depot expects to continue to increase its store count in both existing and selected new markets on a basis consistent with its current policy of not exceeding a maximum growth rate of new stores of approximately 22 percent per year. During fiscal 1997, the Company opened 112 new stores and relocated 5 existing Home Depot stores. During fiscal 1998, the Company anticipates opening approximately 137 new stores. New Home Depot stores average approximately 108,000 square feet with an additional 16,000 to 28,000 square feet of outside selling and storage area. Marketing, Sales & Distribution Management believes a number of the Company's existing Home Depot stores are operating at or above their optimum capacity. To enhance long-term market penetration, the Company has a strategy of opening new stores near the edge of the market areas served by existing stores. While such a strategy may initially have a negative impact on comparable store-for-store sales, the Company believes this "cannibalization" strategy increases customer satisfaction and overall market share by reducing delays in shopping, increasing utilization by existing customers and attracting new customers to more convenient locations. In an effort to more effectively respond to the demographics of certain markets, the Company has expanded its service hours to 24 hours a day in 15 store locations. Home Depot continued to introduce or refine a number of merchandising programs during fiscal 1997. Key among them is the Company's ongoing commitment to becoming the supplier of choice to a variety of professional customers, including remodelers, carpenters, plumbers, electricians, building maintenance professionals and designers. The Company has reacted to the needs of this group by enhancing and increasing quantities of key products for professional customers. In addition, the Company is testing additional product and service-related programs designed to increase sales to professional customers, including expanded commercial credit programs, delivery services and incremental dedicated staff. The Company's installed sales program is available, with varying services offered, in all of the Company's stores. There are approximately 3,500 installed sales vendors who, as independent, licensed contractors, are authorized by the Company to provide services to customers. This program targets the B-I-Y customer, who will purchase a product but either does not have the desire or ability to install the product. In fiscal 1998, the Company has opened one new EXPO Design Center store in Davie, Florida and plans to open an additional store in South Florida during the year. Unlike traditional Home Depot stores, EXPO Design Centers do not sell building materials and lumber, but focus instead on upscale interior design products and installation services. The Miami EXPO format (the "Miami Format"), from which future EXPO stores will be modeled with certain modifications, is different from the format of previous EXPO stores located in San Diego, California; Atlanta, Georgia; Long Island, New York and Dallas, Texas. When compared to the other EXPO stores, which average approximately 131,400 square feet of selling space, the Miami Format for EXPO is nearly 40 percent smaller in size, currently averaging approximately 83,500 square feet per store. In addition, the Miami Format is more 4 5 project-oriented than the previous format. This format focuses on projects related to kitchen, bath, lighting, window, soft flooring and hard flooring. The only "cash and carry" items a customer can purchase at this store are items principally relating to such kinds of projects. Construction on the Company's new Import Distribution Center ("IDC") located in Savannah, Georgia was completed in fiscal 1997. Built with the intention of servicing the Company's stores located east of the Rocky Mountains, the IDC began shipments in April 1997 and by the end of fiscal 1997 was servicing all targeted stores. The 1.4 million square foot facility is staffed with approximately 600 associates. The IDC enables the Company to directly import products not currently available to customers or offer products currently sourced domestically from third party importers. Other benefits include quicker turnaround deliveries to stores, lower costs and improved quality control than would be possible if the products were purchased through third party importers. In fiscal 1997, the Company continued its marketing effort to support its sponsorship of the 1998 U.S. Olympic Team and Canadian Olympic Team's participation at the Winter Games. The Company will maintain its relationship with the U.S. Olympic Committee and the Canadian Olympic Committee for at least the next six years for the Olympic Games to be held in 2000, 2002 and 2004. The Company sponsored the "1997 National Home and Garden Show Series." Bringing together 16 of the nation's most successful consumer shows under one national sponsorship provided maximum exposure and support to the shows. Through this sponsorship, the Company played a key role in bringing attention to the most innovative lawn and garden, interior design and home improvement products and services to the general public. Homer TLC, Inc., an indirect wholly-owned subsidiary of The Home Depot, Inc., owns the trademarks "The Home Depot," and "EXPO," as well as the "Homer" advertising symbol and various private label brand names utilized by the Company. The Company's operating subsidiaries license from Homer TLC, Inc. the right to use this intellectual property. The Company believes its rights in this intellectual property are an important asset of the Company. Other Operations In March 1997, the Company acquired Maintenance Warehouse/America Corp. ("Maintenance Warehouse"). Maintenance Warehouse is the leading direct mail marketer of maintenance, repair and operations products serving the multi-family housing and lodging facilities management market. At fiscal year end, Maintenance Warehouse employed approximately 500 associates. The Company believes that the acquisition of Maintenance Warehouse will provide the Company with an opportunity to increase its penetration of the professional customer market. In November 1997, the Company acquired the assets of privately-held Deekay Enterprises, Inc., owner of Detroit-based National Blind & Wallpaper Factory, a telephone mail order service for wallpaper and custom window treatments, and Habitat Wallpaper & Blinds, operator of 13 retail stores located in Illinois, Missouri and Ohio. The companies, now known as National Blinds & Wallpaper, Inc. and Habitat Stores, Inc., respectively, are wholly-owned subsidiaries of The Home Depot, Inc. At fiscal year end, National Blinds and Wallpaper, Inc. and Habitat Stores, Inc. employed approximately 280 and 150 associates, respectively. Management believes the 5 6 acquisition of these companies will enhance the Company's customer service levels and competitive presence in wallpaper and custom window treatment products. In December 1997, the Company acquired the Load 'N Go(TM) program. This program offers rentals, at low hourly rates, of standard and specially-fitted pickup trucks and cargo vans for customers who choose not to wait for normal delivery schedules or who are unable to transport their purchases in their own vehicles. The program provides an alternative to customers from the regular delivery services offered by the Company. By the end of fiscal 1997, Load 'N Go was available in approximately 300 stores. International Operations The Company's Canadian Home Depot stores are owned by a partnership, operating under the name The Home Depot Canada, between the Company and Molson Companies, Limited ("Molson"). The Company's controlling share of the partnership is seventy-five percent (75%). At any time after February 28, 2000, the Company has the option to purchase, or Molson has the option to cause the Company to purchase, the remaining twenty-five percent (25%) of The Home Depot Canada. The option price is based on the lesser of fair market value or a value determined by an agreed upon formula as of the option exercise date. The first Home Depot store located in Latin America is scheduled to open in Santiago, Chile in July 1998. Chile was chosen primarily because of its stable economy and government, growing middle class population and developed D-I-Y market. To facilitate entry into the market, the Company signed a joint venture agreement with S.A.C.I. Falabella, a leading department store retailer in Chile. The Company's controlling share of the venture is 66.67 percent. The Company believes its alliance with Falabella enhances the Company's presence in the Chilean market by offering attractive real estate opportunities and providing assistance with, among other things, systems, credit marketing and distribution logistics. The Company has offices in Santiago, Chile from which the day-to-day management of the operation is handled by a key management team comprised of both Chilean nationals and seasoned Home Depot managers. The Company also plans to open two stores in San Juan, Puerto Rico in fiscal 1998. Information Systems Each store is equipped with a computerized point of sale system, electronic bar code scanning system and a UNIX Server. Management believes these systems provide efficient customer check-out (with an approximate 90 percent rate of scannable products), store-based inventory management, rapid order replenishment, labor planning support and item movement information. Faster registers as well as a new check approval system and a new receipt format have expedited transactions. To better serve the increasing number of customers applying for credit, the charge card approval process time has been reduced to less than 30 seconds. Store information is communicated to the Store Support Center's computers via a land-based frame relay network. These computers provide corporate, financial, merchandising and other back office function support. 6 7 The Company is continuously assessing and upgrading its information systems to support its growth, reduce and control costs and enable better decision-making. The Company continues to realize greater efficiency as a result of its electronic data interchange ("EDI") program. Currently, most of the Company's highest volume vendors are participating in the EDI program. A paperless system, EDI electronically processes orders from buying offices to vendors, alerts the stores when the merchandise is to arrive and transmits invoice data from the vendors and motor carriers to the Store Support Center. In addition, during fiscal 1997 the Company continued to develop new computer systems to facilitate and improve product order replenishment in Home Depot stores. Associate Development As of fiscal year end, Home Depot employed approximately 125,000 associates, of whom approximately 7,900 were salaried with the remainder compensated on an hourly basis. Approximately 76 percent of the Company's associates are employed on a full-time basis. To attract and retain qualified personnel, the Company seeks to maintain salary and wage levels above those of its competitors in its market areas. The Company's policy is to hire and train additional personnel in anticipation of future store expansion. The Company has never experienced a strike or any work stoppage, and management believes that its employee relations are satisfactory. There are no collective bargaining agreements covering any of the Company's associates. In fiscal 1997, the Company enhanced its training programs and began implementing other employment practices in its continuing effort to service the needs of its associates. Among the initiatives that will be implemented over the next two years are programs designed to increase associates' knowledge of merchandising departments and products and to educate, develop and test the skills of those associates who are interested in being promoted. In keeping with the Company's "pay-for-performance" philosophy, store managers will have access to geographic information regarding competitive salary rates in their respective markets. The Company operates its own television network and produces training and informational programs that are transmitted to stores via the satellite communications network and by videotape. Competition The business of the Company is highly competitive, based in part on price, store location, customer service and depth of merchandise. In each of the markets served by the Company, there are a number of other chains of building supply houses, lumber yards and home improvement stores. In addition, the Company must compete, with respect to some of its products, with discount stores, local, regional and national hardware stores, mail order firms, warehouse clubs, independent building supply stores and, to a lesser extent, other retailers. Due to the variety of competition faced by the Company, management is unable to precisely measure the Company's market share in its existing market areas. Management, however, believes that the Company is an effective and significant competitor in its markets, and that its market share, currently defined as including the Do-It-Yourself/Buy-It-Yourself, Tradesmen, Builders/General Contractors, Heavy Industrial, Repair & Remodeling and Property Maintenance markets, is approximately 7%, based on U.S. Census data estimates, internal estimates and data provided by the Home Improvement Research Institute. 7 8 Executive Officers The following provides information as of April 16, 1998 concerning the executive officers holding positions in the Company and/or its subsidiaries. BERNARD MARCUS, age 68, is a co-founder of Home Depot and serves as Chairman of the Board. From inception of the Company in 1978 until 1997, he served as Chairman of the Board and Chief Executive Officer ("CEO"), at which time the title of CEO was passed on to Mr. Arthur M. Blank. Mr. Marcus serves as a director on the Boards of National Service Industries, Inc., the New York Stock Exchange, Inc., Westfield Corporation, Inc. and DBT Online, Inc. He also serves on the boards of the National Foundation for the Centers for Disease Control and Prevention and The Marcus Center, Inc., which provides support services for persons with developmental disabilities and their families. In addition, he is a member of the Advisory Board and the Board of Directors of the Shepherd Center in Atlanta, Georgia and is a Vice President and member of the Board of The City of Hope, in Duarte, California. ARTHUR M. BLANK, age 55, has been the President, Chief Operating Officer and a director of Home Depot since its inception in 1978 and was named CEO in 1997. He is, together with Mr. Bernard Marcus and Mr. Kenneth G. Langone, a co-founder of the Company. Mr. Blank is a member of the Board of Trustees of North Carolina Outward Bound School, Emory University and the Carter Center, Inc.; the Board of Councilors of the Carter Center of Emory University and serves as a member of the Board of Directors of Cox Enterprises, Inc. and Post Properties, Inc. RONALD M. BRILL, age 54, has been Executive Vice President and Chief Administrative Officer of the Company since 1995. Mr. Brill joined Home Depot as Controller in 1978, was elected Treasurer in 1980, Vice President-Finance in 1981, Senior Vice President and Chief Financial Officer ("CFO") in 1984, Executive Vice President and CFO in 1993 and was elected as a director in 1987. Mr. Brill serves on the Board of Trustees of the Atlanta Jewish Community Center and Woodruff Arts Center, the Board of Directors of the High Museum of Art and Pilchuck Glass School and the Governing Board of Woodward Academy. MARK R. BAKER, age 40, has been President of the Midwest Division since December 1997. Mr. Baker first joined the Company in 1996 as Vice President-Merchandising for the Midwest Division. Prior to joining Home Depot, from 1992 until 1996, Mr. Baker was an Executive Vice President for HomeBase in Fullerton, California. BRUCE W. BERG, age 49, has been President-Southeast Division since 1991. Mr. Berg joined the Company in 1984 as Vice President-Merchandising (East Coast) and was promoted to Senior Vice President (East Coast) in 1988. MARSHALL L. DAY, age 54, has been Senior Vice President-Chief Financial Officer since 1995. Mr. Day previously served as Senior Vice President-Finance from 1993 until his promotion to his current position. 8 9 BILL HAMLIN, age 45, was recently named Group President and continues to serve as Executive Vice President-Merchandising. Prior to being named Executive Vice President-Merchandising, Mr. Hamlin served as President-Western Division from 1990 until 1994. VERNON JOSLYN, age 46, has been President-Northeast Division since 1996. Mr. Joslyn previously served as Vice President-Operations for the Northeast Division from 1993 until his promotion to his current position. W. ANDREW McKENNA, age 52, was named Senior Vice President-Strategic Business Development in December 1997. Mr. McKenna joined Home Depot as Senior Vice President-Corporate Information Systems in 1990. In 1994 he was named President of the Midwest Division and served in that capacity until he assumed the duties of his current position. LYNN MARTINEAU, age 41, has been President-Western Division since 1996. Mr. Martineau most recently served as Vice President-Merchandising for the Company's Southeast Division from 1989 until his promotion to his current position. LARRY M. MERCER, age 51, was recently named Group President and has been Executive Vice President-Operations since 1996. Mr. Mercer previously served as President-Northeast Division from 1991 until his promotion to his current position. BARRY L. SILVERMAN, age 39, has been President of the Southwest Division since July 1997. Mr. Silverman previously served as Vice President-Merchandising of the Northeast Division from 1991 until his promotion to his current position. BRYANT W. SCOTT, age 42, has been President of the EXPO Design Center Division since 1995. Since 1980, Mr. Scott has served in a variety of positions, including Vice President-Merchandising for the Southeast Division. DAVID SULITEANU, age 45, was named Group-President-Diversified Businesses in April 1998. Mr. Suliteanu previously served as Vice Chairman and Director of Stores for Macy's East, a position he held from 1993 until he joined Home Depot in April 1998. ANNETTE M. VERSCHUREN, age 41, has been President of The Home Depot Canada since 1996. In 1992, Ms. Verschuren formed Verschuren Ventures Inc. and remained there until joining Michaels of Canada Inc. in 1993 where she served as President until joining the Company. 9 10 Item 2. PROPERTIES The following table indicates the number of the Company's Home Depot store locations by state in the United States and by province in Canada as of February 1, 1998.
Number of Stores State in State ------------------------------------- Alabama 6 Arizona 18 Arkansas 2 California 97 Colorado 10 Connecticut 13 Delaware 1 Florida 64 Georgia 33 Idaho 1 Illinois 25 Indiana 2 Iowa 1 Kansas 1 Kentucky 3 Louisiana 9 Maine 2 Maryland 14 Massachusetts 17 Michigan 22 Minnesota 10 Mississippi 4 Missouri 7 Nevada 5 New Hampshire 4 New Jersey 25 New Mexico 3 New York 33 North Carolina 18 Ohio 4 Oklahoma 6 Oregon 7 Pennsylvania 20 Rhode Island 1 South Carolina 7 Tennessee 17 Texas 55 Utah 4 Vermont 1 Virginia 7 Washington 13 --- Subtotal 592
10 11
Number of Stores Canadian Provinces in Province ------------------------------------- Alberta 4 British Columbia 8 Manitoba 1 Ontario 19 --- Subtotal 32 TOTAL STORES 624 ===
Of the Company's 624 stores at February 1, 1998, approximately 74 percent were owned (including those owned subject to a ground lease) consisting of approximately 48,235,000 square feet and approximately 26 percent were leased consisting of approximately 18,126,000 square feet. In recent years, the relative percentage of new stores which are owned has increased. Although the Company takes advantage of lease financing opportunities, the Company generally prefers to own stores because of greater operating control and flexibility, generally lower occupancy costs and certain other economic advantages of owned stores. See "Management's Discussion and Analysis of Results of Operations and Financial Condition - Liquidity and Capital Resources." The Company's executive, corporate staff and accounting offices occupy approximately 1,310,000 square feet of leased and owned space in Atlanta, Georgia. The Company acquired additional land in Atlanta, Georgia and has constructed office facilities that are currently occupied by the majority of the store support staff located in Atlanta. Approximately 140,000 square feet of leased space previously occupied by this staff is being subleased. In addition, the Company occupies an aggregate of 921,000 square feet, of which 171,000 square feet is owned and 750,000 square feet is leased, for divisional store support centers and subsidiary customer support centers located in Fullerton and San Diego, California; Tampa, Florida; Atlanta, Georgia; Schaumburg, Illinois; Southfield, Michigan; South Plainfield, New Jersey; Dallas, Texas; Tukwila, Washington; Scarborough, Ontario, Canada and Santiago, Chile. The Company utilizes approximately 5,604,000 square feet of warehousing and distribution space of which 711,000 is owned and 4,893,000 is leased. Management believes that at the end of existing lease terms, space currently leased by the Company can be either relet or replaced by alternate space for lease or purchase that is readily available. Item 3. LEGAL PROCEEDINGS The Company has litigation arising from the normal course of business. In management's opinion, this litigation will not materially affect the Company's consolidated financial position or the results of operations. 11 12 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended February 1, 1998. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since April 19, 1984, the Common Stock of the Company has been listed on the New York Stock Exchange under the symbol "HD." The table below sets forth the low and high sales prices of the Common Stock on the New York Stock Exchange Composite Tape as reported in The Wall Street Journal and the quarterly cash dividends declared per share of Common Stock during the periods indicated.
