-----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, EgZYsqXPu83TkA6GgREOlcge/905D9S5+csvUzFL/14A6HQkePjQ5KHu9UU04JLN pVv0p2Oyk3Q6kQSp2r9ExA== 0000950144-02-004155.txt : 20020419 0000950144-02-004155.hdr.sgml : 20020419 ACCESSION NUMBER: 0000950144-02-004155 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20020203 FILED AS OF DATE: 20020419 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: 1934 Act SEC FILE NUMBER: 001-08207 FILM NUMBER: 02615654 BUSINESS ADDRESS: STREET 1: 2455 PACES FERRY ROAD CITY: ATLANTA STATE: GA ZIP: 30339-4024 BUSINESS PHONE: 770-433-82 MAIL ADDRESS: STREET 1: 2455 PACES FERRY ROAD CITY: ATLANTA STATE: GA ZIP: 30339-4024 10-K 1 g75478e10-k.txt THE HOME DEPOT, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (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 3, 2002 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 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 April 1, 2002, was $109,162,373,624. The aggregate market value was computed by reference to the closing price of the Common 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 2,263,840,183 shares. The number of shares outstanding of the Registrant's Common Stock as of April 1, 2002 was 2,350,050,699 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 2001 Annual Report to Stockholders are incorporated by reference in Part II. Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of Stockholders to be held on May 29, 2002, are incorporated by reference in Part III. INCORPORATION BY REFERENCE Filings made by companies with the Securities and Exchange Commission sometimes "incorporate information by reference." This means that the company is referring you to information that was previously filed with the SEC, and this information is considered to be part of the filing you are reading. The following materials are incorporated by reference into this Form 10-K: - Information contained in our Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated by reference in response to Items 10 through 13 of Part III. - Information contained on pages 24 through 35 of our 2001 Annual Report to Stockholders is incorporated by reference in response to Item 8 of Part II. FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE Certain statements we make in this report, and other written and oral statements made by us or our authorized executive officers on our behalf may constitute "forward-looking statements" within the meaning of the federal securities laws. Words or phrases such as "should result," "are expected to," "we anticipate," "we estimate," "we project," "we believe" 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; - - our ability to attract, train and retain highly-qualified associates; - - conditions affecting the availability, acquisition, development and ownership of real estate; - - general economic conditions; - - the impact of competition; and - - regulatory and litigation matters. You should not place undue reliance on forward-looking statements, since such statements speak only as of the date they are made. Additional information concerning the risks and uncertainties listed above and other factors you may wish to consider are provided beginning on page 25 under "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition - Forward-Looking Statements May Prove Inaccurate." PART I ITEM 1. BUSINESS The Home Depot, Inc. is the world's largest home improvement retailer and the second largest retailer in the United States based on net sales volume for fiscal 2001. At the end of our 2001 fiscal year, we were operating 1,333 stores. Most of our stores are either Home Depot(R) stores or EXPO Design Center(R) stores. A description of each of these types of stores is as follows: - HOME DEPOT STORES: Home Depot stores sell a wide assortment of building materials and home improvement and lawn and garden products and provide a number of services. Home Depot stores average approximately 109,000 square feet of enclosed space, with an additional approximately 22,000 square feet in the outside garden area. At fiscal year end, we had 1,287 Home Depot stores located throughout the United States, Canada, Argentina and Mexico. - EXPO DESIGN CENTER STORES: EXPO Design Center stores sell products and services primarily for home decorating and remodeling projects. Unlike Home Depot stores, EXPO Design Center stores do not sell building materials and lumber. Rather, EXPO Design Center stores offer interior design products, such as kitchen and bathroom cabinetry, tile, flooring and lighting fixtures and installation services. The prototypical EXPO Design Center is approximately 101,000 square feet. At the end of fiscal 2001, we were operating 41 EXPO Design Center stores in the United States. Additionally, at the end of fiscal 2001 we were operating four Villager's(SM) Hardware test stores in New Jersey. Villager's Hardware stores offer products for home enhancement and small projects. We also have one test store called The Home Depot Floor Store(SM) in Texas that sells only flooring products. We also began testing a new store format focused on the professional customer, and at the end of fiscal 2001, we were operating two Home Depot Supply stores. We offer products through two direct marketing subsidiaries. Maintenance Warehouse(R), a wholly-owned subsidiary, is a direct marketer of maintenance, repair and operations products serving primarily the multi-family housing and lodging facilities management market. The company fills orders through its 21 distribution centers, which are located throughout the United States. National Blinds & Wallpaper(SM), a wholly-owned subsidiary, is a mail order service for wallpaper, custom window treatments and rugs. We operate three other wholly-owned subsidiaries, Georgia Lighting, Inc., Apex Supply Company, Inc. and Your "other" Warehouse, Inc. Georgia Lighting(R), a specialty lighting designer, distributor and retailer, has seven retail locations in Georgia. Apex Supply Company is a wholesale supplier of plumbing, HVAC, appliances and other related professional products with 22 locations in Florida, Georgia, South Carolina and