Price Range* Cash ------------ Dividends Low High Declared* --- ---- --------- Fiscal Year 1996 First Quarter ended April 28, 1996 $28.33 $33.58 $.03 Second Quarter ended July 28, 1996 30.67 38.08 .04 Third Quarter ended October 27, 1996 33.50 39.67 .04 Fourth Quarter ended February 2, 1997 31.83 38.17 .04 Fiscal Year 1997 First Quarter ended May 4, 1997 $33.00 $39.08 $.04 Second Quarter ended August 3, 1997 38.25 50.00 .05 Third Quarter ended November 2, 1997 47.06 56.63 .05 Fourth Quarter ended February 1, 1998 52.94 61.63 .05 Fiscal Year 1998 First Quarter (through April 16, 1998) $61.25 $72.69 $.05
- --------------------- * On July 3, 1997, the Company effected a three-for-two stock split in the form of a stock dividend with respect to the shares of Common Stock issued and outstanding on June 12, 1997. The prices in the table set forth above, where applicable, are adjusted by the Company to give effect retroactively to such stock split. Dividends declared are also adjusted, where applicable, to give effect to the stock split. The Company paid its first cash dividend on June 22, 1987, and has paid dividends in each subsequent quarter. Future dividend policies will depend on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors. 12 13 Number of Record Holders The number of record holders of Home Depot's Common Stock as of March 30, 1998 was 104,868 (excluding individual participants in nominee security position listings). Item 6. SELECTED FINANCIAL DATA Reference is made to information for the fiscal years 1993-1997 under the heading "Ten Year Selected Financial and Operating Highlights" contained in the Company's Annual Report to Stockholders for the fiscal year ended February 1, 1998, which information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" contained in the Company's Annual Report to Stockholders for the fiscal year ended February 1, 1998, which information is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments and believes that its exposure to market risk associated with other financial instruments (such as investments) are not material. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to information under the headings "Consolidated Statements of Earnings," "Consolidated Balance Sheets," "Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements" and "Independent Auditors' Report" contained in the Company's Annual Report to Stockholders for the fiscal year ended February 1, 1998, which information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference from the information in Registrant's Proxy Statement (filed or to be filed pursuant to Regulation 14A) under the heading "I. Election of Directors and Information Regarding Directors" for its Annual Meeting of Stockholders 13 14 to be held May 27, 1998, except as to biographical information on Executive Officers which is contained in Item I of this Annual Report on Form 10-K. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the information in Registrant's Proxy Statement (filed or to be filed pursuant to Regulation 14A) under the heading "Executive Officers and Their Compensation" for its Annual Meeting of Stockholders to be held May 27, 1998. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference from the information in Registrant's Proxy Statement (filed or to be filed pursuant to Regulation 14A) under the heading "Common Stock Ownership By Certain Beneficial Owners and Management" for its Annual Meeting of Stockholders to be held May 27, 1998. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the information in Registrant's Proxy Statement (filed or to be filed pursuant to Regulation 14A) under the heading "Insider Transactions" for its Annual Meeting of Stockholders to be held May 27, 1998. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following financial statements are incorporated by reference from pages 21 through 33 of the Registrant's Annual Report to Stockholders for the fiscal year ended February 1, 1998, as provided in Item 8 hereof: - Consolidated Statements of Earnings for the fiscal years ended February 1, 1998, February 2, 1997 and January 28, 1996. - Consolidated Balance Sheets as of February 1, 1998 and February 2, 1997. - Consolidated Statements of Stockholders' Equity for the fiscal years ended February 1, 1998, February 2, 1997 and January 28, 1996. - Consolidated Statements of Cash Flows for the fiscal years ended February 1, 1998, February 2, 1997 and January 28, 1996. - Notes to Consolidated Financial Statements. 14 15 - Independent Auditors' Report. 2. Financial Statement Schedules All schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. (b) Reports on Form 8-K There were no Reports on Form 8-K filed during the fourth quarter of the fiscal year ended February 1, 1998. (c) Exhibits Exhibits marked with an asterisk (*) are hereby incorporated by reference to exhibits or appendices previously filed by the Registrant as indicated in brackets following the description of the exhibit. *3.l Restated Certificate of Incorporation of The Home Depot, Inc., as amended. [Form 10-K for the fiscal year ended January 29, 1995, Exhibit 3.1] 3.2 By-laws, as amended. *4.1 Indenture dated as of October 1, 1996, between The Home Depot, Inc., as issuer and The First National Bank of Chicago, as trustee for $1,104,000,000 aggregate principal amount of 3- 1/4% Convertible Subordinated Notes due 2001. [Form S-3 Registration Statement No. 333-12575, Exhibit 4.2] 10.1 Investment Banking Consulting Contract dated April 17, 1985, between Invemed Associates, Inc. and the Registrant. 10.2 +Corporate Office Management Bonus Plan of the Registrant dated March 1, 1991. *10.3 +Employee Stock Purchase Plan, as amended. [Appendix A to Registrant's Proxy Statement for the Annual Meeting of Stockholders held May 31, 1995] *10.4 +Senior Officers' Bonus Pool Plan, as amended. [Appendix A to Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held May 27, 1998] 10.5 +The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan. *10.6 +Executive Medical Reimbursement Plan, effective January 1, 1992. [Form 10-K for the fiscal year ended January 31, 1993, Exhibit 10.7] *10.7 +The Home Depot ESOP Restoration Plan. [Form 10-K for the fiscal year ended January 29, 1995, Exhibit 10.8] 15 16 *10.8 $800,000,000 Credit Agreement dated as of December 20, 1995 among The Home Depot, Inc., the Banks Listed Therein and Wachovia Bank of Georgia, N.A., as Agent (without exhibits). [Form 10-K for the fiscal year ended January 28, 1996, Exhibit 4.1] *11 Computation of Earnings Per Common and Common Equivalent Share. [Annual Report to Stockholders for the fiscal year ended February 1, 1998, filed herewith as Exhibit 13, Notes to Consolidated Financial Statements, Note 8] 13 The Registrant's Annual Report to Stockholders for the fiscal year ended February 1, 1998. Only those portions of said report which are specifically designated in this Form 10-K as being incorporated by reference are being electronically filed pursuant to the Securities Exchange Act of 1934. 21 List of Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 24 Special Powers of Attorney authorizing execution of this Form 10-K Annual Report have been granted and are filed herewith as follows: Power of Attorney from Frank Borman. Power of Attorney from John L. Clendenin. Power of Attorney from Johnnetta B. Cole. Power of Attorney from Berry R. Cox. Power of Attorney from Milledge A. Hart, III. Power of Attorney from Donald R. Keough. Power of Attorney from Kenneth G. Langone. Power of Attorney from M. Faye Wilson. 27 Financial Data Schedule. [Filed electronically with SEC only.] 27.1 Restated Financial Data Schedule. [Filed electronically with SEC only.] - --------------------- +Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. 16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, The Home Depot, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Atlanta, and State of Georgia on this 22nd day of April, 1998. THE HOME DEPOT, INC. By: /s/ Arthur M. Blank ------------------------------------------ (Arthur M. Blank, President & CEO) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, The Home Depot, Inc., and in the capacities and on the dates indicated.
Signature Title Date - ---------- ----- ---- /s/ Bernard Marcus Chairman of the Board April 17, 1998 - ------------------------ (Bernard Marcus) /s/ Arthur M. Blank President & CEO April 17, 1998 - ------------------------ and Director (Arthur M. Blank) (Principal Executive Officer) /s/ Ronald M. Brill Executive Vice President, April 17, 1998 - ------------------------ Chief Administrative Officer, Assistant (Ronald M. Brill) Secretary and Director * Director April 17, 1998 - ------------------------ (Frank Borman)
17 18
Signature Title Date - ---------- ----- ---- * Director April 17, 1998 - ------------------------ (John L. Clendenin) * Director April 17, 1998 - ------------------------ (Johnnetta B. Cole) * Director April 17, 1998 - ------------------------ (Berry R. Cox) /s/ Marshall L. Day Senior Vice President- April 17, 1998 - ------------------------ Chief Financial Officer (Marshall L. Day) (Principal Financial and Accounting Officer) * Director April 17, 1998 - ------------------------ (Milledge A. Hart, III) * Director April 17, 1998 - ------------------------ (Donald R. Keough) * Director April 17, 1998 - ------------------------ (Kenneth G. Langone) * Director April 17, 1998 - ------------------------ (M. Faye Wilson)
* The undersigned, by signing his name hereto, does hereby sign this report on behalf of each of the above-indicated directors of the Registrant pursuant to powers of attorney, executed on behalf of each such director. By: /s/ Arthur M. Blank ---------------------------------------- (Arthur M. Blank, Attorney-in-fact) 18 19 EXHIBIT INDEX 3.2 By-laws, as amended. 10.1 Investment Banking Consulting Contract dated April 17, 1985, between Invemed Associates, Inc. and the Registrant. 10.2 Corporate Office Management Bonus Plan of the Registrant dated March 1, 1991. 10.5 The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan. 13 The Registrant's Annual Report to Stockholders for the fiscal year ended February 1, 1998. Only those portions of said report which are specifically designated in this Form 10-K as being incorporated by reference are being electronically filed pursuant to the Securities Exchange Act of 1934. 21 List of Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 24 Special Powers of Attorney authorizing execution of this Form 10-K Annual Report have been granted and are filed herewith as follows: Power of Attorney from Frank Borman. Power of Attorney from John L. Clendenin. Power of Attorney from Johnnetta B. Cole. Power of Attorney from Berry R. Cox. Power of Attorney from Milledge A. Hart, III. Power of Attorney from Donald R. Keough. Power of Attorney from Kenneth G. Langone. Power of Attorney from M. Faye Wilson. 27 Financial Data Schedule. [Filed electronically with SEC only.] 27.1 Restated Financial Data Schedule. [Filed electronically with SEC only.] EX-3.2 2 BY LAWS, AS AMENDED 1 EXHIBIT 3.2 2 THE HOME DEPOT, INC. BY-LAWS (AMENDED AND RESTATED) ARTICLE I. MEETINGS OF STOCKHOLDERS SECTION 1. The annual meeting of the stockholders of the Corporation shall be held on the first Tuesday in the month of May in each year, at the hour of 10 o'clock A.M., or at such other time on such other day within the months of April, May or June as shall be fixed by the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the state in which the meeting is to be held, such meeting shall be a legal holiday in the state in which the meeting is to be held, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein or determined in the manner provided herein for any annual meeting of the stockholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as conveniently may be. SECTION 2. Special meetings of the stockholders may be called at any time by the Chairman of the Board, the President or the Board of Directors. SECTION 3. Written notice of the time and place of every annual or special meeting of the stockholders shall be given at least ten but not more than sixty days previous to such meetings by personal delivery to the stockholder of a copy of such notice or by mailing a copy of such notice addressed to the stockholder at his post office address as the same shall appear on the record of stockholders of the Corporation or, if he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to him at some other address, then addressed to him at such other address; provided, however, that notice of any meeting to take action on a proposed merger or consolidation of the Corporation or on a proposed sale of all or substantially all of the assets of the Corporation shall be given at least twenty but not more than sixty days prior to such meeting. Notice of a special meeting of the stockholders shall also state the purpose or purposes for which the meeting is called. Each notice of a special meeting of stockholders shall indicate that it has been issued by or at the direction of the person or persons calling the meeting. Notice shall be deemed given when deposited, postage prepaid, in a United States post office or official depository. A written waiver of notice signed by the stockholder entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the 3 transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. SECTION 4. Every annual meeting of the stockholders shall be held at such place within or without the State of Delaware as may be determined by the Board of Directors and stated in the notice of any such meeting, and every special meeting shall be held at such place within or without the State of Delaware as may be stated in the notice of such special meeting. SECTION 5. No business shall be transacted at any special meeting of the stockholders except that business which related to the purpose or purposes set forth in the notice of the meeting. SECTION 6. At each meeting of the stockholders there shall be present, either in person or by proxy, the holders of a majority of the shares of the Corporation entitled to vote thereat in order to constitute a quorum. Any meeting of the stockholders at which a quorum is not present may be adjourned from time to time to some other time without any new notice other than an announcement at the meeting by the votes cast in person or by proxy of the holders of a majority of those shares which are cast on a motion to adjourn, provided, however, that if any adjournment is for more than thirty days, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. At all meetings of the stockholders, all questions except as otherwise required by the laws of the State of Delaware shall be determined by a majority of the votes cast at the meeting of the holders of shares entitled to vote thereon. Upon all questions, every stockholder of record shall be entitled at every meeting of stockholders to one vote for every share of common stock standing in his name on the books of the Corporation and qualified to vote. Holders of shares of $50 Series A Preferred Stock and $50 Series B Preferred Stock all have not right to vote such shares at any meeting of stockholders and shall have no voice in the management of the Corporation. SECTION 8. At all meetings of the stockholders, absent stockholders entitled to vote thereat may vote by proxy or by the attorney-in-fact thereof. No proxy shall be valid after the expiration of three years from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it except as otherwise provided by the laws of the State of Delaware. SECTION 9. Any action required to be taken or which may be taken at a meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if consent in writing, setting forth the action so taken, shall be signed by the holders of stock having not less than the minimum number of votes necessary to take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of 4 the taking of the corporate actions without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II. DIRECTORS SECTION 1. The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. Except as otherwise provided by law and except as hereinafter otherwise provided for filling vacancies, the directors of the Corporation shall be elected by the stockholders entitled to vote at the annual meeting of the stockholders, to hold office until the expiration of the term for which he is elected and until his successor has been elected and qualified or until his earlier resignation or removal. SECTION 2. An annual meeting of the Board of Directors shall be held after each annual election of directors. If such election occurs at an annual meeting of stockholders, the annual meeting of the Board of Directors shall take place as soon after such written consent is duly filed with the Corporation as is practicable. SECTION 3. Special meetings of the Board of Directors shall be called at any time by the Secretary at the direction of the Chairman of the Board, the President or a majority of the directors. SECTION 4. Written notice of each special meeting of the Board of Directors shall be given to each member thereof specifying the time and place of the meeting. Notice shall be given by first class mail, telegram, radiogram, telex or personal service. At least forty-eight hours' notice must be given by telegram, radiogram, telex or personal service when less than six days' notice is given. If notice to a director is given by mail, the notice shall be directed to him at the address designated by him for the purpose, or, if none is designated, at his last known address, and shall be deemed given when deposited, postage prepaid, in a post office or official depository of any nation. If notice to a director is given by telegram, radiogram or telex, it shall be directed to his last known address and, in the case of notice by telegram or radiogram, shall be deemed given when received by the communications carrier. Notice by telex shall be deemed given when transmitted. A written waiver of notice signed by the director entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. SECTION 5. Except for meeting held after an annual meeting of stockholders, meetings of the Board of Directors shall be held at such place as may be specified in the notice 3 5 thereof, or, if no place is specified in the notice, at such other place or places as the Board of Directors may from time to time fix thereof. SECTION 6. Members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all person participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. SECTION 7. A majority of the total number of directors shall be necessary to constitute a quorum for the transaction of business and the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Any regular or special meeting of the Board at which a quorum is not present may be adjourned from time to time to some other place or time or both by a majority of the directors present without any new notice other than an announcement at the meeting. SECTION 8. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors and to the extent permitted by law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation, (ii) adopt an agreement of merger or consolidation, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution or (v) amend the by-laws of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. SECTION 9. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board consent thereto in writing and the writing is filed with the minutes of proceedings of the Board. SECTION 10. The Board of Directors of the Corporation shall consist of not less than three nor more than fifteen members, the exact number of Directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. SECTION 11. Directors may receive compensation for services to the Corporation in their capacities as directors or otherwise in such manner and in such amounts as may be fixed from time to time by resolution of the Board of Directors. 4 6 ARTICLE III. OFFICERS SECTION 1. The Board of Directors, at the annual meeting thereof, shall appoint a Chairman of the Board, a President, a Treasurer and a Secretary. The Board may at any time appoint one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries. Each such officer shall serve from time of his appointment until a successor shall be chosen and qualified or until his earlier resignation or removal. The compensation of the officers shall be fixed by the Board. SECTION 2. The Chairman of the Board shall preside at all meetings of stockholders and of the Board of Directors. He shall be the chief executive officer and head of the Corporation and, subject to the Board of Directors, shall have the general control and management of the business and affairs of the Corporation. He shall vote any shares of stock or other voting securities owned by the Corporation. In general, he shall perform all duties incident to the office of the Chairman of the Board and such other duties as may from time to time be assigned to him by the Board. SECTION 3. The President shall be the Chief operating officer of the Corporation and, subject to the Board of Directors and the Chairman of the Board, shall have control of the operational aspects of the business and affairs of the Corporation. He shall see that all orders of the Chairman of the Board are carried into effect, and shall perform all other duties necessary to his office or properly required of him by the Board or the Chairman of the Board. SECTION 4. During the absence or disability of the President, or during a vacancy in the office of President, the Vice President with the greatest seniority shall perform the duties and have the powers of the President. SECTION 5. The Secretary shall have custody of the seal of the Corporation. He shall keep the minutes of the Board of Directors, and of the stockholders, and shall attend to the giving and serving of all notices of the Corporation. He shall have charge of the certificate book and such other books and papers as the Board may direct; and he shall perform such other duties as may be incidental to his office or as may be assigned to him by the Board of Directors. He shall also keep or cause to be kept a stock book, containing the names, alphabetically arranged, of all persons who are stockholders of the Corporation showing their respective addresses, the number of shares registered in the name of each, and the dates when they respectively became the owners of record thereof, and such books shall be open for inspection as prescribed by the laws of the States of Delaware. During the absence or disability of the Secretary, or during a vacancy in the office of Secretary, the Assistant Secretary with the greatest seniority shall perform the duties and have the powers of the Secretary. 5 7 SECTION 6. The Treasurer shall have the care and custody of the funds and securities of the Corporation and shall deposit the same in the name of the Corporation in such bank or banks as the Board of Directors may determine. The Treasurer shall also have the care and custody of the Corporation's books of account and he shall be responsible for the general and cost accounting functions of the Corporation. During the absence or disability of the Treasurer, or during a vacancy in the office of Treasurer, the Assistant Treasurer with the greatest seniority shall perform the duties and have the powers of the Treasurer. ARTICLE IV. RESIGNATIONS, REMOVALS, VACANCIES AND INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 1. Any director or officer may resign his office at any time, such resignation to be made in writing and to take effect from the time of its receipt by the Corporation, unless some future time be fixed in the resignation and in that case from that time. The acceptance of a resignation shall not be required to make it effective. Nothing herein shall be deemed to affect any contractual rights of the Corporation. SECTION 2. Any officer may be removed with or without cause at any time by the Board of Directors. Any employee of the Corporation may be removed at any time by the Board of Directors or by an officer. The removal of an officer or employee without cause shall be without prejudice to his contractual rights, if any. The election or appointment of an officer or employee shall not of itself create contractual rights. Any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. SECTION 3. Any vacancy or newly created directorship on the Board of Directors may be filled by a majority vote of the Directors then in office, or by majority vote of the stockholders. SECTION 4. Each former, present or future director, officer, employee or agent of the Corporation, and each person who may serve at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise shall be indemnified by the Corporation in all events, to the fullest extent and in the manner permitted by the laws of the State of Delaware then in effect. 6 8 ARTICLE V. COMMON STOCK SECTION 1. Certificates for shares of the common stock of the Corporation shall be numbered and registered on the books of the Corporation in the order in which they shall be issued and shall be signed by the Chairman of the Board, the President or a Vice President, and the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. SECTION 2. Transfers of shares shall be made upon the books of the Corporation (i) only by the holder thereof in person or by power of attorney duly executed and filed with the Corporation, (ii) in accordance with the Shareholders Agreement, and (iii) upon the surrender to the Corporation of the certificate or certificates for such shares. ARTICLE VI PREFERRED STOCK SECTION 1. Certificates for shares of the $50 Series A Preferred Stock and the $50 Series B Preferred Stock of the Corporation shall be numbered and registered on the books of the Corporation in the order in which they shall be issued and shall be signed by the Chairman of the Board or the President or a Vice President, and the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. SECTION 2. In accordance with the terms under which such preferred shares were issued, all of the shares of the $50 Series A Preferred Stock of the Corporation shall be deemed by the Corporation at its election expressed by resolution of the Board of Directors but no later than six (6) calendar months following the close of any fiscal year at which the Net Worth of the Corporation and any subsidiaries thereof, computed in accordance with generally accepted accounting principles consistently applied on a consolidated basis, shall be equal to or exceed Ten Million Dollars ($10,000,000.00), and subject to there being sufficient surplus to repurchase all of the Common Shares which the Corporation is obligated to repurchase pursuant to the Shareholders Agreement. SECTION 3. In accordance with the terms under which such preferred shares were issued, the shares of the $50 Series B Preferred Stock of the Corporation shall be redeemed by the Corporation at the election of the holder of such shares; provided, however, that such election may not be exercised at any time prior to the redemption of the Series A Preferred Stock. 7 9 ARTICLE VII. CHECKS, DRAFTS AND NOTES The Chairman of the Board or the President or any officers designated by Resolution of the Board of Directors shall sign all checks and drafts necessary to be drawn and may accept any drafts drawn upon the Corporation in due course of business. No check or draft shall be endorsed by the Corporation and no promissory note, bond, debenture or other evidence of indebtedness shall be made, signed, issued or endorsed by the Corporation unless signed by the Chairman or the President or any officer designated under powers given by a resolution of the Board except that any officer may endorse for collection or deposit only, expressly stating the purpose of such endorsements, checks, drafts and promissory notes to the order of the Corporation. ARTICLE VIII. SEAL The seal of the Corporation shall be in the custody of the Secretary. It shall be circular in form and shall have engraved upon it the name of the Corporation arranged in a circle and the words and figures "Incorporated 1978 Delaware" across the center of the space enclosed. ARTICLE IX BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS The Corporation shall not be subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware (Business Combination with Interested Stockholders). This Article IX shall not be amended only by the affirmative vote of a majority of the Corporation's stockholders entitled to vote on such matter. 8 EX-10.1 3 INVESTMENT BANKING CONSULTING CONTRACT 1 EXHIBIT 10.1 2 THE HOME DEPOT 6300 Powers Ferry Rd. Atlanta, Georgia 30339 404 952-5504 (LOGO) April 17, 1985 Invemed Associates, Incorporated 375 Park Avenue New York, New York 10022 Gentlemen: The Home Depot, Inc. ("HDI") is a Delaware corporation having its principal offices in Atlanta, Georgia. The shares of HDI's five cent ($.05) par value common stock (the "Common Stock") are publicly traded by the New York Stock Exchange. The Board of Directors of HDI understands that Invemed Associates, Incorporated ("Invemed") is engaged in the investment banking and securities brokerage business, is a member of the New York Stock Exchange, and has extensive experience in and familiarity with financial and securities markets, securities and investments. The Board of Directors of HDI has determined that experienced advice and assistance to HDI in making its financing and securities related decisions would be beneficial to HDI. In light of the foregoing and subject to the terms and conditions set forth in this letter agreement, HDI hereby retains Invemed to serve as Investment Banking Consultant to HDI. 1. INVESTMENT BANKING CONSULTING SERVICES. Invemed shall use its staff and other facilities to monitor both the corporate and financial position of HDI and the activity of HDI Securities in the securities markets. Invemed shall, in light of such monitoring activities, report to the Board of Directors of HDI from time to time (but in no event less frequently then once each fiscal quarter) concerning the financial needs of HDI and proposed financial plans to meet such financial needs. Invemed shall make available to be present at each meeting of the Board of Directors of HDI, and at such other times as the Board of Directors or the Chief Executive Officer of HDI shall reasonably request, one or more experienced financial and securities advisory personnel of Invemed. Invemed's staff shall keep the Board of Directors and the Chief Financial Officer of HDI apprised, in writing, of such articles, research reports and other published materials as become available from time to time and are germane to the financial and securities positions of HDI. Invemed's staff also shall provide advice concerning economic factors and trends that may be relevant to HDI's plans for meeting its financial requirements. In the event that the Board of Directors of HDI determines to seek additional financing of any type, Invemed shall consult with the Board of Directors and advise the Board of Directors concerning the structuring of such financing, including advice as to whether such financing should include securities, the types of such securities, the amounts of securities, the timing of the offer and sale of such securities, the convertibility of such securities, if advisable, and other related factors. 3 In the event that the Board of Directors determines to borrow funds, Invemed shall assist in identifying potential lenders and advise HDI regarding the amount, terms, and conditions of such loans. In the event that the Board of Directors determines to obtain financing through "private placement" of debt or equity securities, Invemed shall assist in seeking suitable purchasers for such securities, acceptable to the Board of Directors of HDI. In the event that the Board of Directors determines to offer HDI securities publicly, HDI may engage, but shall be under no obligation by virtue of this agreement to engage, Invemed as the manager or a co-manager of an offering of HDI securities. Invemed may elect to participate, but shall be under no obligation by virtue of this agreement to participate, in an offering of HDI securities. Invemed shall monitor and evaluate on behalf of HDI the activities of market-makers in publicly-traded securities of HDI and any securities firms engaged by HDI after consultation with Invemed, provided that Invemed shall not be required to monitor or evaluate on behalf of HDI any securities firm acting as manager or co-manager of an underwriting syndicate of which Invemed is a member. 2. PURCHASE AND SALE OF HDI SECURITIES. HDI recognizes and acknowledges that Invemed is, among other things, engaged in the business of acting as a broker and dealer in securities, and that in such capacity Invemed buys and sells securities for the account of its customers. HDI requires and agrees that Invemed may in the ordinary course of business buy or sell Common Stock of HDI for the accounts of its customers, but Invemed is under no obligation to do so. 3. COMPENSATION. In compensation for rendering to HDI the services enumerated above, Invemed shall be paid a fee of $100,000 per HDI's fiscal year, payable quarterly, commencing on the effective date hereunder below provided. 4. EXPENSES. All expenses incurred by Invemed in the course of its performance of its duties and obligation under this agreement shall be borne by Invemed. In the course of rendering its service hereunder, Invemed shall, at its sole expense, employ, retain or otherwise avail itself of such services or facilities of other persons or organizations, for the purpose of providing Invemed or HDI with such advice or assistance as is necessary, appropriate or convenient for the discharge of its duties hereunder, or as shall reasonably be requested by HDI. 5. TERM. Unless sooner terminated, this agreement shall continue in effect for one (1) year from its effective date and shall continue in effect for successive one (1) year periods until termination as provided in Paragraph 6. 6. TERMINATION. This agreement may be terminated at any time without penalty by either party, upon sixty (60) days written notice to the other party hereto. 7. ASSIGNMENT. This agreement and the rights, duties and obligations hereunder, may not be assigned by either party hereto without the express prior written consent of the other party hereto. 8. GOVERNING LAW. This agreement shall be governed by the laws of the State of Georgia. 4 9. NOTICES. Any notice called for by this agreement shall be deemed effective if sent by United States mail, postage prepaid, to the appropriate party at the address indicated below, or such other addresses as the parties shall have advised each other in writing. (a) If to HDI: The Home Depot, Inc. 6300 Powers Ferry Road, N.W. Atlanta, Georgia 30339 Attention: Bernard Marcus Chairman of the Board (b) If to Invemed: Invemed Associated, Inc. 375 Park Avenue New York, New York 10022 Attention: Kenneth G. Langone If the contract set forth herein is acceptable to you, please so indicate by executing the enclosed copy of this letter and returning the same to the undersigned, whereupon this letter shall constitute a binding contract between the parties hereto. This contract shall become effective February 4, 1985. ATTEST: /s/ L. A. Smith THE HOME DEPOT, INC. ------------------ /s/ Bernard Marcus BY: Bernard Marcus Chairman of the Board ACCEPTED: INVEMED ASSOCIATES, INCORPORATED /s/ Ken Langone, Invemed Associates, Inc. - ------------------------------------------- ATTEST: -------------------------- EX-10.2 4 CORPORATE OFFICE MANAGEMENT BONUS PLAN 1 EXHIBIT 10.2 2 Corporate Management Bonus Plan Subject 01 - 84 03/01/91 Page: 1 of 4 Overview: Company Officers, Merchandisers, Associate Merchandisers, Regional Managers, and designated Directors are eligible for the Corporate Management Bonus Plan. A summary of the Plan provided in this procedure. Contents: Introduction ..................................................page l Bonus Calculations ............................................page 1
Policy: Introduction 1. Home Depot Officers, Regional Managers, Merchandisers, Associate Merchandisers, and designated Directors are eligible for participation in the Company's bonus plan. For information related to store management, refer to SOP 01-81, Store Management Bonus Plan. 2. Bonuses are paid only to those individuals employed by the Company in a bonus capacity as of the fiscal year end. Employees that resign, are terminated, or demoted to a non-bonus position within the year, are not eligible for the year-end bonus. 3. The salary upon which the bonus is calculated is the annual regular salary in effect at the end of the applicable fiscal year. Bonuses are prorated for partial year employees (new hires or promoted to designated position) based upon the number of full months service. 4. All bonus amounts must be approved by the Chairman of the Board, or the President-Chief Operating Officer with notification to the Sr. Vice President/Chief Financial Officer prior to review with the employee. 5. No position or individual can be added to the Corporate Bonus Plan without prior authorization of the President-Chief Operating Officer. 6. Quarterly statements are sent to each Corporate Bonus Plan participant showing year-to-date progress toward annual bonus goals. The Vice President-Finance maintains all details concerning bonus eligibility and calculations. Bonus Calculations 1. The bonus plan is based on the ability of the Company to meet a projected: Gross Margin Return On Investment (GMROI) by department for Vice Presidents-Merchandising, Merchandisers and Associate Merchandisers is calculated as follows: 3
GROSS MARGIN SALES / STOCK RATIO GMROI GROSS MARGIN X NET SALES = GROSS MARGIN ------------ ----------------- ----------------- NET SALES AVG. INV. AT COST AVG. INV. AT COST
01 - 84: Corporate Management Bonus Plan Page 2 Return On Assets (ROA) for V. P.'s - Operations and Regional Managers: ROA is calculated in the same manner as GMROI except net income before taxes and interest replaces gross margin; total assets, which is comprised of average retail inventory and fixed assets, replaces inventory. Return on Assets (ROA) for Officers and designated Directors: Same as above except assets are defined as average total assets of the Company per the Balance Sheet. 2. Bonuses are payable based on a percentage of salary of up to either 25% or 50%, depending upon the individual position. a. The following positions are eligible for bonuses based on results of their stores/departments compared to plan:
ROA GMROI SALES DISCRE- POSITION MIN. MAX. MIN. MAX. MIN.MAX. TIONARY VP Operations 4.375% 17.5% -- -- 1.5% 7.5% 25% VP Merchandising -- -- 4.375% 17.5% 1.5% 7.5% 25% Regional Manager 8.75% 35% -- -- 3% 15% -- Merchandiser -- -- 8.75% 35% 3% 15% -- Assoc. Merchandiser -- -- 4.375% 17.5% 1.5% 7.5% --
The minimum indicates percentages earned if 100% of planned results are achieved. The maximum indicates percentages earned if 115% of planned results are achieved. Refer to the charts on the next page. b. Officers and designated Directors are eligible for bonuses based on results of the entire Company compared to plan.
ROA GMROI SALES DISCRE- POSITION MIN. MAX. MIN. MAX. MIN.MAX. TIONARY 50% Pool 4.375% 17.5% -- -- 1.5% 7.5% 25% 25% Pool 2.1875% 8.5% -- -- .75% 3.75% 12.5%
The minimum indicates percentages earned if 100% of planned results are achieved. The maximum indicates percentages earned if 115% of planned results are achieved. Refer to the charts on the next page. 4 Page 3 Corporate Mangement Bonus Plan 01 - 84 [GRAPH] Regional Managers VP Operations Merchandisers VP Merchandising Associate Merchandiser [GRAPH] 5 01 - 84: Corporate Management Bonus Plan Page 4 3. For bonus calculations, inventory is based on the average of the 12 fiscal months. (i.e. Inventory at the beginning of the fiscal year plus each month end, divided by 13.) 4. Financial plans will be adjusted for scheduled new stores which open on a date not contemplated in the plan. 5. The Company reserves the right to adjust sales and profit plans either up or down when it is obvious that the original plans were materially incorrect. EX-10.5 5 1997 OMNIBUS STOCK INCENTIVE PLAN 1 EXHIBIT 10.5 2 THE HOME DEPOT, INC. 1997 OMNIBUS STOCK INCENTIVE PLAN 1. HISTORY AND PURPOSE. The Home Depot, Inc. Omnibus Stock Incentive Plan (this "Plan") is an amendment and restatement of The Home Depot, Inc. 1991 Omnibus Stock Option Plan. The purpose of this Plan is to attract and retain employees and directors for The Home Depot, Inc. and its subsidiaries and to provide such persons with incentives and rewards for superior performance. 2. DEFINITIONS. As used in this Plan, the following terms shall be defined as set forth below: "AWARD" means any Option, Stock Appreciation Right, Restricted Shares, Deferred Shares, Performance Shares or Performance Unit. "BASE PRICE" means the price to be used as the basis for determining the Spread upon the exercise of a Freestanding Stock Appreciation Right. "BOARD" means the Board of Directors of the Company. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMITTEE" means the committee described in Section 4 of this Plan. "COMPANY" means The Home Depot, Inc., a Delaware corporation, or any successor corporation. "DEFERRAL PERIOD" means the period of time during which Deferred Shares are subject to deferral limitations under Section 8 of this Plan. "DEFERRED SHARES" means an Award pursuant to Section 8 of this Plan of the right to receive Shares at the end of a specified Deferral Period. "EMPLOYEE" means any person, including an officer, employed by the Company or a Subsidiary. "FAIR MARKET VALUE" means the fair market value of the Shares as determined by the Committee from time to time. Unless otherwise determined by the Committee, the fair market value shall be the closing price for the Shares reported on a consolidated basis on the New York Stock Exchange on the relevant date or, if there were no sales on such date, the closing price on the nearest preceding date on which sales occurred. "FREESTANDING STOCK APPRECIATION RIGHT" means a Stock Appreciation Right granted pursuant to Section 6 of this Plan that is not granted in tandem with an Option or similar right. "GRANT DATE" means the date specified by the Committee on which a grant of an Award shall become effective, which shall not be earlier than the date on which the Committee takes action with respect thereto. "INCENTIVE STOCK OPTIONS" means any Option that is intended to qualify as an "incentive stock option" under Section 422 of the Code or any successor provision. 3 "NONEMPLOYEE DIRECTOR" means a member of the Board who is not an Employee. "NONQUALIFIED STOCK OPTION" means an Option that is not intended to qualify as an Incentive Stock Option. "OPTION" means any option to purchase Shares granted under Section 5 of this Plan. "OPTIONEE" means the person so designated in an agreement evidencing an outstanding Option. "OPTION PRICE" means the purchase price payable upon the exercise of an Option. "PARTICIPANT" means an Employee or Nonemployee Director who is selected by the Committee to receive benefits under this Plan, provided that Nonemployee Directors shall not be eligible to receive grants of Incentive Stock Options. "PERFORMANCE OBJECTIVES" means the performance objectives established pursuant to this Plan for Participants who have received grants of Performance Shares or Performance Units or, when so determined by the Committee, Deferred Shares or Restricted Shares. Performance Objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or the Subsidiary, division, department or function within the Company or Subsidiary in which the Participant is employed. Any Performance Objectives applicable to Awards to the extent that such an Award is intended to qualify as "performance-based compensation" under Section 162(m) of the Code shall be limited to specified levels of or increases in the Company's or Subsidiary's return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, economic value added, earnings before interest and taxes, sales growth, gross margin return on investment or increase in the Fair Market Value of the Shares. Except in the case of such an Award intended to qualify under Section 162(m) of the Code, if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Performance Objectives unsuitable, the Committee may modify such Performance Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable. "PERFORMANCE PERIOD" means a period of time established under Section 9 of this Plan within which the Performance Objectives relating to a Performance Share, Performance Unit, Deferred Shares or Restricted Shares are to be achieved. "PERFORMANCE SHARE" means a bookkeeping entry that records the equivalent of one Share awarded pursuant to Section 9 of this Plan. "PERFORMANCE UNIT" means a bookkeeping entry that records a unit equivalent to $1.00 awarded pursuant to Section 9 of this Plan. "PREDECESSOR PLAN" means The Home Depot, Inc. 1991 Omnibus Stock Option Plan. "RESTRICTED SHARES" mean Shares granted under Section 7 of this Plan subject to a substantial risk of forfeiture. "SHARES" means shares of the Common Stock of the Company, $.05 par value, or any security into which Shares may be converted by reason of any transaction or event of the type referred to in Section 11 of this Plan. 4 "SPREAD" means, in the case of a Freestanding Stock Appreciation Right, the amount by which the Fair Market Value on the date when any such right is exercised exceeds the Base Price specified in such right or, in the case of a Tandem Stock Appreciation Right, the amount by which the Fair Market Value on the date when any such right is exercised exceeds the Option Price specified in the related Option. "STOCK APPRECIATION RIGHT" means a right granted under Section 6 of this Plan, including a Freestanding Stock Appreciation Right or a Tandem Stock Appreciation Right. "SUBSIDIARY" means a corporation or other entity (i) more than 50 percent of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50 percent of whose ownership interest (representing the right generally to make decisions for such other entity) is, now or hereafter owned or controlled directly or indirectly by the Company, provided that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, "Subsidiary" means any corporation in which the Company owns or controls directly or indirectly more than 50 percent of the total combined voting power represented by all classes of stock issued by such corporation at the time of such grant. "TANDEM STOCK APPRECIATION RIGHT" means a Stock Appreciation Right granted pursuant to Section 6 of this Plan that is granted in tandem with an Option or any similar right granted under any other plan of the Company. 