Tennessee. In November 2001, Home Depot acquired Your "other" Warehouse(R), which is a plumbing distributor that focuses on special order fulfillment through its four facilities located in Louisiana and Nevada. On October 31, 2001, we completed the sale of our five stores in Chile to our former joint venture partner, Falabella. In February 2002, the Company also sold its four stores in Argentina. During fiscal 2001, we acquired TotalHOME, Mexico's second largest home improvement retailer that has three stores in Monterrey and one in Mexico City. In March 2002, we announced that we have entered into an agreement to purchase Del Norte, a four-store chain of home improvement stores in Juarez, Mexico. The transaction is subject to approval by the Mexican government. The Home Depot, Inc. is a Delaware corporation that was incorporated in 1978. Our Store Support Center (corporate office) is located at 2455 Paces Ferry Road, Atlanta, Georgia 30339-4024. The telephone number is (770) 433-8211. 2 RETAIL BUSINESSES HOME DEPOT STORES OPERATING STRATEGY. The operating strategy for Home Depot stores is to offer a broad assortment of high-quality merchandise and services at competitive prices using highly knowledgeable, service-oriented personnel and aggressive advertising. We believe that our associates' knowledge of products and home improvement techniques and applications is very important to our marketing approach and our ability to maintain customer satisfaction. We regularly check our competitors' prices to ensure that our prices are competitive within each market. CUSTOMERS. Home Depot stores serve three primary customer groups: - DO-IT-YOURSELF ("D-I-Y") CUSTOMERS: These customers are typically homeowners who purchase products and complete their own projects and installations. To complement the in-store expertise of our associates, Home Depot stores offer many D-I-Y "how-to" clinics taught by associates and merchandise vendors. - DO-IT-FOR-ME ("D-I-F-M") CUSTOMERS: These customers are typically homeowners who purchase materials themselves and hire third parties to complete the project and/or installation. We offer these customers installation services for a variety of products through third party contractors. - PROFESSIONAL CUSTOMERS: These customers are professional repair remodelers, general contractors and tradesmen. In many stores we offer a variety of programs to these professional customers, including additional delivery and will-call services, dedicated staff, extensive merchandise selections and expanded credit programs, all of which we believe increase sales. PRODUCTS. A typical Home Depot store stocks approximately 40,000 to 50,000 product items, including variations in color and size. Each store carries a wide selection of high-quality and nationally advertised brand name merchandise. The following table shows the percentage of sales of each major product group for each of the last three fiscal years:
Percentage of Sales for Fiscal Year Ended ------------------------------ Feb. 3, Jan. 28, Jan. 30, 2002 2001 2000 ------- -------- -------- Product Group Building materials, lumber and millwork.............. 23.6% 23.6% 24.7% Plumbing, electrical and kitchen..................... 28.1 27.6 26.6 Hardware and seasonal................................ 27.6 28.3 28.5 Paint, flooring and wall coverings................... 20.7 20.5 20.2 ----- ----- ----- Total................................................ 100.0% 100.0% 100.0% ===== ===== =====
3 We buy our store merchandise from vendors located throughout the world. We are not dependent on any single vendor. Most of our merchandise is purchased directly from manufacturers, which eliminates "middleman" costs. We believe that competitive sources of supply are readily available for substantially all of the products we sell in Home Depot stores. We maintain a global sourcing merchandise program to source high-quality products directly from overseas manufacturers, which gives our customers a broader selection of products and better values while enhancing our gross margin. Our product development managers travel internationally to identify opportunities to purchase items directly for our stores. This enables us to improve product quality, to import products not currently available to our customers and to offer at a lower price products that would otherwise be purchased from third party importers. We currently source products from more than 500 manufacturers in approximately 40 countries. To complement the established national brand name products we offer, we have formed strategic alliances with vendor partners to market products under brand names that are only offered through The Home Depot. At the end of fiscal year 2001, we offered products under proprietary and other exclusive brands, including Thomasville(R) kitchen and bathroom cabinets; RIDGID(R) power tools; Behr Premium Plus(R) paint; Mill's Pride(R) cabinets; GE(R) SmartWater water heaters; and Vigoro(R) fertilizer. In the future, we may consider additional strategic alignments with other vendors to offer products under proprietary brand names. Additionally, we will continue to assess opportunities to expand the range of products available under existing proprietary brands. AT-HOME SERVICES. Home Depot stores offer a variety of installed sales and home maintenance programs through its At-Home Services(R) business. This service targets the Do-It-For-Me customer who will select and purchase materials for a project and prefers the Company to provide professional installation. We implement our installed sales programs through independent qualified contractors and strategic partners in the U.S. and Canada. These programs include the installation of products that are sold in our stores, such as carpeting, hard flooring, cabinets and solid surface countertops, as well as the installation by strategic partners of sales initiated in our stores for products such as roofing, generators and furnace and central air systems. Additionally, in November 2001 we announced a strategic alliance with a national company to test the sale of co-branded residential maintenance and repair