3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided in Section 11 of this Plan, the number of Shares that may be (i) issued or transferred upon the exercise of Options or Stock Appreciation Rights, (ii) awarded as Restricted Shares and released from substantial risk of forfeiture, or (iii) issued or transferred in payment of Deferred Shares or Performance Shares, on or after the effective date specified in Section 17 shall not in the aggregate exceed (y) the number of Shares then remaining available under the Predecessor Plan, plus (z) one-half percent (1/2%) of the total number of issued Shares (including Treasury Shares) as of the first day of each fiscal year of the Company that the Plan is in effect. The number of Shares available for issuance in any one fiscal year shall be increased by any Shares available in prior fiscal years but not issued in such fiscal years. In no event, however, shall the number of Shares issued upon the exercise of Incentive Stock Options exceed 50,000,000 Shares or the number of Restricted Shares released from substantial risk of forfeiture exceed 5,000,000 Shares, subject to adjustment as provided in Section 11. Such Shares may be Shares of original issuance, Shares held in Treasury or Shares that have been reacquired by the Company. (b) Upon payment of the Option Price upon exercise of a Nonqualified Stock Option by the transfer to the Company of Shares or upon satisfaction of tax withholding obligations under the Plan by the transfer or relinquishment of Shares, there shall be deemed to have been issued or transferred only the number of Shares actually issued or transferred by the Company, less the number of Shares so transferred or relinquished. Upon the payment in cash of a benefit provided by any Award under the Plan, any Shares that were subject to such Award shall again be available for issuance or transfer under the Plan. (c) No Participant may receive Awards representing more than 1,000,000 Shares in any one calendar year. In addition, the maximum number of Performance Units that may be granted to a Participant in any one calendar year is 5,000,000. (d) In addition to the foregoing limitations, the number of Shares made subject to grants of (i) Restricted Shares with vesting restrictions of less than three years if performance-based objectives or 5 one year if time-based objectives are established for the Performance Objectives or (ii) Performance Shares that are not issued in lieu of a salary or cash bonus, shall not exceed five percent (5%) of the Shares authorized for issuance under the Plan. This limitation shall be applied as of any date by taking into account the number of Shares available to be made the subject of new Awards as of such date, plus the number of Shares previously issued under the Plan and the number of Shares subject to outstanding Awards as of such date. 4. ADMINISTRATION OF THE PLAN. This Plan shall be administered by one or more committees appointed by the Board. The interpretation and construction by the Committee of any provision of this Plan or of any agreement or document evidencing the grant of any Award and any determination by the Committee pursuant to any provision of this Plan or any such agreement, notification or document, shall be final and conclusive. No member of the Committee shall be liable to any person for any such action taken or determination made in good faith. 5. OPTIONS. The Committee may from time to time authorize grants to Participants of options to purchase Shares upon such terms and conditions as the Committee may determine in accordance with the following provisions: (a) Each grant shall specify the number of Shares to which it pertains. (b) Each grant shall specify an Option Price per Share, which shall be equal to or greater than the Fair Market Value on the Grant Date. (c) Each grant shall specify the form of consideration to be paid in satisfaction of the Option Price and the manner of payment of such consideration, which may include (i) cash in the form of currency or check or other cash equivalent acceptable to the Company, (ii) nonforfeitable, unrestricted Shares owned by the Optionee which have a value at the time of exercise that is equal to the Option Price, (iii) any other legal consideration that the Committee may deem appropriate, including without limitation any form of consideration authorized under Section 5(d) below, on such basis as the Committee may determine in accordance with this Plan or (iv) any combination of the foregoing. (d) On or after the Grant Date of any Option other than an Incentive Stock Option, the Committee may determine that payment of the Option Price may also be made in whole or in part in the form of Restricted Shares or other Shares that are subject to risk of forfeiture or restrictions on transfer. Unless otherwise determined by the Committee, whenever any Option Price is paid in whole or in part by means of any of the forms of consideration specified in this Section 5(d), the Shares received by the Optionee upon the exercise of the Options shall be subject to the same risks of forfeiture or restrictions on transfer as those that applied to the consideration surrendered by the Optionee, provided that such risks of forfeiture and restrictions on transfer shall apply only to the same number of Shares received by the Optionee as applied to the forfeitable or restricted Shares surrendered by the Optionee. (e) Any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on the date of exercise of some or all of the Shares to which the exercise relates. (f) On or after the Grant Date of any Option, the Committee may provide for the automatic grant to the Optionee of a "reload" Option in the event the Optionee surrenders Shares in satisfaction of the Option Price upon the exercise of an Option as authorized under Sections 5(c) and (d) above. Each reload Option shall pertain to a number of Shares equal to the number of Shares utilized by the Optionee to exercise the original Option. Each reload Option shall have an exercise price equal to Fair Market Value on the date it is granted and shall expire on the stated exercise date of the original Option. 6 (g) Each Option grant may specify a period of continuous employment of the Optionee by the Company or any Subsidiary (or, in the case of a Nonemployee Director, service on the Board) that is necessary before the Options or installments thereof shall become exercisable, and any grant may provide for the earlier exercise of such rights in the event of a change in control of the Company or other similar transaction or event. (h) Options granted under this Plan may be Incentive Stock Options, Nonqualified Stock Options or a combination of the foregoing, provided that only Nonqualified Stock Options may be granted to Nonemployee Directors. Each grant shall specify whether (or the extent to which) the Option is an Incentive Stock Option or a Nonqualified Stock Option. Notwithstanding any such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year (under all plans of the Company) exceeds $100,000, such Options shall be treated as Nonqualified Stock Options. (i) No Option granted under this Plan may be exercised more than ten years from the Grant Date. (j) Each grant shall be evidenced by an agreement delivered to and accepted by the Optionee and containing such terms and provisions as the Committee may determine consistent with this Plan. 6. STOCK APPRECIATION RIGHTS. The Committee may also authorize grants to Participants of Stock Appreciation Rights. A Stock Appreciation Right is the right of the Participant to receive from the Company an amount, which shall be determined by the Committee and shall be expressed as a percentage (not exceeding 100 percent) of the Spread at the time of the exercise of such right. Any grant of Stock Appreciation Rights under this Plan shall be upon such terms and conditions as the Committee may determine in accordance with the following provisions: (a) Any grant may specify that the amount payable upon the exercise of a Stock Appreciation Right may be paid by the Company in cash, Shares or any combination thereof and may (i) either grant to the Participant or reserve to the Committee the right to elect among those alternatives or (ii) preclude the right of the Participant to receive and the Company to issue Shares or other equity securities in lieu of cash. (b) Any grant may specify that the amount payable upon the exercise of a Stock Appreciation Right shall not exceed a maximum specified by the Committee on the Grant Date. (c) Any grant may specify (i) a waiting period or periods before Stock Appreciation Rights shall become exercisable and (ii) permissible dates or periods on or during which Stock Appreciation Rights shall be exercisable. (d) Any grant may specify that a Stock Appreciation Right may be exercised only in the event of a change in control of the Company or other similar transaction or event. (e) On or after the Grant Date of any Stock Appreciation Rights, the Committee may provide for the payment to the Participant of dividend equivalents thereon in cash or Shares on a current, deferred or contingent basis. (f) Each grant shall be evidenced by an agreement delivered to and accepted by the Optionee, which shall describe the subject Stock Appreciation Rights, identify any related Options, state that the Stock Appreciation Rights are subject to all of the terms and conditions of this Plan and contain such other terms and provisions as the Committee may determine consistent with this Plan. 7 (g) Each grant of a Tandem Stock Appreciation Right shall provide that such Tandem Stock Appreciation Right may be exercised only (i) at a time when the related Option (or any similar right granted under any other plan of the Company) is also exercisable and the Spread is positive; and (ii) by surrender of the related Option (or such other right) for cancellation. (h) Regarding Freestanding Stock Appreciation Rights only: (i) Each grant shall specify in respect of each Freestanding Stock Appreciation Right a Base Price per Share, which shall be equal to or greater than the Fair Market Value on the Grant Date; (ii) Successive grants may be made to the same Participant regardless of whether any Freestanding Stock Appreciation Rights previously granted to such Participant remain unexercised; (iii) Each grant shall specify the period or periods of continuous employment of the Participant by the Company or any Subsidiary that are necessary before the Freestanding Stock Appreciation Rights or installments thereof shall become exercisable, and any grant may provide for the earlier exercise of such rights in the event of a change in control of the Company or other similar transaction or event; and (iv) No Freestanding Stock Appreciation Right granted under this Plan may be exercised more than ten years from the Grant Date. 7. RESTRICTED SHARES. The Committee may also authorize grants to Participants of Restricted Shares upon such terms and conditions as the Committee may determine in accordance with the following provisions: (a) Each grant shall constitute an immediate transfer of the ownership of Shares to the Participant in consideration of the performance of services, subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to. (b) Each grant may be made without additional consideration from the Participant or in consideration of a payment by the Participant that is less than the Fair Market Value on the Grant Date. (c) Each grant shall provide that the Restricted Shares covered thereby shall be subject to a "substantial risk of forfeiture" within the meaning of Section 83 of the Code for a period to be determined by the Committee on the Grant Date, and any grant or sale may provide for the earlier termination of such risk of forfeiture in the event of a change in control of the Company or other similar transaction or event. (d) Unless otherwise determined by the Committee, an award of Restricted Shares shall entitle the Participant to dividend, voting and other ownership rights during the period for which such substantial risk of forfeiture is to continue. (e) Each grant shall provide that, during the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Shares shall be prohibited or restricted in the manner and to the extent prescribed by the Committee on the Grant Date. Such restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Shares to a continuing substantial risk of forfeiture in the hands of any transferee. (f) Any grant or the vesting thereof may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable 8 provisions of Section 9 of this Plan regarding Performance Shares and Performance Units. (g) Any grant may require that any or all dividends or other distributions paid on the Restricted Shares during the period of such restrictions be automatically sequestered and reinvested on an immediate or deferred basis in additional Shares, which may be subject to the same restrictions as the underlying Award or such other restrictions as the Committee may determine. (h) Each grant shall be evidenced by an agreement delivered to and accepted by the Participant and containing such terms and provisions as the Committee may determine consistent with this Plan. Unless otherwise directed by the Committee, all certificates representing Restricted Shares, together with a stock power that shall be endorsed in blank by the Participant with respect to such Shares, shall be held in custody by the Company until all restrictions thereon lapse. 8. DEFERRED SHARES. The Committee may authorize grants of Deferred Shares to Participants upon such terms and conditions as the Committee may determine in accordance with the following provisions: (a) Each grant shall constitute the agreement by the Company to issue or transfer Shares to the Participant in the future in consideration of the performance of services, subject to the fulfillment during the Deferral Period of such conditions as the Committee may specify. (b) Each grant may be made without additional consideration from the Participant or in consideration of a payment by the Participant that is less than the Fair Market Value on the Grant Date. (c) Each grant shall provide that the Deferred Shares covered thereby shall be subject to a Deferral Period, which shall be fixed by the Committee on the Grant Date, and any grant or sale may provide for the earlier termination of such period in the event of a change in control of the Company or other similar transaction or event. (d) During the Deferral Period, the Participant shall not have any right to transfer any rights under the subject Award, shall not have any rights of ownership in the Deferred Shares and shall not have any right to vote such shares, but the Committee may on or after the Grant Date authorize the payment of dividend equivalents on such shares in cash or additional Shares on a current, deferred or contingent basis. (e) Any grant or the vesting thereof may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 9 of this Plan regarding Performance Shares and Performance Units. (f) Each grant shall be evidenced by an agreement delivered to and accepted by the Participant and containing such terms and provisions as the Committee may determine consistent with this Plan. 9. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee may also authorize grants of Performance Shares and Performance Units, which shall become payable to the Participant upon the achievement of specified Performance Objectives, upon such terms and conditions as the Committee may determine in accordance with the following provisions: (a) Each grant shall specify the number of Performance Shares or Performance Units to which it pertains, which may be subject to adjustment to reflect changes in compensation or other factors. 9 (b) The Performance Period with respect to each Performance Share or Performance Unit shall commence on the Grant Date and may be subject to earlier termination in the event of a change in control of the Company or other similar transaction or event. (c) Each grant shall specify the Performance Objectives that are to be achieved by the Participant. (d) Each grant may specify in respect of the specified Performance Objectives a minimum acceptable level of achievement below which no payment will be made and may set forth a formula for determining the amount of any payment to be made if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Objectives. (e) Each grant shall specify the time and manner of payment of Performance Shares or Performance Units that shall have been earned, and any grant may specify that any such amount may be paid by the Company in cash, Shares or any combination thereof and may either grant to the Participant or reserve to the Committee the right to elect among those alternatives. (f) Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Committee on the Grant Date. Any grant of Performance Units may specify that the amount payable, or the number of Shares issued, with respect thereto may not exceed maximums specified by the Committee on the Grant Date. (g) Any grant of Performance Shares may provide for the payment to the Participant of dividend equivalents thereon in cash or additional Shares on a current, deferred or contingent basis. (h) If provided in the terms of the grant, the Committee may adjust Performance Objectives and the related minimum acceptable level of achievement if, in the sole judgment of the Committee, events or transactions have occurred after the Grant Date that are unrelated to the performance of the Participant and result in distortion of the Performance Objectives or the related minimum acceptable level of achievement. (i) Each grant shall be evidenced by an agreement delivered to and accepted by the Participant, which shall state that the Performance Shares or Performance Units are subject to all of the terms and conditions of this Plan and such other terms and provisions as the Committee may determine consistent with this Plan. 10. TRANSFERABILITY. (a) Except as provided in Section 10(b), no Award granted under this Plan shall be transferable by a Participant other than by will or the laws of descent and distribution, and Options and Stock Appreciation Rights shall be exercisable during a Participant's lifetime only by the Participant or, in the event of the Participant's legal incapacity, by his guardian or legal representative acting in a fiduciary capacity on behalf of the Participant under state law. Any attempt to transfer an Award in violation of this Plan shall render such Award null and void. (b) The Committee may expressly provide in an Award agreement (or an amendment to an Award agreement) that a Participant may transfer such Award (other than an Incentive Stock Option), in whole or in part, to a spouse or lineal descendant (a "Family Member"), a trust for the exclusive benefit of Family Members, a partnership or other entity in which all the beneficial owners are Family Members, or any other entity affiliated with the Participant that may be approved by the Committee. Subsequent transfers of Awards shall be prohibited except in accordance with this Section 10 10(b). All terms and conditions of the Award, including provisions relating to the termination of the Participant's employment or service with the Company or a Subsidiary, shall continue to apply following a transfer made in accordance with this Section 10(b). (c) Any Award made under this Plan may provide that all or any part of the Shares that are (i) to be issued or transferred by the Company upon the exercise of Options or Stock Appreciation Rights, upon the termination of the Deferral Period applicable to Deferred Shares or upon payment under any grant of Performance Shares or Performance Units, or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Section 7 of this Plan, shall be subject to further restrictions upon transfer. 11. ADJUSTMENTS. The Committee may make or provide for such adjustments in the (a) number of Shares covered by outstanding Options, Stock Appreciation Rights, Deferred Shares, Restricted Shares and Performance Shares granted hereunder, (b) prices per share applicable to such Options and Stock Appreciation Rights, and (c) kind of Shares covered thereby, as the Committee in its sole discretion may in good faith determine to be equitably required in order to prevent dilution or enlargement of the rights of Participants that otherwise would result from (x) any stock dividend, stock split, combination or exchange of Shares, recapitalization or other change in the capital structure of the Company, (y) any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities or (z) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee may provide in substitution for any or all outstanding Awards under this Plan such alternative consideration as it may in good faith determine to be equitable under the circumstances and may require in connection therewith the surrender of all Awards so replaced. The Committee may also make or provide for such adjustments in the number of Shares specified in Section 3 of this Plan as the Committee in its sole discretion may in good faith determine to be appropriate in order to reflect any transaction or event described in this Section 11. 12. FRACTIONAL SHARES. The Company shall not be required to issue any fractional Shares pursuant to this Plan. The Committee may provide for the elimination of fractions or for the settlement thereof in cash. 13. WITHHOLDING TAXES. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under this Plan, it shall be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of all such taxes required to be withheld. At the discretion of the Committee, such arrangements may include relinquishment of a portion of such benefit. 14. CERTAIN TERMINATIONS OF EMPLOYMENT, HARDSHIP AND APPROVED LEAVES OF ABSENCE. Notwithstanding any other provision of this Plan to the contrary, in the event of termination of employment by reason of death, disability, normal retirement, early retirement with the consent of the Company or leave of absence approved by the Company, or in the event of hardship or other special circumstances, of a Participant who holds an Option or Stock Appreciation Right that is not immediately and fully exercisable, any Restricted Shares as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, any Deferred Shares as to which the Deferral Period is not complete, any Performance Shares or Performance Units that have not been fully earned, or any Shares that are subject to any transfer restriction pursuant to Section 10(c) of this Plan, the Committee may in its sole discretion take any action that it deems to be equitable under the circumstances or in the best interests of the Company, including, without limitation, waiving or modifying any limitation or requirement with respect to any Award under this Plan. 11 15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for Awards to Participants who are foreign nationals, or who are employed by the Company or any Subsidiary outside of the United States of America, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose, provided that no such supplements, amendments, restatements or alternative versions shall include any provisions that are inconsistent with the terms of this Plan, as then in effect, unless this Plan could have been amended to eliminate such inconsistency without further approval by the Stockholders of the Company. 16. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be amended from time to time by the Board, but no such amendment shall increase any of the limitations specified in Section 3 of this Plan, other than to reflect an adjustment made in accordance with Section 11, without the further approval of the Stockholders of the Company. (b) With the concurrence of the affected Optionee, the Committee may cancel any agreement evidencing Options or any other Award granted under this Plan. In the event of such cancellation, the Committee may authorize the granting of new Options or other Awards hereunder, which may or may not cover the same number of Shares that had been the subject of the prior Award, in such manner, at such Option Price and subject to such other terms, conditions and discretions as would have been applicable under this Plan had the canceled Options or other Award not been granted. (c) This Plan shall not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary and shall not interfere in any way with any right that the Company or any Subsidiary would otherwise have to terminate any Participant's employment or other service at any time. (d) To the extent that any provision of this Plan would prevent any Option that was intended to qualify under particular provisions of the Code from so qualifying, such provision of this Plan shall be null and void with respect to such Option, provided that such provision shall remain in effect with respect to other Options, and there shall be no further effect on any provision of this Plan. 17. EFFECTIVE DATE AND STOCKHOLDER APPROVAL. This Plan, as an amendment and restatement of the Predecessor Plan, shall become effective upon its approval by the Board, subject to approval by the Stockholders of the Company at the next Annual Meeting of Stockholders. The Committee may grant Awards subject to the condition that this Plan shall have been approved by the Stockholders of the Company. 18. TERMINATION. This Plan shall terminate on February 27, 2007, and no Award shall be granted after that date. 19. GOVERNING LAW. The validity, construction and effect of this Plan and any Award hereunder will be determined in accordance with (i) the Delaware General Corporation Law, and (ii) to the extent applicable, other laws (including those governing contracts) of the State of Georgia. EX-13 6 ANNUAL REPORT 1 EXHIBIT 13 2 EXHIBIT 13 The Home Depot, Inc. and Subsidiaries Amounts in Millions, except where noted 10-Year Selected Financial and Operating Highlights Excerpts