services, such as lawn care, termite and pest control, plumbing and drain cleaning, carpet and upholstery cleaning and home warranties. The program is initially being tested in approximately 30 stores in three markets. STORE-RELATED PROGRAMS. We continually assess our business to find opportunities to increase customer loyalty, thereby increasing sales. Accordingly, we implemented or expanded a number of in-store initiatives in Home Depot stores and programs aimed at supporting store operations during fiscal 2001, including: - Professional Business Customer Initiative. We are committed to being the supplier of choice to a variety of professional customers, including certain repair remodelers, carpenters, plumbers, painters, electricians, building maintenance professionals and designers. During fiscal 2001, we continued to expand our pro initiative, which adds service-related programs to our stores that are designed to increase sales to professional customers. Stores participating in the program have added associates at a sales desk dedicated to providing more personalized service to professional customers, including 4 managing accounts and taking and filling orders for pick-up or delivery. Additionally, during the hours when professionals typically shop, these stores have assigned sales associates in certain departments to assist these customers. To better serve our professional customers, we have also increased quantities of existing products typically purchased by professionals in bulk quantities, and we offer certain items in each department packaged in bulk to offer additional savings. While aimed at the professional customer, this program also enables us to better serve our D-I-Y customer with improved customer service, including delivery and will-call services, expanded credit programs and additional merchandise. Through this initiative, we have identified best practices in serving our professional customers that are being implemented in many of our stores without material additional costs. By the end of fiscal 2001, we had expanded the professional customer initiative into approximately 535 stores, 370 of which were added during the year. We anticipate that during fiscal 2002, we will expand this initiative to more than 400 additional stores. - SPI Program. During fiscal 2001, we completed the roll-out of our Service Performance Improvement, or "SPI," program. The program focuses on making it easier to shop in our stores while improving customer service. Through the program, some associates are assigned specific tasks, allowing others to focus on assisting customers. Additionally, we schedule associates to receive shipments and stock merchandise when our stores are closed or during hours when they have fewer customers. We believe this separation of assignments allows us to provide better customer service while improving labor productivity, increasing transportation and receiving efficiencies, managing inventory more efficiently and increasing sales. - Centralization of Merchandising. During fiscal 2001, we centralized our merchandise buying decisions and vendor selection processes while retaining merchandising groups in our divisions in order to support the development of "neighborhood store" product assortments. This structure allows us to leverage the purchasing power of the Company, while focusing on the needs of individual neighborhoods, and to develop product mixes to satisfy neighborhood buying preferences. Additionally, through centralized buying, we believe we can more effectively manage our product assortments and our pricing strategy. - Appliance Sales. During fiscal 2000, we completed the roll-out of our appliance sales program to most of our stores in the U.S. Through this program we sell appliances manufactured by General Electric(R), Maytag(R) and other manufacturers. We display and stock the more popular appliances in our stores and offer the ability to special order over 2,000 additional products through computer kiosks located in the stores. Through the computer kiosks we can check inventory and arrange for delivery to the customer directly from the manufacturer as soon as 48 hours after the order is placed. During fiscal 2002, we plan to continue to test an enhanced offering of appliances through 1,500 to 2,000 feet of dedicated appliance selling space in selected stores. About 50 of our stores had appliance showrooms at the end of fiscal 2001, and we anticipate adding them to up to 350 stores during fiscal 2002. 5 - Tool Rental. As part of our efforts to satisfy a broad range of the needs of our professional and D-I-Y customers, we offer a tool rental service in certain stores. Under this program, we rent approximately 200 commercial-quality tools in ten categories, including saws, floor sanders, generators, gas powered lawn equipment and plumbing tools. Customers can rent the tools on an hourly, daily, weekly or monthly basis. Our associates who work in the tool rental area receive special training concerning the use and maintenance of the tools. As of February 3, 2002, we offered tool rental service in approximately 466 stores compared to 342 stores at the end of fiscal 2000. By the end of fiscal 2002, we anticipate having tool rental services in approximately 600 stores. We believe that offering this service increases the sales of related merchandise without reducing the sales of equipment similar to that available for rental. - Customer Contact Center. During fiscal 2001, we began testing the use of a customer contact center to answer calls to stores. In addition to handling store calls, the contact center representatives assist with expediting special orders and managing installation projects. The customer contact center also supports the sale and installation of water heaters and HVAC equipment nationwide. Calls come into the center where customer service representatives assist customers with product selection and scheduling installations. The orders are then fulfilled through our stores. We believe that the customer contact center will allow us to provide better customer service, both in our stores and on the phone, while reducing