1997 1996(1) 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- STATEMENT OF EARNINGS DATA Net sales $ 24,156 $19,535 $15,470 $ 12,477 $ 9,239 Net sales increase (%) 23.7 26.3 24.0 35.0 29.2 Earnings before taxes(2) 2,002 1,535 1,195 980 737 Net earnings(2) 1,224 938 732 605 457 Net earnings increase (%)(2) 30.5 28.2 21.0 32.2 26.1 Diluted earnings per share ($)(2,3,4,5) 1.64 1.29 1.02 .88 .67 Diluted earnings per share increase (%)(2) 27.1 26.5 15.9 31.3 21.8 Weighted average number of common shares outstanding assuming dilution(3,4) 762 732 717 714 711 Gross margin - % of sales 28.1 27.8 27.7 27.9 27.7 Store selling and operating expense - % of sales 17.8 18.0 18.0 17.8 17.6 Pre-opening expense - % of sales .3 .3 .4 .4 .4 General and administrative expense - % of sales 1.7 1.7 1.7 1.8 2.0 Net interest income (expense) - % of sales - .1 .1 (.1) .3 Earnings before taxes - % of sales(2) 8.3 7.9 7.7 7.8 8.0 Net earnings - % of sales(2) 5.1 4.8 4.7 4.8 5.0 BALANCE SHEET DATA AND FINANCIAL RATIOS Total assets $ 11,229 $ 9,342 $ 7,354 $ 5,778 $ 4,701 Working capital 2,004 1,867 1,255 919 994 Merchandise inventories 3,602 2,708 2,180 1,749 1,293 Net property and equipment 6,509 5,437 4,461 3,397 2,371 Long-term debt 1,303 1,247 720 983 874 Stockholders' equity 7,098 5,955 4,988 3,442 2,814 Book value per share ($)(3) 9.70 8.26 6.97 5.06 4.17 Long-term debt to equity (%) 18.4 20.9 14.4 28.6 31.1 Current ratio 1.82:1 2.01:1 1.89:1 1.76:1 2.02:1 Inventory turnover 5.4x 5.6x 5.5x 5.7x 5.9x Return on beginning equity (%) 19.5 18.8 21.3 21.5 19.9 STATEMENT OF CASH FLOWS DATA Depreciation and amortization $ 283 $ 232 $ 181 $ 130 $ 90 Capital expenditures 1,525 1,248 1,308 1,220 900 Cash dividends per share ($)(3) .19 .15 .13 .10 .07 STORE DATA(6) Number of stores 624 512 423 340 264 Number of states 41 38 31 28 23 Number of Canadian provinces 4 3 3 3 - Square footage at year-end 66 54 44 35 26 Increase in square footage (%) 23.1 21.6 26.3 33.2 26.3 Average square footage per store (in thousands) 106 105 105 103 100 STORE SALES AND OTHER DATA(6) Comparable store sales increase (%)(7) 7 7 3 8 7 Average total company weekly sales $ 465 $ 369 $ 298 $ 240 $ 178 Weighted average weekly sales per 829 803 787 802 764 operating store (in thousands) Weighted average sales per square foot ($)(7) 406 398 390 404 398 Number of customer transactions 550 464 370 302 236 Average sale per transaction ($) 43.63 42.09 41.78 41.29 39.13 Number of associates at year-end (actual) 124,400 98,100 80,800 67,300 50,600 - --------------------------------------------------------------------------------------------------------
(1) Fiscal years 1996 and 1990 consisted of 53 weeks; all other years reported consisted of 52 weeks. (2) Excludes the effect of the $104 million non-recurring charge in fiscal 1997. (3) All share and per share data have been adjusted for a three-for-two stock split on July 3, 1997. (4) Share and per share data have been restated for the adoption of SFAS 128 "Earnings per Share." (5) Diluted earnings per share for fiscal 1997, including the $104 million non-recurring charge, were $1.55 (see note 9 of the Notes to Consolidated Financial Statements). (6) Excludes Maintenance Warehouse and National Blind & Wallpaper Factory. (7) Adjusted to reflect the first 52 weeks of the 53-week fiscal years in 1996 and 1990. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THE HOME DEPOT, INC. AND SUBSIDIARIES The data below reflect selected sales data, the percentage relationship between sales and major categories in the Consolidated Statements of Earnings and the percentage change in the dollar amounts of each of the items. SELECTED CONSOLIDATED STATEMENTS OF EARNINGS DATA
PERCENTAGE INCREASE (DECREASE) FISCAL YEAR(1) OF DOLLAR AMOUNTS -------------------------------------------------------------------- 1997 1996 1997 1996 1995 VS. 1996 VS. 1995 - -------------------------------------------------------------------------------------------------------------------------------- NET SALES 100.0% 100.0% 100.0% 23.7% 26.3% Gross Profit 28.1 27.8 27.7 24.8 26.8 Operating Expenses: Selling and Store Operating 17.8 18.0 18.0 21.8 26.5 Pre-Opening 0.3 0.3 0.4 19.7 4.5 General and Administrative 1.7 1.7 1.7 27.2 20.3 Non-Recurring Charge 0.4 - - - - - -------------------------------------------------------------------------------------------------------------------------------- Total Operating Expenses 20.2 20.0 20.1 24.8 25.6 - -------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 7.9 7.8 7.6 24.7 30.0 Interest Income (Expense): Interest and Investment Income 0.2 0.1 0.1 73.8 30.5 Interest Expense (0.2) - - 160.8 287.8 - -------------------------------------------------------------------------------------------------------------------------------- Interest, net - 0.1 0.1 (73.7) (38.6) Minority Interest - - - 87.9 NM(2) - -------------------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 7.9 7.9 7.7 23.7 28.4 Income Taxes 3.1 3.1 3.0 23.7 28.7 - -------------------------------------------------------------------------------------------------------------------------------- NET EARNINGS 4.8% 4.8% 4.7% 23.7% 28.2% - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- SELECTED CONSOLIDATED SALES DATA Number of Transactions (000s) 550,226 464,089 370,317 18.6% 25.3% Average Sale per Transaction $ 43.63 $ 42.09 $ 41.78 3.7 0.7 Weighted Average Weekly Sales per Operating Store $ 829,000 $ 803,000 $ 787,000 3.2 2.0 Weighted Average Sales per Square Foot $ 405.56 $ 398.29(3) $ 390.32 1.8 2.0 - --------------------------------------------------------------------------------------------------------------------------------
(1)Fiscal years 1997, 1996 and 1995 refer to the fiscal years ended February 1, 1998; February 2, 1997; and January 28, 1996, respectively. (2)Not meaningful. (3)Adjusted to reflect the first 52 weeks of the 53-week fiscal year in 1996. The Home Depot 17 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) THE HOME DEPOT, INC. AND SUBSIDIARIES FORWARD-LOOKING STATEMENTS: Certain written and oral statements made by the Company or with the approval of an authorized executive officer of the Company may constitute "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995. Words or phrases such as "should result, are expected to, we anticipate, we estimate, we project" or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections. These risks and uncertainties include, but are not limited to, unanticipated weather conditions, stability of costs and availability of sourcing channels, conditions affecting the acquisition, development and ownership of real estate, and the impact of competition. Caution should be taken not to place undue reliance on any such forward-looking statements, since such statements speak only as of the date of the making of such statements. RESULTS OF OPERATIONS: For an understanding of the significant factors that influenced the Company's performance during the past three fiscal years, the following discussion should be read in conjunction with the consolidated financial statements presented in this annual report. FISCAL YEAR ENDED FEBRUARY 1, 1998 COMPARED TO FEBRUARY 2, 1997 Fiscal 1997 consisted of 52 weeks compared to 53 weeks in fiscal 1996. Net sales for fiscal 1997 increased 24% to $24.2 billion from $19.5 billion in fiscal 1996. This increase was attributable to, among other things, full year sales from the 89 new stores opened during fiscal 1996, a 7% comparable 52-week store-for-store sales increase, and 112 new store openings and 5 store relocations during fiscal 1997. The total increase in sales was partially offset by one less week of sales in fiscal 1997 versus fiscal 1996. Gross profit as a percent of sales was 28.1% for fiscal 1997 compared to 27.8% for fiscal 1996. The increase was primarily attributable to a lower cost of merchandise as a percent of sales resulting from product line reviews and other merchandising initiatives begun in fiscal 1996 and continued through fiscal 1997. In addition, lower and more stable lumber costs, sales mix changes, and better inventory shrink results contributed to the gross profit improvement. Operating expenses as a percent of sales were 20.2% for fiscal 1997 compared to 20.0% for fiscal 1996. Operating expenses for fiscal 1997 included a non-recurring charge of $104 million related to the settlements of a class action gender discrimination lawsuit and three other gender discrimination lawsuits. The non-recurring charge includes expected payments of $65 million to the plaintiff class members and $22.5 million to the plaintiffs' attorneys and approximately $17 million for other related internal costs, including implementation or enhancement of certain human resources programs, as well as the settlement terms of the three other lawsuits. Excluding the non-recurring charge, operating expenses as a percent of sales were 19.7% for fiscal 1997. Selling and store operating expenses as a percent of sales decreased to 17.8% in fiscal 1997 from 18.0% in fiscal 1996. The decrease in selling and store operating expenses was primarily attributable to lower net advertising expenses resulting from higher cooperative advertising participation by vendors and increased use of national advertising, as well as lower medical insurance costs primarily due to a higher percentage of the Company's associates using in-network providers. Partially offsetting these decreases were higher store payroll expenses as a percent of sales, mainly due to increased focus on certain higher margin merchandise categories that require more labor hours to support, such as flooring and other decor areas. Pre-opening expenses as a percent of sales were 0.3% for both fiscal 1997 and fiscal 1996. The Company opened 112 new stores and relocated 5 stores in fiscal 1997, and opened 89 new stores and relocated 7 stores in fiscal 1996. Pre-opening expenses averaged $559,000 per store in fiscal 1997 compared to $570,000 per store in fiscal 1996. General and administrative expenses as a percent of sales were 1.7% for both fiscal 1997 and fiscal 1996. Incremental expenses related to long-term growth and business planning initiatives incurred in fiscal 1997 were partially offset by efficiencies realized from increased sales. Interest and investment income as a percent of sales increased to 0.2% in fiscal 1997 from 0.1% in fiscal 1996 due to a full year of investment income earned in fiscal 1997 from the proceeds of the issuance of $1.1 billion of the Company's 3-1/4% Convertible Subordinated Notes ("3-1/4% Notes") in October 1996 (see Liquidity and Capital Resources). Interest expense as a percent of sales was 0.2% in fiscal 1997 compared to 0% in fiscal 1996. The increase from the prior year was primarily attributable to a full year of interest expense on the 3-1/4% Notes in fiscal 1997, compared to a partial year of interest expense on the 3-1/4% Notes and lower levels of long-term debt prior to issuance of the 3-1/4% Notes in fiscal 1996. The Company's combined federal and state effective income tax rate was 38.9% for both fiscal 1997 and fiscal 1996. The Company currently expects the effective tax rate to increase to 39.3% in fiscal 1998, due to higher effective state tax rates and a reduction in tax-exempt interest income as investment balances decline. Net earnings as a percent of sales were 4.8% for both fiscal 1997 and fiscal 1996, reflecting a higher gross profit percentage and lower selling and store operating expenses as a percent of sales, offset by non-recurring charge recorded during fiscal 1997, as described above. Diluted earnings per share were $1.55 for fiscal 1997 compared to $1.29 for fiscal 1996. Excluding the non-recurring charge, diluted earnings per share were $1.64 for fiscal 1997. THE HOME DEPOT 18 5 FISCAL YEAR ENDED FEBRUARY 2, 1997 COMPARED TO JANUARY 28, 1996 Net sales for fiscal 1996 increased 26% to $19.5 billion from $15.5 billion in fiscal 1995. This increase was attributable to, among other things, full year sales from the 83 new stores opened during fiscal 1995, a 7% comparable store-for-store sales increase, and 89 new store openings and 7 store relocations during fiscal 1996. A portion of this increase was also attributable to the additional week of sales in fiscal 1996. Gross profit as a percent of sales was 27.8% for fiscal 1996 compared to 27.7% for fiscal 1995. The improvement resulted primarily from more effective buying practices, which resulted in lowering the cost of merchandise, and sales mix changes. Operating expenses as a percent of sales were 20.0% for fiscal 1996 compared to 20.1% for fiscal 1995. Selling and store operating expenses as a percent of sales were 18.0% for both fiscal 1996 and fiscal 1995. Net advertising expenses decreased from fiscal 1995 primarily due to economies realized from increased national advertising. In addition, fixed occupancy expenses as a percent of sales were slightly lower in fiscal 1996 than in fiscal 1995 due to higher sales volumes related to the extra week in fiscal 1996. These decreases in selling and store operating expenses were offset by higher expenses, as a percent of sales, related to store management bonuses and the employee stock ownership plan. In addition, expenses associated with store relocations in fiscal 1996 were higher as a percent of sales than in fiscal 1995 primarily due to the adoption in fiscal 1996 of a new accounting standard, which changed the timing of recognition of these expenses. Pre-opening expenses as a percent of sales decreased to 0.3% in fiscal 1996 from 0.4% in fiscal 1995 due to efficiencies achieved in the new store opening process in fiscal 1996. Interest and investment income was 0.1% of sales for fiscal 1996 and 1995. Investment income in fiscal 1996 was primarily generated from the net proceeds of the 3-1/4% Notes issued in October 1996. Interest expense also increased due to the higher level of long-term debt associated with the 3-1/4% Notes. The Company's combined federal and state effective income tax rate was 38.9% for fiscal 1996 compared to 38.8% in fiscal 1995. This increase was principally attributable to lower tax-advantaged investments and a higher effective state income tax rate, partially offset by various federal and state tax credits. Net earnings as a percent of sales were 4.8% for fiscal 1996 compared to 4.7% for fiscal 1995, reflecting higher gross profit and lower operating expenses, partially offset by the higher effective income tax rate, as described above. Diluted earnings per share were $1.29 for fiscal 1996 compared to $1.02 for fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES: Cash flow generated from store operations provides the Company with a significant source of liquidity. Additionally, a significant portion of the Company's inventory is financed under vendor credit terms. The Company plans to open approximately 137 new stores and relocate 6 existing stores during fiscal 1998. It is anticipated that approximately 78% of these locations will be owned, and the remainder will be leased. The Company also plans to open approximately 170 stores, including relocations, in fiscal 1999. In June 1996, the Company entered into a $300 million operating lease agreement for the purpose of financing construction costs of certain new stores. The Company increased its available funding under the operating lease agreement to $600 million in May 1997. Under the agreement, the lessor purchases the properties, pays for the construction costs and subsequently leases the facilities to the Company. The lease provides for substantial residual value guarantees and includes purchase options at original cost on each property. The Company financed a portion of new stores opened in fiscal 1997 under the agreement and anticipates utilizing this facility to finance selected new stores planned in fiscal 1998 and an office building in fiscal 1999. In addition, some planned locations for fiscal 1998 will be leased individually, and it is expected that many locations may be obtained through the acquisition of land parcels and the construction or purchase of buildings. While the cost of new stores to be constructed and owned by the Company varies widely, principally due to land costs, new store costs are currently estimated to average approximately $13.1 million per location. The cost to remodel and fixture stores to be leased is expected to average approximately $2.4 million per store. In addition, each new store will require approximately $3.6 million to finance inventories, net of vendor financing. During fiscal 1996, the Company issued, through a public offering, $1.1 billion of 3-1/4% Convertible Subordinated Notes due October 1, 2001. The 3-1/4% Notes were issued at par and are convertible into shares of the Company's common stock at any time prior to maturity, unless previously redeemed by the Company, at a conversion price of $46.0833 per share, subject to adjustment under certain conditions. The 3-1/4% Notes may be redeemed, at the option of the Company, at any time on or after October 2, 1999, in whole or in part, at a redemption price of 100.813% of the principal amount and after October 1, 2000, at 100% of the principal amount. The Company used the net proceeds from the offering to repay outstanding commercial paper obligations, to finance a portion of the Company's capital expenditure program, including planned store expansions and renovations, and for general corporate purposes. The remaining proceeds were invested in short-term securities. THE HOME DEPOT 19 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) THE HOME DEPOT, INC. AND SUBSIDIARIES The Company has a commercial paper program that allows borrowings up to a maximum of $800 million. As of February 1, 1998, there were no borrowings outstanding under the program. In connection with the program, the Company has a back-up credit facility with a consortium of banks for up to $800 million. The credit facility, which expires in December 2000, contains various restrictive covenants, none of which is expected to impact the Company's liquidity or capital resources. As of February 1, 1998, the Company had $174 million in cash and cash equivalents and short-term investments, as well as $15 million in long-term investments. Management believes that its current cash position, the proceeds from short-term and long-term investments, internally generated funds, funds available from its $800 million commercial paper program, funds available from the $600 million operating lease agreement, and/or the ability to obtain alternate sources of financing should enable the Company to complete its capital expenditure programs, including store expansions and renovations, through the next several fiscal years. YEAR 2000: The Company is currently addressing a universal situation commonly referred to as the "Year 2000 Problem." The Year 2000 Problem relates to the inability of certain computer software programs to properly recognize and process date-sensitive information relative to the year 2000 and beyond. During fiscal 1997, the Company developed a plan to devote the necessary resources to identify and modify systems impacted by the Year 2000 Problem, or implement new systems to become year 2000 compliant in a timely manner. The cost of executing this plan is not expected to have a material impact on the Company's results of operations or financial condition. In addition, the Company has contacted its major suppliers and vendors to ensure their awareness of the Year 2000 Problem. If the Company, its suppliers or vendors are unable to resolve issues related to the year 2000 on a timely basis, it could result in a material financial risk. RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." Comprehensive income includes not only net earnings, but also revenues, expenses, gains and losses that are excluded from net earnings under generally accepted accounting principles. Examples include foreign currency translation adjustments and unrealized gains and losses on investments. SFAS 130 requires that all items required to be recognized as components of comprehensive income be reported in a financial statement with equal prominence to the other financial statements. SFAS 130 is effective for interim and annual periods beginning after December 15, 1997. Adoption of SFAS 130 is not expected to materially impact the Company's reported results, since each component of comprehensive income is currently reported separately in both Stockholders' Equity on the Consolidated Balance Sheets and in the Consolidated Statements of Stockholders' Equity. IMPACT OF INFLATION AND CHANGING PRICES: Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations. THE HOME DEPOT 20 7 CONSOLIDATED STATEMENTS OF EARNINGS THE HOME DEPOT, INC. AND SUBSIDIARIES AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA
FISCAL YEAR ENDED --------------------------------------- FEBRUARY 1, FEBRUARY 2, JANUARY 28, 1998 1997 1996 (52 WEEKS) (53 WEEKS) (52 WEEKS) - ------------------------------------------------------------------------------------------------ NET SALES $ 24,156 $ 19,535 $ 15,470 Cost of Merchandise Sold 17,375 14,101 11,184 - ------------------------------------------------------------------------------------------------ Gross Profit 6,781 5,434 4,286 Operating Expenses: Selling and Store Operating 4,287 3,521 2,784 Pre-Opening 65 55 52 General and Administrative 413 324 270 Non-Recurring Charge (note 9) 104 - - - ------------------------------------------------------------------------------------------------ Total Operating Expenses 4,869 3,900 3,106 - ------------------------------------------------------------------------------------------------ OPERATING INCOME 1,912 1,534 1,180 Interest Income (Expense): Interest and Investment Income 44 25 19 Interest Expense (note 2) (42) (16) (4) - ------------------------------------------------------------------------------------------------ Interest, net 2 9 15 Minority Interest (note 11) (16) (8) - - ------------------------------------------------------------------------------------------------ Earnings Before Income Taxes 1,898 1,535 1,195 Income Taxes (note 3) 738 597 463 NET EARNINGS $ 1,160 $ 938 $ 732 ================================================================================================ BASIC EARNINGS PER SHARE (note 8) $ 1.59 $ 1.30 $ 1.03 Weighted Average Number of Common Shares Outstanding 729 719 709 ================================================================================================ DILUTED EARNINGS PER SHARE (note 8) $ 1.55 $ 1.29 $ 1.02 Weighted Average Number of Common Shares Outstanding Assuming Dilution 762 732 717 ================================================================================================