costs. We anticipate continuing this test during fiscal 2002. - Customer Education Programs. We offer several programs to enhance the skills and confidence of our D-I-Y customers. Our associates and vendors teach "how-to" clinics that focus on D-I-Y projects, such as installing garbage disposals, laying patio pavers or building a deck. In addition to the clinics, we offer Home Depot University(SM), which presents four-week modules allowing our customers to learn about several facets of a home improvement topic. For example, a room enhancement module may provide instruction on paint, wallpaper and window treatments. Through The Home Depot's Kids Workshop(SM) program, children are instructed in tool safety and complete a small building project, such as a birdhouse or tool box. We believe that these types of educational programs increase our sales by encouraging our customers to undertake more projects, differentiating us from our competition and reinforcing our position as experts in home improvement. STORE GROWTH United States. At the end of fiscal 2001, we were operating 1,201 Home Depot stores in the United States, including Puerto Rico. During fiscal 2001, we opened 172 new Home Depot stores in the U.S. Although these new store openings occurred primarily in existing markets, we continued our geographic expansion by opening stores in a number of new markets. To increase customer service levels, gain incremental sales and enhance long-term market penetration, we often open new stores near the edge of the market areas served by existing stores. 6 While these openings may initially have a negative impact on comparable store-for-store sales, we believe 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. During fiscal 2001, approximately 30% of our stores were cannibalized by new store openings. Canada. At the end of fiscal 2001, we were operating 78 Home Depot stores in seven Canadian provinces. Of these stores, 11 were opened during fiscal 2001. Our Canadian stores are operated through a wholly-owned Canadian subsidiary of The Home Depot. Mexico. During fiscal 2001, we acquired TotalHOME, Mexico's second largest home improvement retailer, which has three stores in Monterrey and one in Mexico City. In March 2002, we announced that we have entered into an agreement to purchase Del Norte, a four-store chain of home improvement stores in Juarez, Mexico. The transaction is subject to approval by the Mexican government. We plan to build two additional stores in Mexicali and Tijuana during fiscal 2002 and are pursuing several additional locations. During fiscal 2002, we currently plan to open 200 stores, including Home Depot stores, EXPO Design Center stores and other formats. EXPO DESIGN CENTER STORES OPERATING STRATEGY. The operating strategy for our EXPO Design Center stores is to be a complete home decorating and remodeling resource. Each of these stores offers 10 specialty businesses under one roof and features design showrooms with full-size displays to help customers visualize the end result of possible interior design projects. To assist our customers, we also offer complete project management and installation services. Accordingly, we employ associates who have expertise in designing, planning and completing decorating and remodeling projects. CUSTOMERS. Typically, customers at EXPO Design Center stores are middle to upper income D-I-F-M customers, who purchase merchandise for installation by others. Accordingly, we offer installation services for most of the products we sell at these stores. Additionally, our trade customers are custom builders, remodelers, designers and architects. PRODUCTS. EXPO Design Center stores offer interior design products and installation services in the following core product categories: - Kitchens - Baths - Lighting - Tile, stone and wood - Appliances - Seasonal - Decorative fabrics and window treatments 7 - Carpets and rugs - Accessories - Home storage and organization EXPO Design Center stores offer a broad range of merchandise in an effort to meet all the needs of shoppers whose interior design preferences may go beyond the items available in a Home Depot store. While there is minimal overlap between the products offered in Home Depot stores and EXPO Design Center stores, those products available at EXPO Design Center stores represent a broader and more unique assortment of merchandise. In addition to nationally advertised brand name products, we also offer items that must be special ordered or that are typically offered through showrooms open only to design professionals. STORE GROWTH. At the end of fiscal 2001, we were operating 41 EXPO Design Center stores, 15 of which were opened that year. We currently anticipate growing the number of EXPO Design Center stores by approximately 25% in fiscal 2002. We will focus on expanding in the top 100 U.S. metropolitan markets. These new stores are expected to average approximately 101,000 square feet and will incorporate a showroom environment. IN-STORE SERVICES. We have associates at our EXPO Design Center stores to assist with every phase of a project. Certified kitchen and bath designers are on staff, as well as design professionals to help our customers design lighting, tile and flooring, custom upholstery and bedding, custom closets and window treatments. Installation services are available for most products at EXPO Design Center stores, including kitchens, baths, flooring, wallpaper, tile, lighting fixtures and window treatments. Our project managers ensure that the products are available and then schedule licensed third party contractors to complete the work. We also offer special trade services, such as dedicated outside sales people and designers who are dedicated to helping professional customers. GEORGIA LIGHTING We acquired our wholly-owned subsidiary Georgia Lighting in June 1999. Georgia Lighting is a specialty lighting designer, distributor and retailer based in Atlanta. The company, which has seven retail locations, offers an extensive collection of decorative lighting fixtures, supplies, accents and accessories to commercial and retail customers. We believe that the acquisition of Georgia Lighting has allowed us to strengthen our sourcing, training and merchandising in lighting for both The Home Depot and EXPO Design Center stores. THE HOME DEPOT FLOOR STORE During fiscal 2000, we opened a test store in Plano, Texas that offers flooring products. The Floor Store's merchandise assortment includes carpet, ceramic, wood, laminate and vinyl flooring. During fiscal 2002, we anticipate continuing to analyze the results of this test. HOME DEPOT URBAN STORES We currently plan to open our first three urban stores in fiscal 2002. One will be in Brooklyn with approximately 61,000 square feet; one will be in Staten Island with approximately 79,000 8 square feet and the other will be a two-level store with approximately 80,000 square feet in Chicago. These stores will carry approximately 20,000 items, which will be selected depending upon the particular neighborhood in which the store is located. We are continuing to analyze other urban and high density suburban markets throughout the country for additional sites to test this smaller store concept. Additionally, we will be re-branding our four Villager's Hardware stores, which are located in New Jersey, as Home Depot urban stores. OTHER BUSINESSES APEX SUPPLY COMPANY In January 2000, we acquired Apex Supply Company, a wholesale distributor of plumbing, HVAC, appliances and other related products. The Company offers these products through 22 locations in Florida, Georgia, South Carolina, and Tennessee and employs approximately 580 associates. Apex assisted us with the development of our HVAC program, and we believe this acquisition will help us to increase our penetration of the professional plumbing trades. YOUR "OTHER" WAREHOUSE We acquired Your "other" Warehouse in November 2001. This subsidiary is a plumbing distributor that focuses on decorative and commercial plumbing products, including special orders. Your "other" Warehouse carries over 36,000 products from over 100 plumbing vendors, including Kohler(R), American Standard(R) and other major manufacturers. The company operates three primary distribution facilities and a call center. We believe this acquisition will assist us by improving our competitive position and simplifying the special order process in our stores. HOME DEPOT SUPPLY We are testing a new store format focused on the professional customer. These Home Depot Supply stores offer personal service with experienced account managers, expanded assortments, greater quantities of merchandise and expanded delivery services. At the end of fiscal 2001, we were operating two of these stores, and we currently anticipate opening three to five Home Depot Supply stores during fiscal 2002. MAINTENANCE WAREHOUSE Our Maintenance Warehouse subsidiary is a leading provider of maintenance, repair and operations products primarily to the multi-family housing and lodging facilities management market. Through its catalog, which is published semi-annually, Maintenance Warehouse offers approximately 13,000 items, including variations in color and size. Maintenance Warehouse, which employs approximately 1,300 people, emphasizes accurate order taking, delivery and personalized service. Orders are typically placed over the telephone, through a field sales representative or through the company's website at www.mwh.com. Orders are filled through one of Maintenance Warehouse's 21 distribution centers and are shipped for same-day or next-day delivery. During fiscal 2000, Maintenance Warehouse expanded its operations in Texas, Arizona and Georgia through the acquisition of N-E Thing Supply Company, Inc. 9 NATIONAL BLINDS & WALLPAPER National Blinds and Wallpaper sells decor products through telephone sales and over the Internet. The company markets primarily through magazine advertising aimed at customers seeking the lowest prices. The company maintains no inventory, as orders are shipped directly from the supplier to the customer. INTERNET Our primary website is located at www.homedepot.com. The site offers information about projects and our products, calculators to estimate the amount and kinds of materials needed to complete a project, as well as information about our company and links to our other on-line businesses. As with our stores, the focus of our website is customer service. We believe our Internet site provides us with an opportunity to build relationships with our customers, educate our customers, improve service, provide convenient shopping from home and increase store sales. Through www.homedepot.com, we offer approximately 20,000 items for sale. We offer customers the products available at stores in their region on our website, and the products are priced based on the region in which the customer lives. Orders are fulfilled from certain stores that have been designated as Internet fulfillment stores and are shipped through United Parcel Service(R). By integrating Internet purchases with our stores, we hope to provide our customers with greater flexibility and service. During fiscal 2001, we launched www.EXPO.com through which customers can order select products from our EXPO Design Center stores and obtain information about these stores and the products and services they offer. We also began selling Home Depot clearance merchandise through eBay(R). We anticipate continuing to test selling clearance merchandise through the Internet during fiscal 2002. We have included our website addresses only as inactive textual references. The information contained on our websites is not incorporated by reference into this Form 10-K. STORE SUPPORT SERVICES INFORMATION SYSTEMS. Each Home Depot, EXPO Design Center and Villager's Hardware store is equipped with a computerized point of sale system, electronic bar code scanning system and a UNIX server. Store information is communicated to the Store Support Center's computers via a land-based Asynchronous Transfer Mode ("ATM") network in the U.S. and a frame relay network internationally. These computers provide corporate, financial, merchandising and other back office function support. We believe our systems provide efficient customer check-out and