See accompanying notes to consolidated financial statements. THE HOME DEPOT 21 8 CONSOLIDATED BALANCE SHEETS THE HOME DEPOT, INC. AND SUBSIDIARIES AMOUNTS IN MILLIONS, EXCEPT SHARE DATA
FEBRUARY 1, FEBRUARY 2, 1998 1997 - -------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and Cash Equivalents $ 172 $ 146 Short-Term Investments, including current maturities of long-term investments (note 7) 2 413 Receivables, net 556 388 Merchandise Inventories 3,602 2,708 Other Current Assets 128 54 - -------------------------------------------------------------------------------------------------------- Total Current Assets 4,460 3,709 - -------------------------------------------------------------------------------------------------------- Property and Equipment, at cost: Land 2,194 1,855 Buildings 3,041 2,470 Furniture, Fixtures and Equipment 1,370 1,084 Leasehold Improvements 383 340 Construction in Progress 336 284 Capital Leases (notes 2 and 5) 163 117 - -------------------------------------------------------------------------------------------------------- 7,487 6,150 Less Accumulated Depreciation and Amortization 978 713 - -------------------------------------------------------------------------------------------------------- Net Property and Equipment 6,509 5,437 - -------------------------------------------------------------------------------------------------------- Long-Term Investments (note 7) 15 8 Notes Receivable 27 40 Cost in Excess of the Fair Value of Net Assets Acquired, net of accumulated amortization of $18 at February 1, 1998 and $15 at February 2, 1997 140 87 Other 78 61 - -------------------------------------------------------------------------------------------------------- $ 11,229 $9,342 ======================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 1,358 $1,090 Accrued Salaries and Related Expenses 312 249 Sales Taxes Payable 143 129 Other Accrued Expenses 530 323 Income Taxes Payable 105 49 Current Installments of Long-Term Debt (notes 2 and 5) 8 2 - -------------------------------------------------------------------------------------------------------- Total Current Liabilities 2,456 1,842 - -------------------------------------------------------------------------------------------------------- Long-Term Debt, excluding current installments (notes 2 and 5) 1,303 1,247 Other Long-Term Liabilities 178 134 Deferred Income Taxes (note 3) 78 66 Minority Interest (note 11) 116 98 STOCKHOLDERS' EQUITY (notes 2, 4 and 6) Common Stock, par value $0.05. Authorized: 1,000,000,000 shares; issued and outstanding -732,108,000 shares at February 1, 1998 and 720,773,000 shares at February 2, 1997 37 36 Paid-in Capital 2,662 2,511 Retained Earnings 4,430 3,407 Cumulative Translation Adjustments (28) 2 - -------------------------------------------------------------------------------------------------------- 7,101 5,956 Less: Shares Purchased for Compensation Plans (notes 4 and 6) 3 1 - -------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 7,098 5,955 - -------------------------------------------------------------------------------------------------------- Commitments and Contingencies (notes 5, 10 and 11) $ 11,229 $9,342 ========================================================================================================
See accompanying notes to consolidated financial statements. THE HOME DEPOT 22 9 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THE HOME DEPOT, INC. AND SUBSIDIARIES AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA
UNREALIZED COMMON STOCK CUMULATIVE GAIN(LOSS) ON NOTES ----------------- PAID-IN RETAINED TRANSLATION INVESTMENTS, RECEIVABLE SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS NET FROM ESOP - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 29, 1995 680 $34 $1,515 $ 1,937 $(11) $(1) $(32) ============================================================================================================================ Shares Sold Under Employee Stock Purchase and Option Plans, net of retirements (note 4) 5 - 68 - - - - Tax Effect of Sale of Option Shares by Employees - - 10 - - - - Cumulative Translation Adjustments - - - - 5 - - Repayments of Notes Receivable from ESOP, net (note 6) - - - - - - 15 Conversion of 4-1/2% Convertible Subordinated Notes, net 31 2 803 - - - - Unrealized Gain on Investments, - - - - - 1 - net (note 7) Net Earnings - - - 732 - - - Cash Dividends ($0.13 per share) - - - (90) - - - - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 28, 1996 716 $36 $2,396 $ 2,579 $ (6) $ - $(17) ============================================================================================================================ Shares Sold Under Employee Stock Purchase and Option Plans, net of retirements (note 4) 5 - 104 - - - - Tax Effect of Sale of Option Shares by Employees - - 11 - - - - Cumulative Translation Adjustments - - - - 8 - - Repayments of Notes Receivable from ESOP, net (note 6) - - - - - - 17 Shares Purchased for Compensation Plans (notes 4 and 6) - - - - - - - Net Earnings - - - 938 - - - Cash Dividends ($0.15 per share) - - - (110) - - - - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, FEBRUARY 2, 1997 721 $36 $2,511 $ 3,407 $ 2 $ - $ - ============================================================================================================================ Shares Sold Under Employee Stock Purchase and Option Plans, net of retirements (note 4) 4 - 124 - - - - Tax Effect of Sale of Option Shares by Employees - - 26 - - - - Cumulative Translation Adjustments - - - - (30) - - Immaterial Pooling of Interests 7 1 1 2 - - - Shares Purchased for Compensation Plans (notes 4 and 6) - - - - - - - Net Earnings - - - 1,160 - - - Cash Dividends ($0.19 per share) - - - (139) - - - - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, FEBRUARY 1, 1998 732 $37 $2,662 $ 4,430 $(28) $ - $ - ============================================================================================================================
SHARES PURCHASED FOR TOTAL COMPENSATION STOCKHOLDERS' PLANS EQUITY - ------------------------------------------------------------------- BALANCE, JANUARY 29, 1995 $ - $ 3,442 =================================================================== Shares Sold Under Employee Stock Purchase and Option Plans, net of retirements (note 4) Tax Effect of Sale of Option Shares - 68 by Employees - 10 Cumulative Translation Adjustments - 5 Repayments of Notes Receivable from ESOP, net (note 6) - 15 Conversion of 4-1/2% Convertible Subordinated Notes, net - 805 Unrealized Gain on Investments, - 1 net (note 7) Net Earnings - 732 Cash Dividends ($0.13 per share) - (90) - ----------------------------------------------------------------- BALANCE, JANUARY 28, 1996 - $ 4,988 ================================================================= Shares Sold Under Employee Stock Purchase and Option Plans, net of retirements (note 4) - 104 Tax Effect of Sale of Option Shares by Employees - 11 Cumulative Translation Adjustments - 8 Repayments of Notes Receivable from ESOP, net (note 6) - 17 Shares Purchased for Compensation Plans (notes 4 and 6) (1) (1) Net Earnings - 938 Cash Dividends ($0.15 per share) - (110) - ----------------------------------------------------------------- BALANCE, FEBRUARY 2, 1997 (1) $ 5,955 ================================================================= Shares Sold Under Employee Stock Purchase and Option Plans, net of retirements (note 4) - 124 Tax Effect of Sale of Option Shares by Employees - 26 Cumulative Translation Adjustments - (30) Immaterial Pooling of Interests - 4 Shares Purchased for Compensation Plans (notes 4 and 6) (2) (2) Net Earnings - 1,160 Cash Dividends ($0.19 per share) - (139) - ----------------------------------------------------------------- BALANCE, FEBRUARY 1, 1998 (3) $ 7,098 =================================================================
See accompanying notes to consolidated financial statements. THE HOME DEPOT 23 10 CONSOLIDATED STATEMENTS OF CASH FLOWS THE HOME DEPOT, INC. AND SUBSIDIARIES AMOUNTS IN MILLIONS
FISCAL YEAR ENDED ---------------------------------------- FEBRUARY 1, FEBRUARY 2, JANUARY 28, 1998 1997 1996 (52 WEEKS) (53 WEEKS) (52 WEEKS) - ---------------------------------------------------------------------------------------------------------------- CASH PROVIDED FROM OPERATIONS: Net Earnings $ 1,160 $ 938 $ 732 Reconciliation of Net Earnings to Net Cash Provided by Operations: Depreciation and Amortization 283 232 181 Deferred Income Tax (Benefit) Expense (28) 29 18 Increase in Receivables, net (166) (58) (70) Increase in Merchandise Inventories (885) (525) (429) Increase in Accounts Payable and Accrued Expenses 577 434 215 Increase in Income Taxes Payable 83 25 36 Other 5 25 30 - ---------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operations 1,029 1,100 713 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures, net of $44, $54 and $30 of non-cash capital expenditures in fiscal 1997, 1996 and 1995, respectively (1,481) (1,194) (1,278) Proceeds from Sales of Property and Equipment 85 22 29 Proceeds from Sales of Investments - 41 31 Purchases of Investments (194) (409) (370) Proceeds from Maturities of Investments 599 27 416 Repayments of Advances Secured by Real Estate, net 20 6 (5) - ---------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (971) (1,507) (1,177) - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: (Repayments of) Issuance of Commercial Paper Obligations, net - (620) 520 Proceeds from Long-Term Borrowings, net 15 1,093 - Repayments of Notes Receivable from ESOP - 17 15 Principal Repayments of Long-Term Debt (40) (3) (23) Proceeds from Sale of Common Stock, net 122 104 68 Cash Dividends Paid to Stockholders (139) (110) (90) Minority Interest Contributions to Partnership 10 19 26 - ---------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities (32) 500 516 - ---------------------------------------------------------------------------------------------------------------- Increase in Cash and Cash Equivalents 26 93 52 Cash and Cash Equivalents at Beginning of Year 146 53 1 - ---------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 172 $ 146 $ 53 SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS MADE FOR: Interest, net of interest capitalized $ 42 $ 3 $ 22 Income Taxes $ 685 $ 548 $ 408 ================================================================================================================
See accompanying notes to consolidated financial statements. THE HOME DEPOT 24 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE HOME DEPOT, INC. AND SUBSIDIARIES NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Home Depot operates full-service, warehouse-style stores averaging approximately 106,000 square feet in size. The stores stock approximately 40,000 to 50,000 different kinds of building materials, home improvement supplies and lawn and garden products that are sold primarily to do-it-yourselfers, but also to home improvement contractors, tradespeople, and building maintenance professionals. In addition, the Company operates EXPO Design Center stores, which offer products and services primarily related to design and renovation projects. At the end of fiscal 1997, the Company was operating 624 stores, including 587 Home Depot stores and 5 EXPO Design Center stores in the United States and 32 Home Depot stores in Canada. During fiscal 1998, the Company plans to open two stores in Santiago, Chile. Included in the Company's Consolidated Balance Sheets at February 1, 1998 are $405 million of net assets of the Canadian and Chilean operations. FISCAL YEAR - The Company's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal years 1997 and 1995, which ended February 1, 1998 and January 28, 1996, respectively, consisted of 52 weeks while fiscal 1996, which ended February 2, 1997, consisted of 53 weeks. BASIS OF PRESENTATION - The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and its majority-owned partnerships. All significant intercompany transactions have been eliminated in consolidation. Stockholders' equity, share and per share amounts for all periods presented have been adjusted for a three-for-two stock split effected in the form of a stock dividend on July 3, 1997. CASH EQUIVALENTS - The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company's cash and cash equivalents are primarily cash equivalents carried at fair market value and consist primarily of commercial paper, money market funds, U.S. government agency securities and tax-exempt notes and bonds. INVESTMENTS - The Company classifies its investments into one of three categories: trading, held-to-maturity, or available-for-sale. Trading securities, which are bought and held primarily for the purpose of selling them in the near term, are recorded at fair value with gains and losses included in earnings. Held-to-maturity securities, which are securities that the Company has the ability and the intent to hold until maturity, are recorded at amortized cost and adjusted for amortization or accretion of premiums or discounts. All other investments not classified as trading or held-to-maturity are classified as available-for-sale. The Company's short-term and long-term investments, consisting primarily of debt securities, have been designated as being held available-for-sale and, accordingly, are reported at fair value. Unrealized gains and losses on securities classified as available-for-sale are reported as a separate component of stockholders' equity until realized. The cost of investments sold is determined using the specific identification method. Estimated market values of investments are based on quoted market prices on the last business day of the fiscal year. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. MERCHANDISE INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out) or market, as determined by the retail inventory method. INCOME TAXES - The Company provides for federal and state income taxes currently payable, as well as for those deferred because of timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Federal and state incentive tax credits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. The Company and its eligible subsidiaries file a consolidated U.S. federal income tax return. Non-U.S. subsidiaries, which are consolidated for financial reporting, are not eligible to be included in consolidated U.S. federal income tax returns, and separate provisions for income taxes have been determined for these entities. Except for return of capital and selected dividends, the Company intends to reinvest the unremitted earnings of its non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes for non-U.S. subsidiaries was required for any year presented. DEPRECIATION AND AMORTIZATION - The Company's buildings, furniture, fixtures and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Improvements to leased premises are amortized using the straight-line method over the life of the lease or the useful life of the improvement, whichever is shorter. The Company's property and equipment is depreciated using the following estimated useful lives:
LIFE - ------------------------------------------------------------------- Buildings 10-45 years Furniture, fixtures and equipment 5-20 years Leasehold improvements 5-30 years - -------------------------------------------------------------------
THE HOME DEPOT 25 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE HOME DEPOT, INC. AND SUBSIDIARIES The cost in excess of the fair value of net assets acquired (as discussed below) is amortized on a straight-line basis over 40 years. The cost of purchased software and associated consulting fees is amortized on a straight-line basis over periods ranging from three to five years. NOTES RECEIVABLE - Notes receivable, which are issued to real estate developers in connection with development and construction of stores and underlying real estate, are recorded at cost, less an allowance for impaired notes receivable when necessary. STORE PRE-OPENING COSTS - Non-capital expenditures associated with opening new stores are expensed as incurred. IMPAIRMENT OF LONG-LIVED ASSETS - During fiscal 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires long-lived assets to be reviewed for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. An impairment is recognized to the extent the sum of undiscounted estimated future cash flows expected to result from the use of the asset is less than the carrying value. Accordingly, when the Company commits to relocate or close a store, the estimated unrecoverable costs are charged to expense. Such costs include the estimated loss on the sale of land and buildings, the book value of abandoned fixtures, equipment and leasehold improvements, and a provision for the present value of future lease obligations, less estimated sub-lease income. The implementation of SFAS 121 did not have a material impact on the Company's results of operations. EARNINGS PER SHARE - During the fourth quarter of fiscal 1997, the Company implemented Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." SFAS 128 requires companies with complex capital structures that have publicly held common stock or common stock equivalents to present both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is calculated as income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated using the "if converted" method for convertible securities and the treasury stock method for options and warrants as previously prescribed by Accounting Principles Board Opinion No. 15, "Earnings Per Share." Accordingly, the effect of shares issuable under the Company's stock plans and shares issuable upon conversion of the Company's convertible debt are included in the calculation of diluted EPS. The implementation of SFAS 128, which also required the restatement of previously reported EPS, did not have a material impact on the Company's reported EPS for any periods presented. COST IN EXCESS OF THE FAIR VALUE OF NET ASSETS ACQUIRED - Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over 40 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining useful life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. STOCK COMPENSATION - During fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 encourages the use of a fair-value-based method of accounting for stock-based awards under which the fair value of stock options is determined on the date of grant and expensed over the vesting period. Under SFAS 123, companies may, however, measure compensation costs for those plans using the method prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." Companies that apply APB No. 25 are required to include pro forma disclosures of net earnings and earnings per share as if the fair-value-based method of accounting had been applied. The Company elected to account for such plans under the provisions of APB No. 25. EMPLOYEE STOCK OWNERSHIP PLAN - For all shares purchased by the Employee Stock Ownership Plan and Trust ("ESOP") prior to December 31, 1992, the Company's contributions to the ESOP are determined based on the ESOP's cost of the shares released to associates. For shares purchased after December 31, 1992, the Company's contributions to the ESOP are determined based on the fair value of the shares released to associates as of the release date. FOREIGN CURRENCY TRANSLATION - The local currency is used as the functional currency in both Canada and Chile. The assets and liabilities denominated in foreign currency are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period, and revenues and expenses are translated at the average monthly exchange rates. The translation gains and losses are included as a separate component of stockholders' equity. Transaction gains and losses included in net earnings are not material. USE OF ESTIMATES - Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. RECLASSIFICATIONS - Certain balances in prior fiscal years have been reclassified to conform with the presentation adopted in the current fiscal year. THE HOME DEPOT 26 13 NOTE 2 - LONG-TERM DEBT. The Company's long-term debt at the end of fiscal 1997 and 1996 consisted of the following (amounts in millions):
FEBRUARY 1, 1998 FEBRUARY 2, 1997 - ------------------------------------------------------------------------------------------------------------------------ 3-1/4% Convertible Subordinated Notes, due October 1, 2001; convertible into shares of common stock of the Company at a conversion price of $46.0833 per share; redeemable by the Company at a premium, plus accrued interest, beginning October 2, 1999 $1,104 $1,104 Capital Lease Obligations, payable in varying installments through January 31, 2019 (see note 5) 151 106 Installment Notes Payable; interest imputed at rates between 6.1% and 10.5%; payable in varying installments through 2017 32 30 Unsecured Bank Loan, floating interest rate averaging 6.05% in fiscal 1997; payable in August 2002 15 - Variable Rate Industrial Revenue Bonds; secured by letters of credit or land; interest rates averaging 4.2% during fiscal 1997; payable in varying installments through 2011 9 9 - ------------------------------------------------------------------------------------------------------------------------ Total long-term debt 1,311 1,249 Less current installments 8 2 - ------------------------------------------------------------------------------------------------------------------------ Long-term debt, excluding current installments $1,303 $1,247 ========================================================================================================================
In October 1996, the Company issued, through a public offering, $1.1 billion of 3-1/4% Convertible Subordinated Notes ("3-1/4% Notes") due October 1, 2001. The 3-1/4% Notes were issued at par and are convertible into shares of common stock at any time prior to maturity, unless previously redeemed by the Company, at a conversion price of $46.0833 per share, subject to adjustment under certain conditions. The 3-1/4% Notes may be redeemed by the Company at any time on or after October 2, 1999, in whole or in part, at a redemption price of 100.813% of the principal amount and after October 1, 2000, at 100% of the principal amount. The 3-1/4% Notes are not subject to sinking fund provisions. The Company has an $800 million commercial paper program supported by a back-up credit facility with an available commitment amount of $800 million. The back-up credit facility expires December 20, 2000. Outstanding commercial paper borrowings are classified as long-term debt, as it is the Company's intention to refinance them on a long-term basis. Covenants related to the back-up credit facility place limitations on total Company indebtedness, subsidiary indebtedness and liens. As of February 1, 1998, the Company was in compliance with all restrictive covenants. The restrictive covenants related to letter of credit agreements securing the industrial revenue bonds are no more restrictive than those referenced or described above. THE HOME DEPOT 27 14 Interest expense in the accompanying Consolidated Statements of Earnings is net of interest capitalized of $19 million in fiscal 1997, $23 million in fiscal 1996 and $21 million in fiscal 1995. Maturities of long-term debt (excluding the 3-1/4% Notes) are $8 million for fiscal 1998, $8 million for fiscal 1999, $4 million for fiscal 2000, $3 million for fiscal 2001 and $19 million for fiscal 2002. The estimated fair value of the 3-1/4% Notes, which are publicly traded, was approximately $1.5 billion based on the market price at February 1, 1998. The estimated fair value of all other long-term borrowings was approximately $318 million compared to the carrying value of $207 million. These fair values were estimated using a discounted cash flow analysis based on the Company's incremental borrowing rate for similar liabilities. NOTE 3 - INCOME TAXES. The provision for income taxes consisted of the following (in millions):