returns, store-based inventory management, rapid order replenishment, labor planning support and item movement information. Fast registers, credit authorizations and check approvals expedite transactions in our stores at a pace that we believe sets the standard for our industry. For example, to better serve the increasing number of customers applying for credit while in our stores, the charge card approval process time has been reduced to less than 30 seconds. We have implemented a mobile ordering system in our Home Depot stores using portable carts with computers to assist our associates in placing accurate orders for inventory. Through the system, an 10 associate on the sales floor can see the supply the store has for a given item, review the suggested re-order quantities based on the store's historical experience and place an order with the vendor. We believe the system increases the efficiency and productivity of our associates because it requires less time and fewer people to assess and order inventory. We have also implemented a mobile signing system to help ensure that our signing is consistent with our point-of-sale price data. Additionally, we are in the process of rolling out additional systems tools to assist with labor scheduling to help ensure the best possible customer service levels. We are continuously assessing and upgrading our information systems to support growth, reduce and control costs and enable our associates to make better decisions. We continue to realize greater efficiency as a result of our electronic data interchange ("EDI") program. Currently, most of our high volume vendors are participating in the EDI program, which represents more than 70% of our total transactional volume. EDI is a paperless system, which processes orders from buying offices to vendors, alerts the stores when the merchandise is to arrive and transmits invoice data from the vendors and freight carriers to the Store Support Center. Additionally, we have implemented a web-based invoicing system that, as of the end of the fiscal year, was being used by over 900 suppliers. We continued to enhance our supply chain systems during fiscal 2001. In the transportation area, we introduced the use of bid optimization tools to less-than-truckload carriers that allow the carriers to analyze efficient route combinations and thereby reduce our costs. In addition, we implemented a truckload transportation management system and custom systems to support our transit facilities. To support our growing import volume, we also developed and implemented an advanced forecasting system and rolled out to our import distribution centers common distribution systems, which provide for increased speed, flexibility and consistency. In fiscal 2002, we plan to roll these systems out to our lumber distribution centers. During fiscal 2003, we plan to release a new system to support services such as special orders and installations. The system will integrate the ordering, delivery and installation of products to allow us to manage projects more efficiently. We believe this system will increase accuracy and speed while reducing costs. ASSOCIATE DEVELOPMENT. As of February 3, 2002, we employed approximately 256,000 associates, of whom approximately 14,000 were salaried, with the remainder compensated on an hourly basis. Approximately 65% of our associates are employed on a full-time basis. To attract and retain qualified personnel, we seek to maintain competitive salary and wage levels in each market area. Store managers have access to information regarding competitive salary rates in their respective markets. We develop our training programs in a continuing effort to service the needs of our associates. These programs are designed to increase associates' knowledge of merchandising departments and products, including mandatory product knowledge training classes, and to educate, develop and test the skills of those associates who are interested in being promoted. Because we promote or relocate current associates to serve as managers and assistant managers for new stores, training and assessment of our associates is essential to our growth. Our district managers and store managers typically meet with our human resources associates to discuss the development of assistant managers and certain department heads and consider possible candidates for promotion. 11 We have implemented programs in our stores and divisional offices to ensure we hire and promote the most qualified associates in a non-discriminatory way. One of the most significant programs we have is our annual HR Review process, which assesses leaders and teams, reviews succession planning and executive pipeline, high potential associates, staffing, retention, diversity, training and compliance. The program is closely linked to our Performance Management Process, which evaluates the performance, leadership and potential of all associates. We also maintain a list of qualified associates who are interested in new assignments and of qualified outside applicants that can be reviewed when positions become available. We believe that our employee relations are good. MARKETING. We are one of the nation's largest retail advertisers, and we utilize all forms of mass media and selected forms of highly targeted media. We also incorporate major sponsorships into our marketing plan, such as NASCAR(R), the Olympic(R) games, CBS(R) College Football and home and garden shows. We extend our reach and educate our customers through proprietary publications, such as the 1-2-3(SM) home improvement series and the Style Ideas(SM) magazine. We execute our marketing campaigns on both a national and local basis. Because the vast majority of our stores are located throughout the United States and Canada, we can achieve greater efficiencies than smaller retailers by using national advertising. At the same time, we tailor the majority of our advertising locally to respond to market differences, both in terms of products and the competitive environment. CREDIT SERVICES. Home Depot offers credit purchase programs to both professional customers and D-I-Y and D-I-F-M customers. In fiscal 2001, 2.9 million new Home Depot credit accounts were opened, bringing the total number of Home Depot account holders to almost 10 million. Proprietary credit card sales accounted for approximately 21% of all Home Depot sales in fiscal 2001. We also offer an unsecured Home Improvement Loan that gives our customers the opportunity to purchase products and services in our stores. We believe that this loan program not only increases large sales, such as kitchen and bath remodels, but also generates incremental sales from our customers. INTELLECTUAL PROPERTY. Through our wholly-owned subsidiary, Homer TLC, Inc., we have registered or applied for registration of a variety of trade names, service marks, trademarks and copyrights for use in our business, including The Home Depot(R), the "Homer" (R) character, EXPO Design Center(R) stores, Hampton Bay(R) fans, lighting and accessories, Glacier Bay(R) toilets, sinks and faucets, Pegasus(TM) faucets and bath accessories, Traffic Master(R) carpet, Commercial Electric(R) lighting fixtures, Workforce(R) tools, tool boxes and shelving and PremiumCut(R) lumber. We regard our intellectual property as having significant value and as being an important factor in the marketing of the Company and our stores and direct marketing efforts. We are not aware of any facts that could be expected to negatively impact our intellectual property. QUALITY ASSURANCE PROGRAM. For our globally sourced products that we directly import, we have a quality assurance program. Through this program, we have established criteria for both vendor/factory and product performance, which measure factors including product quality, timely shipments and fill rate. The performance record is made available to the factories to allow them to strive for improvement. This quality assurance program, which is applied to products directly imported by Home Depot, has four components: 12 - we authorize laboratories to test products prior to purchase to ensure compliance with requirements; - we develop and document product requirements, based on test results, applicable national and international standards and features determined by our merchants; - we assess the capability of factories to manufacture quality products that meet the expectations we have developed, as well as to assess their compliance with Home Depot policies; and - we routinely assess product quality and factory performance by conducting inspections at the factory on shipments to assure continued compliance with our product requirements. LOGISTICS. We use several mechanisms to lower distribution costs and increase our efficiencies. Over 80% of our merchandise is shipped directly from our vendors to the stores. We operate a number of facilities to distribute the remaining merchandise to our stores. For example, certain import products require the use of distribution centers. Accordingly, as of February 3, 2002, we had seven import distribution centers, located in the United States and Canada. Additionally, at the end of fiscal 2001, we had 29 lumber distribution facilities in the United States and Canada to support the lumber demands of our stores. We also operated three transit facilities at the end of 2001. At these facilities, we receive merchandise from manufacturers and immediately cross dock it onto trucks for delivery to our stores. As our store density increases, we plan to continue adding transit facilities up to a nationwide network of 15-20 facilities. The distribution centers and transit facilities allow us to provide high service levels to our stores at relatively low costs. Our current plans call for seven additional transit facilities in fiscal 2002. In addition to replenishing merchandise supplies at our stores, we also provide delivery services directly to our customers. We continually assess opportunities to improve our distribution network to better satisfy the needs of our stores and our customers and to lower costs. SAFETY. We are committed to maintaining a safe environment for our customers and associates. Our Safety Department consists of a team of directors and managers in the field focused primarily on education and training, as well as an Atlanta-based team of dedicated safety professionals who evaluate and implement policies and processes Company-wide. The goal of the Safety Department is to implement a safety program designed to incorporate safety into the fabric of our Company, establishing a "safety first" approach to all facets of our business. Our Safety Department is responsible for managing the Company's safety program, which is implemented in conjunction with store-level associates, store and Division management, and the Human Resources and Merchandising Departments. The primary focuses of our safety program are (1) to establish safety standards and processes for all aspects of store operations and merchandising, (2) to effectively train appropriate associates on all applicable standards and (3) to monitor compliance with established safety standards. COMPETITION. Our business is highly competitive, based in part on price, store location, customer service and depth of merchandise. In each of the markets we serve, there are a number of other home improvement stores, electrical, plumbing and building materials supply houses and lumber 13 yards. With respect to some products, we also compete 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. In addition to these entities, our EXPO Design Center stores also compete with specialty design stores or showrooms, some of which are only open to interior design professionals. Due to the variety of competition we face, we are unable to precisely measure our market share in existing market areas. We believe that we are an effective and significant competitor in our markets. EXECUTIVE OFFICERS Executive officers of The Home Depot are elected by, and serve at the pleasure of, the Board of Directors. The following provides information as of February 3, 2002 concerning our executive officers: ROBERT L. NARDELLI, age 53, has been President and Chief Executive Officer since December 2000 and Chairman since January 1, 2002. Prior