FISCAL YEAR ENDED ---------------------------------------------------------- FEBRUARY 1, 1998 FEBRUARY 2, 1997 JANUARY 28, 1996 - -------------------------------------------------------------------------------------- Current: U.S. $ 653 $ 486 $ 394 State 98 72 55 Foreign 15 10 (4) - -------------------------------------------------------------------------------------- 766 568 445 - -------------------------------------------------------------------------------------- Deferred: U.S. (31) 23 14 State 1 6 3 Foreign 2 - 1 - -------------------------------------------------------------------------------------- (28) 29 18 - -------------------------------------------------------------------------------------- Total $ 738 $ 597 $ 463 ======================================================================================
The Company's combined federal and state effective tax rate for fiscal years 1997, 1996 and 1995, net of offsets generated by federal and state tax incentive credits, was approximately 38.9%, 38.9% and 38.8%, respectively. A reconciliation of income tax expense at the federal statutory rate of 35% to actual tax expense for the applicable fiscal years follows (in millions):
FISCAL YEAR ENDED ------------------------------------------------------------ FEBRUARY 1, 1998 FEBRUARY 2, 1997 JANUARY 28, 1996 - --------------------------------------------------------------------------------------------------------- Income taxes at U.S. statutory rate $ 664 $ 537 $ 418 State income taxes, net of federal income tax benefit 65 51 37 Foreign rate differences 2 2 (2) Other, net 7 7 10 Total $ 738 $ 597 $ 463 ========================================================================================================
THE HOME DEPOT 27 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE HOME DEPOT, INC. AND SUBSIDIARIES The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of February 1, 1998 and February 2, 1997 were as follows (in millions):
FISCAL YEAR ENDED -------------------------------------------- FEBRUARY 1, 1998 FEBRUARY 2, 1997 Deferred Tax Assets - ---------------------------------------------------------------------------------------- Accrued self-insurance liabilities $ 92 $ 68 Other accrued liabilities 104 46 Total gross deferred tax assets 196 114 Deferred Tax Liabilities Accelerated depreciation (196) (153) Other (38) (27) - ---------------------------------------------------------------------------------------- Total gross deferred tax liabilities (234) (180) - ---------------------------------------------------------------------------------------- Net deferred tax liability $ (38) $ (66) ========================================================================================
No valuation allowance was recorded against the deferred tax assets at February 1, 1998 or February 2, 1997. The Company's management believes the existing net deductible temporary differences comprising the total gross deferred tax assets will reverse during periods in which the Company generates net taxable income. NOTE 4 - EMPLOYEE STOCK PLANS The 1997 Omnibus Stock Incentive Plan ("1997 Plan"), which is an amendment and restatement of the 1991 Omnibus Stock Option Plan ("1991 Plan"), provides that incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock and deferred shares may be issued to selected associates, officers and directors of the Company. The maximum number of shares of the Company's common stock available for issuance under the 1997 Plan is the lesser of 50 million shares, or the number of shares carried over from prior plans plus one-half percent of the total number of outstanding shares as of the first day of each fiscal year. In addition, restricted shares issued under the 1997 Plan may not exceed 5 million shares. As of February 1, 1998, the maximum shares available for future grants under the 1997 Plan were 44,951,621. Under the 1997 Plan, incentive and non-qualified options for 1,347,515 shares, net of cancellations (of which none had been exercised), have been granted at prices ranging from $38.33 to $55.81 per share. Incentive stock options THE HOME DEPOT 28 16 vest at the rate of 25% per year commencing on the first anniversary date of the grant and expire on the tenth anniversary date of the grant. The non-qualified options have similar terms; however, vesting does not generally begin until the second anniversary date of the grant. During fiscal 1997, 48,852 shares of restricted stock were issued. The restricted shares vest over varying terms and are generally based on the attainment of certain performance goals. The expected fair value of the restricted shares on the vesting dates will be charged to expense ratably over the vesting periods. Under the Non-Qualified Stock Option Plan of 1984 ("1984 Plan") options for 1,018,679 shares, net of cancellations (of which 968,056 had been exercised), were granted at prices ranging from $1.02 to $6.57 per share as of February 1, 1998. Such options may be exercised at varying rates commencing on the first anniversary date of the grant and expire on the tenth anniversary date of the grant. The 1984 Plan expired on June 1, 1991, and the shares available for grant were carried over to the 1991 Plan. Under the 1991 Plan, which became effective June 1, 1991, options for 27,110,901 shares, net of cancellations (of which 6,600,024 had been exercised), had been granted at prices ranging from $16.33 to $35.58 per share as of February 1, 1998. The 1991 Plan expired on February 28, 1997, and the shares available for grant were carried over to the 1997 Plan. The per share weighted average fair value of stock options granted during fiscal years 1997, 1996 and 1995 was $12.60, $9.25 and $9.84, respectively. These amounts were determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments, and the risk-free interest rate over the expected life of the option. The dividend yield was calculated by dividing the current annualized dividend by the option price for each grant. Expected volatility was based on stock prices for the fiscal year the grant occurred and the two previous fiscal years. The risk-free interest rate was the rate available on zero coupon U.S. government issues with a term equal to the remaining term for each grant. The expected life of each option was estimated based on the exercise history from previous grants. The Company applies APB No. 25 in accounting for its stock plans and, accordingly, no compensation costs have been recognized in the Company's financial statements for incentive or non-qualified stock options granted. If, under SFAS 123, the Company determined compensation costs based on the fair value at the grant date for its stock options, net earnings and earnings per share would have been reduced to the pro forma amounts below (in millions, except per share data):
FISCAL YEAR -------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------- Net Earnings As reported $ 1,160 $ 938 $ 732 Pro forma $ 1,118 $ 916 $ 726 Basic Earnings per Share As reported $ 1.59 $ 1.30 $ 1.03 Pro forma $ 1.53 $ 1.27 $ 1.02 Diluted Earnings per Share As reported $ 1.55 $ 1.29 $ 1.02 Pro forma $ 1.51 $ 1.27 $ 1.02 - ---------------------------------------------------------------------
Under SFAS 123, stock options granted prior to fiscal 1995 are not required to be included as compensation in determining pro forma net earnings. To determine pro forma net earnings, reported net earnings were adjusted for compensation costs calculated for options granted during fiscal 1997, 1996 and 1995. THE HOME DEPOT 28 17 The following table summarizes shares outstanding under the various stock option plans at February 1, 1998, February 2, 1997 and January 28, 1996 and changes during the fiscal years ended on these dates (shares in thousands):
NUMBER AVERAGE PRICE OF SHARES OPTION PRICE - -------------------------------------------------------------- Outstanding at January 29, 1995 13,037 $ 20.38 Granted 10,812 26.91 Exercised (2,882) 10.49 Cancelled (5,982) 28.95 - -------------------------------------------------------------- Outstanding at January 28, 1996 14,985 23.58 Granted 7,219 29.13 Exercised (2,991) 19.47 Cancelled (1,144) 26.23 - -------------------------------------------------------------- Outstanding at February 2, 1997 18,069 26.31 Granted 8,619 43.73 Exercised (3,431) 26.46 Cancelled (1,348) 30.55 - -------------------------------------------------------------- Outstanding at February 1, 1998 21,909 $ 30.23 ============================================================== Exercisable 5,714 $ 24.72 ==============================================================
During fiscal 1997, the Company adopted the Non-Employee Directors' Deferred Stock Compensation Plan ("Directors' Plan"). The maximum number of shares available for issuance under the Directors' Plan is 500,000. The Directors' Plan allows the Company's non-employee directors to elect to receive deferred compensation in the form of shares of common stock of the Company in lieu of cash compensation. If a director elects to receive stock, the Company establishes a stock unit account for the director, which is credited for the amount of the director's fees divided by the fair market value of the stock on the date the fees would have been paid. A distribution is made when a non-employee director ceases to be a director of the Company. In addition, the Company had 5,816,369 shares available for future grants under the Employee Stock Purchase Plan ("ESPP") at February 1, 1998. The ESPP enables the Company to grant substantially all full-time associates options to purchase up to 33,206,250 shares of common stock, of which 27,389,881 shares have been exercised from inception of the plan, at a price equal to the lower of 85% of the stock's fair market value on the first day or the last day of the purchase period. Shares purchased may not exceed the lesser of 20% of the associate's annual compensation, as defined, or $25,000 of common stock at its fair market value (determined at the time such option is granted) for any one calendar year. Associates pay for the shares ratably over a period of one year (the purchase period) through payroll deductions, and cannot exercise their option to purchase any of the shares until the conclusion of the purchase period. In the event an associate elects not to exercise such options, the full amount withheld is refundable. During fiscal 1997, options for 1,311,548 shares were exercised at an average price of $29.42 per share. At February 1, 1998, there were 1,009,491 options outstanding, net of cancellations, at an average price of $36.17 per share. Note 5 - LEASES The Company leases certain retail locations, office space, warehouse and distribution space, equipment and vehicles. While the majority of the leases are operating leases, certain retail locations are leased under capital leases. As leases expire, it can be expected that in the normal course of business, leases will be renewed or replaced. In June 1996, the Company entered into a $300 million operating lease agreement for the purpose of financing construction costs for selected new stores planned to open primarily in 1997. The Company increased its available funding under the operating lease agreement to $600 million in May 1997. Under the agreement, the lessor purchases the properties, pays for the construction costs and subsequently leases the facilities to the Company. The initial lease term is five years with five 2-year renewal options. The lease provides for substantial residual value guarantees and includes purchase options at original cost on each property. The Company financed a portion of its new stores in fiscal 1997 under the agreement and anticipates utilizing this facility to finance selected new stores planned in fiscal 1998 and an office building in fiscal 1999. During 1995, the Company entered into two operating lease arrangements under which the Company leases an import distribution facility, including its related equipment, THE HOME DEPOT 29 18 and an office building for store support functions. The initial lease terms are five and seven years, respectively, with five 5-year renewal options for the distribution facility and one 5-year renewal option for the office building. Both of these leases provide for substantial residual value guarantees and include purchase options at the higher of the cost or fair market value of the assets for the import distribution facility and at cost for the office building. The maximum amount of the residual value guarantees relative to the assets under these three leases is projected to be $634 million. As the leased assets are placed into service, the Company estimates its liability under the residual value guarantees and records additional rent expense on a straight-line basis over the remaining lease terms. Total rent expense, net of minor sublease income for the fiscal years ended February 1, 1998, February 2, 1997 and January 28, 1996 was $262 million, $219 million and $200 million, respectively. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of the Company under the building leases. Certain of the store leases provide for contingent rentals based on percentages of sales in excess of specified minimums. Contingent rentals for the fiscal years ended February 1, 1998, February 2, 1997 and January 28, 1996 were approximately $10 million, $10 million and $9 million, respectively. THE HOME DEPOT 29 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE HOME DEPOT, INC. AND SUBSIDIARIES The approximate future minimum lease payments under capital and operating leases at February 1, 1998 were as follows (in millions):
FISCAL YEAR CAPITAL LEASES OPERATING LEASES - --------------------------------------------------------------------------------------- 1998 $ 24 $ 294 1999 24 291 2000 24 264 2001 24 245 2002 24 236 Thereafter 336 2,701 - --------------------------------------------------------------------------------------- 456 $ 4,031 Less: Imputed interest (305) ======= - ----------------------------------------------------------------- Net present value of capital lease obligations 151 Less: Current installments (1) - ----------------------------------------------------------------- Long-term capital lease obligations, excluding current installments $ 150 =======================================================================================
Short-term and long-term obligations for capital leases are included in the Company's Consolidated Balance Sheets in Current Installments of Long-Term Debt and Long-Term Debt, respectively. The assets under capital leases recorded in Net Property and Equipment, net of amortization, totaled $147 million and $106 million at February 1, 1998 and February 2, 1997, respectively. NOTE 6 - EMPLOYEE BENEFIT PLANS During fiscal 1996, the Company established a defined contribution plan ("401(k)") pursuant to Section 401(k) of the Internal Revenue Code. The 401(k) covers substantially all associates that meet certain service requirements. The Company makes matching contributions, on a weekly basis, up to specified percentages of associates' contributions as approved by the Board of Directors. The Company's contribution is sent to the 401(k) Trustee who purchases shares of the Company's common stock on the open market. These shares are then allocated to the associates' accounts. During fiscal 1988, the Company established a leveraged Employee Stock Ownership Plan and Trust ("ESOP") covering substantially all full-time associates. At February 1, 1998, the ESOP held a total of 10,161,277 shares of the Company's common stock in trust for plan participants' accounts. The ESOP purchased the shares in the open market with contributions received from the Company in fiscal 1997, and from the proceeds of loans obtained from the Company during fiscal 1992, 1990 and 1989 totaling approximately $81 million. All loans payable to the Company in connection with the purchase of such shares have been paid in full. The Company's common stock purchased by the ESOP from the loan proceeds is held in a "suspense account" as collateral for amounts loaned by the Company. At the discretion of its Board of Directors, the Company makes annual contributions to the ESOP, which the 401(k) Trustee is required to use to make payments for any loan interest and principal due to the Company. When the Company commits to make contributions to the ESOP, a portion of the common stock is released from the "suspense account" and allocated to participating associates. If no shares are available in the "suspense account," Company contributions to the ESOP are used to purchase shares on the open market, which are then allocated to participants' accounts. As of February 1, 1998, there were no shares held in suspense by the trustee. The Company adopted a non-qualified ESOP Restoration Plan in fiscal 1994. The primary purpose of the plan is to provide certain associates deferred compensation that they would have received under the ESOP if not for the maximum compensation limits under the Internal Revenue Code of 1986, as amended. The Company has established a "rabbi trust" to fund the benefits under the ESOP Restoration Plan. Compensation expense related to this plan for fiscal years 1997, 1996 and 1995 was not material. Funds provided to the trust are primarily used to purchase shares of the Company's common stock on the open market. The Company's combined contributions to the 401(k) and ESOP were $33 million and $25 million for fiscal years 1997 and 1996, respectively. Contributions to the ESOP totaled $14 million for fiscal year 1995. NOTE 7 - INVESTMENTS The Company's investments were recorded at fair value, were all classified as available-for-sale, and consisted of the following at February 1, 1998 and February 2, 1997 (in millions):
FEBRUARY 1, 1998 FEBRUARY 2, 1997 - ------------------------------------------------------------------------------ Tax-exempt notes and bonds $ - $ 193 U.S. Treasury securities - 198 U.S. Government agency securities 1 1 Corporate obligations - 14 Corporate asset-backed securities 1 15 Other 15 - - ------------------------------------------------------------------------------ Total $ 17 $ 421 ============================================================================== Short-term investments, including current maturities of long-term investments $ 2 $ 413 Long-term investments 15 8 - ------------------------------------------------------------------------------ Total $ 17 $ 421 ==============================================================================
Fair value at February 1, 1998 and February 2, 1997 approximated amortized cost. There were no sales of investments available-for-sale during the fiscal year ended February 1, 1998. For the fiscal year ended February 2, 1997, proceeds from sales of investments available-for-sale were $41 million, and gross gains realized on sales were $55,000. For the fiscal year ended January 28, 1996, proceeds from sales of investments available-for-sale were $31 million, and gross gains of $790,000 and gross losses of $69,000 were realized on those sales. THE HOME DEPOT 30 20 NOTE 8 - BASIC AND DILUTED EARNINGS PER SHARE During fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." The calculations of basic and diluted earnings per share for fiscal years 1997, 1996 and 1995 are as follows (amounts in millions, except per share data):
FISCAL YEAR ENDED ------------------------------------------------------------ FEBRUARY 1, 1998 FEBRUARY 2, 1997 JANUARY 28, 1996 (52 WEEKS) (53 WEEKS) (52 WEEKS) - -------------------------------------------------------------------------------------------------------------- CALCULATION OF BASIC EARNINGS PER SHARE Net earnings available to common shareholders $1,160 $938 $732 Weighted average number of common shares outstanding 729 719 709 - ------------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE $ 1.59 $1.30 $1.03 ============================================================================================================= CALCULATION OF DILUTED EARNINGS PER SHARE Net earnings available to common shareholders $1,160 $938 $732 Tax-effected interest expense attributable to: 3-1/4% Convertible Subordinated Notes 23 8 - 4-1/2% Convertible Subordinated Notes - - 2 - ------------------------------------------------------------------------------------------------------------- Net earnings available to common shareholders assuming dilution $1,183 $946 $734 - ------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding 729 719 709 Effect of potentially dilutive securities: 3-1/4% Convertible Subordinated Notes 24 8 - 4-1/2% Convertible Subordinated Notes - - 5 Employee stock plans 9 5 3 - ------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding assuming dilution 762 732 717 - ------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE $ 1.55 $1.29 $1.02 =============================================================================================================
Employee stock plans represent shares granted under the Company's employee stock purchase plan and stock option plans, as well as shares issued for deferred compensation stock plans. For fiscal years 1997 and 1996, shares issuable upon conversion of the Company's 3-1/4% Notes, issued in October 1996, were included in weighted average shares assuming dilution for purposes of calculating diluted earnings per share. To calculate diluted earnings per share, net earnings are adjusted for tax-effected net interest and issue costs on the 3-1/4% Notes and divided by weighted average shares assuming dilution. For fiscal year 1995, the Company's 4-1/2% Convertible Subordinated Notes, issued in 1990, were included in the diluted earnings per share calculation prior to conversion in March 1995. NOTE 9 - LAWSUIT SETTLEMENTS On September 19, 1997, the Company, without admitting any wrongdoing, entered into a settlement agreement with plaintiffs in the class action lawsuit Butler et. al. v. Home Depot, Inc., in which the plaintiffs had asserted claims of gender discrimination. The Company subsequently reached agreements to settle three other individual lawsuits, each of which involved claims of gender discrimination. As a result of these agreements, the Company recorded a pre-tax non-recurring charge of $104 million in fiscal 1997. The non-recurring charge includes expected payments of $65 million to the plaintiff class members and $22.5 million to the plaintiffs' attorneys in Butler, and approximately $17 million for other related internal costs, including implementation or enhancement of certain human resources programs, as well as the settlement terms of the three other lawsuits. Excluding the non-recurring charge, diluted earnings per share for fiscal 1997 were $1.64 compared to $1.55 as reported. NOTE 10 - COMMITMENTS AND CONTINGENCIES At February 1, 1998, the Company was contingently liable for approximately $288 million under outstanding letters of credit issued in connection with purchase commitments. The Company is involved in litigation arising from the normal course of business. In management's opinion, this litigation is not expected to materially impact the Company's consolidated results of operations or financial condition. NOTE 11 - ACQUISITION OF INTEREST IN CANADIAN COMPANY Effective February 28, 1994, the Company entered into a partnership ("The Home Depot Canada") with The Molson Companies and, as a result, acquired 75% of Aikenhead's Home Improvement Warehouse, which was operating seven warehouse-style home improvement stores in Ontario, Canada. Subsequent to the acquisition, The Home Depot Canada has opened 25 additional stores, which are located in the Provinces of Ontario, British Columbia, Alberta and Manitoba. At any time after the sixth anniversary of the purchase, the Company has the option to purchase, or the other partner has the right to cause the Company to purchase, the remaining 25% of The Home Depot Canada. The option price is based on the lesser of fair market value or a value to be determined by an agreed-upon formula as of the option exercise date. The cash purchase price for the 75% interest in Aikenhead's was approximately $162 million and was accounted for by the purchase method of accounting. Accordingly, results of the partnership's operations have been included with those of the Company from the date of acquisition. The excess purchase price over the estimated fair value of the net assets as of the acquisition date of $68 million was recorded as goodwill and is being amortized over 40 years. THE HOME DEPOT 31 21 NOTES Note 12 - QUARTERLY FINANCIAL DATA - The following is a summary of the unaudited quarterly results of operations for the fiscal years ended February 1, 1998 and February 2, 1997 (in millions, except per share data):
PERCENT INCREASE IN COMPARABLE BASIC EARNINGS DILUTED EARNINGS NET SALES STORE SALES GROSS PROFIT NET EARNINGS PER SHARE PER SHARE - -------------------------------------------------------------------------------------------------------------------------------- Fiscal year ended February 1, 1998: First quarter $ 5,657 11% $1,552 $ 259 $0.36 $0.35 Second quarter 6,550 5% 1,800 358 0.49 0.48 Third quarter 6,217 7% 1,726 236 0.32 0.32 Fourth quarter 5,732 6% 1,703 307 0.42 0.41 - ---------------------------------------------------------------------------------------------------------------------------- Fiscal year $24,156 7% $6,781 $1,160 $1.59 $1.55 ============================================================================================================================ Fiscal year ended February 2, 1997: First quarter $ 4,362 3% $1,220 $ 195 $0.27 $0.27 Second quarter 5,293 9% 1,437 270 0.38 0.37 Third quarter 4,922 7% 1,338 222 0.31 0.31 Fourth quarter 4,958 7% 1,439 251 0.35 0.34 - ---------------------------------------------------------------------------------------------------------------------------- Fiscal year $19,535 7% $5,434 $ 938 $1.30 $1.29 ============================================================================================================================
THE HOME DEPOT 32 22 The approximate future minimum lease payments under capital and operating leases at February 1, 1998 were as follows (in millions):
FISCAL YEAR CAPITAL LEASES OPERATING LEASES - --------------------------------------------------------------------------------------- 1998 $ 24 $ 294 1999 24 291 2000 24 264 2001 24 245 2002 24 236 Thereafter 336 2,701 - --------------------------------------------------------------------------------------- 456 $ 4,031 Less: Imputed interest (305) ======= - ----------------------------------------------------------------- Net present value of capital lease obligations 151 Less: Current installments (1) - ----------------------------------------------------------------- Long-term capital lease obligations, excluding current installments $ 150 =======================================================================================
Short-term and long-term obligations for capital leases are included in the Company's Consolidated Balance Sheets in Current Installments of Long-Term Debt and Long-Term Debt, respectively. The assets under capital leases recorded in Net Property and Equipment, net of amortization, totaled $147 million and $106 million at February 1, 1998 and February 2, 1997, respectively. NOTE 6 - EMPLOYEE BENEFIT PLANS During fiscal 1996, the Company established a defined contribution plan ("401(k)") pursuant to Section 401(k) of the Internal Revenue Code. The 401(k) covers substantially all associates that meet certain service requirements. The Company makes matching contributions, on a weekly basis, up to specified percentages of associates' contributions as approved by the Board of Directors. The Company's contribution is sent to the 401(k) Trustee who purchases shares of the Company's common stock on the open market. These shares are then allocated to the associates' accounts. During fiscal 1988, the Company established a leveraged Employee Stock Ownership Plan and Trust ("ESOP") covering substantially all full-time associates. At February 1, 1998, the ESOP held a total of 10,161,277 shares of the Company's common stock in trust for plan participants' accounts. The ESOP purchased the shares in the open market with contributions received from the Company in fiscal 1997, and from the proceeds of loans obtained from the Company during fiscal 1992, 1990 and 1989 totaling approximately $81 million. All loans payable to the Company in connection with the purchase of such shares have been paid in full. The Company's common stock purchased by the ESOP from the loan proceeds is held in a "suspense account" as collateral for amounts loaned by the Company. At the discretion of its Board of Directors, the Company makes annual contributions to the ESOP, which the 401(k) Trustee is required to use to make payments for any loan interest and principal due to the Company. When the Company commits to make contributions to the ESOP, a portion of the common stock is released from the "suspense account" and allocated to participating associates. If no shares are available in the "suspense account," Company contributions to the ESOP are used to purchase shares on the open market, which are then allocated to participants' accounts. As of February 1, 1998, there were no shares held in suspense by the trustee. The Company adopted a non-qualified ESOP Restoration Plan in fiscal 1994. The primary purpose of the plan is to provide certain associates deferred compensation that they would have received under the ESOP if not for the maximum compensation limits under the Internal Revenue Code of 1986, as amended. The Company has established a "rabbi trust" to fund the benefits under the ESOP Restoration Plan. Compensation expense related to this plan for fiscal years 1997, 1996 and 1995 was not material. Funds provided to the trust are primarily used to purchase shares of the Company's common stock on the open market. The Company's combined contributions to the 401(k) and ESOP were $33 million and $25 million for fiscal years 1997 and 1996, respectively. Contributions to the ESOP totaled $14 million for fiscal year 1995. NOTE 7 - INVESTMENTS The Company's investments were recorded at fair value, were all classified as available-for-sale, and consisted of the following at February 1, 1998 and February 2, 1997 (in millions):
FEBRUARY 1, 1998 FEBRUARY 2, 1997 - ------------------------------------------------------------------------------ Tax-exempt notes and bonds $ - $ 193 U.S. Treasury securities - 198 U.S. Government agency securities 1 1 Corporate obligations - 14 Corporate asset-backed securities 1 15 Other 15 - - ------------------------------------------------------------------------------ Total $ 17 $ 421 ============================================================================== Short-term investments, including current maturities of long-term investments $ 2 $ 413 Long-term investments 15 8 - ------------------------------------------------------------------------------ Total $ 17 $ 421 ==============================================================================
Fair value at February 1, 1998 and February 2, 1997 approximated amortized cost. There were no sales of investments available-for-sale during the fiscal year ended February 1, 1998. For the fiscal year ended February 2, 1997, proceeds from sales of investments available-for-sale were $41 million, and gross gains realized on sales were $55,000. For the fiscal year ended January 28, 1996, proceeds from sales of investments available-for-sale were $31 million, and gross gains of $790,000 and gross losses of $69,000 were realized on those sales. NOTE 8 - BASIC AND DILUTED EARNINGS PER SHARE During fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." The calculations of basic and diluted earnings per share for fiscal years 1997, 1996 and 1995 are as follows (amounts in millions, except per share data):
FISCAL YEAR ENDED ------------------------------------------------------------ FEBRUARY 1, 1998 FEBRUARY 2, 1997 JANUARY 28, 1996 (52 WEEKS) (53 WEEKS) (52 WEEKS) - -------------------------------------------------------------------------------------------------------------- CALCULATION OF BASIC EARNINGS PER SHARE Net earnings available to common shareholders $1,160 $938 $732 Weighted average number of common shares outstanding 729 719 709 - ------------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE $ 1.59 $1.30 $1.03 ============================================================================================================= CALCULATION OF DILUTED EARNINGS PER SHARE - ------------------------------------------------------------------------------------------------------------- Net earnings available to common shareholders $1,160 $938 $732 Tax-effected interest expense attributable to: 3-1/4% Convertible Subordinated Notes 23 8 - 4-1/2% Convertible Subordinated Notes - - 2 - ------------------------------------------------------------------------------------------------------------- Net earnings available to common shareholders assuming dilution $1,183 $946 $734 - ------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding 729 719 709 Effect of potentially dilutive securities: 3-1/4% Convertible Subordinated Notes 24 8 - 4-1/2% Convertible Subordinated Notes - - 5 Employee stock plans 9 5 3 - ------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding assuming dilution 762 732 717 - ------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE $ 1.55 $1.29 $1.02 =============================================================================================================
Employee stock plans represent shares granted under the Company's employee stock purchase plan and stock option plans, as well as shares issued for deferred compensation stock plans. For fiscal years 1997 and 1996, shares issuable upon conversion of the Company's 3-1/4% Notes, issued in October 1996, were included in weighted average shares assuming dilution for purposes of calculating diluted earnings per share. To calculate diluted earnings per share, net earnings are adjusted for tax-effected net interest and issue costs on the 3-1/4% Notes and divided by weighted average shares assuming dilution. For fiscal year 1995, the Company's 4-1/2% Convertible Subordinated Notes, issued in 1990, were included in the diluted earnings per share calculation prior to conversion in March 1995. NOTE 9 - LAWSUIT SETTLEMENTS On September 19, 1997, the Company, without admitting any wrongdoing, entered into a settlement agreement with plaintiffs in the class action lawsuit Butler et. al. v. Home Depot, Inc., in which the plaintiffs had asserted claims of gender discrimination. The Company subsequently reached agreements to settle three other individual lawsuits, each of which involved claims of gender discrimination. As a result of these agreements, the Company recorded a pre-tax non-recurring charge of $104 million in fiscal 1997. The non-recurring charge includes expected payments of $65 million to the plaintiff class members and $22.5 million to the plaintiffs' attorneys in Butler, and approximately $17 million for other related internal costs, including implementation or enhancement of certain human resources programs, as well as the settlement terms of the three other lawsuits. Excluding the non-recurring charge, diluted earnings per share for fiscal 1997 were $1.64 compared to $1.55 as reported. NOTE 10 - COMMITMENTS AND CONTINGENCIES At February 1, 1998, the Company was contingently liable for approximately $288 million under outstanding letters of credit issued in connection with purchase commitments. The Company is involved in litigation arising from the normal course of business. In management's opinion, this litigation is not expected to materially impact the Company's consolidated results of operations or financial condition. NOTE 11 - ACQUISITION OF INTEREST IN CANADIAN COMPANY Effective February 28, 1994, the Company entered into a partnership ("The Home Depot Canada") with The Molson Companies and, as a result, acquired 75% of Aikenhead's Home Improvement Warehouse, which was operating seven warehouse-style home improvement stores in Ontario, Canada. Subsequent to the acquisition, The Home Depot Canada has opened 25 additional stores, which are located in the Provinces of Ontario, British Columbia, Alberta and Manitoba. At any time after the sixth anniversary of the purchase, the Company has the option to purchase, or the other partner has the right to cause the Company to purchase, the remaining 25% of The Home Depot Canada. The option price is based on the lesser of fair market value or a value to be determined by an agreed-upon formula as of the option exercise date. The cash purchase price for the 75% interest in Aikenhead's was approximately $162 million and was accounted for by the purchase method of accounting. Accordingly, results of the partnership's operations have been included with those of the Company from the date of acquisition. The excess purchase price over the estimated fair value of the net assets as of the acquisition date of $68 million was recorded as goodwill and is being amortized over 40 years. Note 12 - QUARTERLY FINANCIAL DATA - The following is a summary of the unaudited quarterly results of operations for the fiscal years ended February 1, 1998 and February 2, 1997 (in millions, except per share data):
PERCENT INCREASE IN COMPARABLE BASIC EARNINGS DILUTED EARNINGS NET SALES STORE SALES GROSS PROFIT NET EARNINGS PER SHARE PER SHARE - -------------------------------------------------------------------------------------------------------------------------------- Fiscal year ended February 1, 1998: First quarter $ 5,657 11% $1,552 $ 259 $0.36 $0.35 Second quarter 6,550 5% 1,800 358 0.49 0.48 Third quarter 6,217 7% 1,726 236 0.32 0.32 Fourth quarter 5,732 6% 1,703 307 0.42 0.41 - ---------------------------------------------------------------------------------------------------------------------------- Fiscal year $24,156 7% $6,781 $1,160 $1.59 $1.55 ============================================================================================================================ Fiscal year ended February 2, 1997: First quarter $ 4,362 3% $1,220 $ 195 $0.27 $0.27 Second quarter 5,293 9% 1,437 270 0.38 0.37 Third quarter 4,922 7% 1,338 222 0.31 0.31 Fourth quarter 4,958 7% 1,439 251 0.35 0.34 - ---------------------------------------------------------------------------------------------------------------------------- Fiscal year $19,535 7% $5,434 $ 938 $1.30 $1.29 ============================================================================================================================
23 [KPMG PEAT MARWICK LOGO] INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders The Home Depot, Inc.: We have audited the accompanying consolidated balance sheets of The Home Depot, Inc. and subsidiaries as of February 1, 1998 and February 2, 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended February 1, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Home Depot, Inc. and subsidiaries as of February 1, 1998, and February 2, 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended February 1, 1998 in conformity with generally accepted accounting principles. Atlanta, Georgia March 13, 1998 KPMG Peat Marwick LLP THE HOME DEPOT 33 EX-21 7 LIST OF SUBSIDIARIES 1 EXHIBIT 21 2 LIST OF SUBSIDIARIES OF THE REGISTRANT
STATE OR JURISDICTION OF NAME OF SUBSIDIARY INCORPORATION D/B/A - ------------------ ------------- ----- Home Depot International, Inc. Delaware Home Depot U.S.A., Inc. Delaware The Home Depot Maintenance Warehouse/America Corp. Texas Maintenance Warehouse National Blinds & Wallpaper, Inc. Delaware National Blind & Wallpaper Factory
Certain subsidiaries were omitted pursuant to Item 601(21)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended. EX-23 8 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 2 INDEPENDENT AUDITORS' CONSENT The Board of Directors The Home Depot, Inc.: We consent to incorporation by reference in the Registration Statements (No.'s 33-46476, 33-22531, 33-22299, 33-58807, 333-16695, 333-01385 on Form S-8 and 333-03497 on Form S-3) of The Home Depot, Inc. of our report dated March 13, 1998, relating to the consolidated balance sheets of The Home Depot, Inc. and subsidiaries as of February 1, 1998 and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended February 1, 1998 which reports are included or incorporated by reference in the February 1, 1998 Annual Report on Form 10-K of The Home Depot, Inc. /s/ KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP Atlanta, Georgia April 21, 1998 EX-24 9 SPECIAL POWERS OF ATTORNEY 1 EXHIBIT 24 2 POWER OF ATTORNEY I, Frank Borman, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M. Brill, jointly and severally, my true and lawful attorneys-in-fact, each with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities Exchange Act of 1934, the Annual Report of the Corporation on Form 10-K for the fiscal year of the Corporation ended February 1, 1998, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, including such as are incorporated therein by reference, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as any of the said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 17th day of April, 1998. /s/ Frank Borman --------------------------- Frank Borman 3 POWER OF ATTORNEY I, John L. Clendenin, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M. Brill, jointly and severally, my true and lawful attorneys-in-fact, each with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities Exchange Act of 1934, the Annual Report of the Corporation on Form 10-K for the fiscal year of the Corporation ended February 1, 1998, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, including such as are incorporated therein by reference, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as any of the said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 17th day of April, 1998. /s/ John L. Clendenin --------------------------- John L. Clendenin 4 POWER OF ATTORNEY I, Johnnetta B. Cole, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M. Brill, jointly and severally, my true and lawful attorneys-in-fact, each with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities Exchange Act of 1934, the Annual Report of the Corporation on Form 10-K for the fiscal year of the Corporation ended February 1, 1998, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, including such as are incorporated therein by reference, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as any of the said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 17th day of April, 1998. /s/ Johnnetta B. Cole --------------------------- Johnnetta B. Cole 5 POWER OF ATTORNEY I, Berry Cox, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M. Brill, jointly and severally, my true and lawful attorneys-in-fact, each with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities Exchange Act of 1934, the Annual Report of the Corporation on Form 10-K for the fiscal year of the Corporation ended February 1, 1998, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, including such as are incorporated therein by reference, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as any of the said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 17th day of April, 1998. /s/ Berry R. Cox --------------------------- Berry R. Cox 6 POWER OF ATTORNEY I, Milledge Hart, III, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M. Brill, jointly and severally, my true and lawful attorneys-in-fact, each with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities Exchange Act of 1934, the Annual Report of the Corporation on Form 10-K for the fiscal year of the Corporation ended February 1, 1998, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, including such as are incorporated therein by reference, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as any of the said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 17th day of April, 1998. /s/ Milledge A. Hart, III --------------------------- Milledge A. Hart, III 7 POWER OF ATTORNEY I, Donald Keough, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M. Brill, jointly and severally, my true and lawful attorneys-in-fact, each with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities Exchange Act of 1934, the Annual Report of the Corporation on Form 10-K for the fiscal year of the Corporation ended February 1, 1998, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, including such as are incorporated therein by reference, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as any of the said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 17th day of April, 1998. /s/ Donald R. Keough --------------------------- Donald R. Keough 8 POWER OF ATTORNEY I, Kenneth G. Langone, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M. Brill, jointly and severally, my true and lawful attorneys-in-fact, each with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities Exchange Act of 1934, the Annual Report of the Corporation on Form 10-K for the fiscal year of the Corporation ended February 1, 1998, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, including such as are incorporated therein by reference, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as any of the said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 17th day of April, 1998. /s/ Kenneth G. Langone --------------------------- Kenneth G. Langone 9 POWER OF ATTORNEY I, M. Faye Wilson, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M. Brill, jointly and severally, my true and lawful attorneys-in-fact, each with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities Exchange Act of 1934, the Annual Report of the Corporation on Form 10-K for the fiscal year of the Corporation ended February 1, 1998, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, including such as are incorporated therein by reference, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as any of the said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact deems appropriate, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 17th day of April, 1998. /s/ M. Faye Wilson --------------------------- M. Faye Wilson EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR FEB-01-1998 FEB-01-1998 172,325 1,545 555,699 0 3,602,433 4,460,423 7,486,867 977,982 11,229,403 2,456,534 1,302,701 0 0 36,605 7,061,301 11,229,403 24,155,746 24,155,746 17,374,523 17,374,523 4,885,253 0 (2,500) 1,898,470 738,510 1,159,960 0 0 0 1,159,960 1.59 1.55
EX-27.1 11 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR FEB-02-1997 JAN-28-1996 FEB-02-1997 JAN-28-1996 146,006 53,269 412,430 54,756 388,416 325,384 0 0 2,708,283 2,180,318 3,709,373 2,671,969 6,149,816 4,968,895 712,770 507,871 9,341,710 7,354,033 1,842,126 1,416,482 1,246,593 720,080 0 0 0 0 36,039 35,783 5,919,147 4,951,983 9,341,710 7,354,033 19,535,503 15,470,358 19,535,503 15,470,358 14,101,423 11,184,772 14,101,423 11,184,772 3,908,801 3,105,732 0 0 (9,490) (15,449) 1,534,769 1,195,303 597,030 463,780 937,739 731,523 0 0 0 0 0 0 937,739 731,523 1.30 1.03 1.29 1.02
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