thereto, Mr. Nardelli served as President and Chief Executive Officer of GE Power Systems, a division of General Electric Company, since 1995. Mr. Nardelli serves as a director of The Coca-Cola Company. DENNIS J. CAREY, age 55, has been Executive Vice President - Business Development, Strategy and Corporate Operations since May 2001. From May 1998 until that time he was Executive Vice President and Chief Financial Officer. From 1994 to 1998, Mr. Carey was employed by AT&T Corp., most recently as Vice President and General Manager - Corporate Productivity and Mergers and Acquisitions. Prior to joining AT&T, Mr. Carey held a number of positions during his 25 year tenure with General Electric Company, including Vice President and General Manager of International Operations. In March 2002, Mr. Carey resigned from The Home Depot. DENNIS M. DONOVAN, age 53, has been Executive Vice President - Human Resources since April 2001. From October 1998 until that time he served as Senior Vice President - Human Resources of Raytheon Company, and from February 1986 until September 1998 he served as Vice President - Human Resources of GE Power Systems, a division of General Electric Company. FRANK L. FERNANDEZ, age 51, has been Executive Vice President - Corporate Secretary & General Counsel since April 2001. From 1990 until that time he was managing partner at Fernandez, Burstein, Tuckzinski and Collura, P.C., in Albany, New York. LARRY M. MERCER, age 55, is Executive Vice President of Operations. He is responsible for the functional leadership across the entire Home Depot enterprise, both domestically since March 1996 and internationally since January 2000. Prior to his promotion, Mr. Mercer was President of the Northeast Division for five years. Mr. Mercer joined the Company in 1979 as an Assistant Store Manager and has risen through the ranks to his current position. CAROL B. TOME, age 45, has been Executive Vice President and Chief Financial Officer since May 2001, and prior thereto had been Senior Vice President - Finance and Accounting/ Treasurer since February 2000. From 1995 until 2000, she served as Vice President and Treasurer. From 1992 until 1995, when she joined The Home Depot, Ms. Tome was Vice President and Treasurer of Riverwood International Corporation. 14 Item 2. PROPERTIES The following tables show locations of the 1,201 Home Depot stores in the United States and the 86 stores outside of the United States as of February 3, 2002:
Number of Stores Number of Stores Location in Location Location in Location -------- ---------------- -------- ---------------- Alabama 14 Montana 3 Alaska 1 Nebraska 3 Arizona 33 Nevada 13 Arkansas 4 New Hampshire 8 California 155 New Jersey 46 Colorado 24 New Mexico 7 Connecticut 19 New York 67 Delaware 3 North Carolina 29 Florida 99 North Dakota 1 Georgia 53 Ohio 48 Hawaii 3 Oklahoma 9 Idaho 7 Oregon 13 Illinois 43 Pennsylvania 42 Indiana 7 Puerto Rico 7 Iowa 5 Rhode Island 3 Kansas 8 South Carolina 16 Kentucky 7 South Dakota 1 Louisiana 17 Tennessee 24 Maine 7 Texas 105 Maryland 31 Utah 12 Massachusetts 27 Vermont 1 Michigan 51 Virginia 32 Minnesota 19 Washington 23 Mississippi 6 Wisconsin 21 Missouri 22 Wyoming 2 International Number of Stores Location in Location ------------- ---------------- Canada: Alberta 10 British Columbia 11 Manitoba 3 Nova Scotia 2 Ontario 44 Quebec 6 Saskatchewan 2 Argentina: 4 Mexico: Mexico City 1 Monterrey 3
15 The following table shows the location of the 41 EXPO Design Center stores by state as of February 3, 2002:
Number of Stores State In State ----- ---------------- California 10 Florida 5 Georgia 3 Illinois 4 Kansas 1 Maryland 1 Massachusetts 2 Michigan 3 Missouri 1 New Jersey 2 New York 3 Texas 5 Virginia 1
Additionally, as of February 3, 2002, we were operating four Villager's Hardware test stores, all of which are located in New Jersey; seven Georgia Lighting retail locations open to the public, all of which are located in Georgia; 22 Apex Supply locations, of which one is located in Florida, 15 are located in Georgia, four are located in Tennessee and two are located in South Carolina; one The Home Depot Floor Store location in Texas; and four Your "other" Warehouse locations in Louisiana and Nevada. Of our 1,333 Home Depot stores, EXPO Design Center stores, Villager's Hardware stores and The Floor Store, at February 3, 2002, approximately 80% were owned (including those owned subject to a ground lease) consisting of approximately 116,901,000 square feet and approximately 20% were leased consisting of approximately 28,541,000 square feet. In recent years, we have increased the relative percentage of new stores that are owned. Although we take advantage of lease financing opportunities, we generally prefer to own stores because of greater operating control and flexibility, generally lower occupancy costs and certain other economic advantages. We believe that at the end of existing lease terms, our current leased space can be either relet or replaced by alternate space for lease or purchase that is readily available. Our executive, corporate staff and financial offices occupy approximately 1,773,000 square feet of leased and owned space in Atlanta, Georgia. In addition, as of February 3, 2002, we occupied an aggregate of approximately 3,358,000 square feet, of which approximately 704,000 square feet is owned and approximately 2,654,000 square feet is leased, for divisional store support centers and subsidiary customer support centers. At fiscal year end, these support centers were located in Orange and San Leandro, California; Tampa and Miami, Florida; Atlanta, Georgia; Arlington Heights, Illinois; Canton, Massachusetts; Plymouth and Grand Haven, Michigan; South Plainfield, New Jersey; Dallas, Texas; Tukwila, Washington; Scarborough, Ontario and Quebec, Canada; and Buenos Aires, Argentina. 16 At February 3, 2002, we utilized approximately 9,122,000 square feet of warehousing and distribution space, of which approximately 1,109,000 is owned and approximately 8,013,000 is leased. Item 3. LEGAL PROCEEDINGS We have litigation arising from the normal course of business. In our opinion, this litigation will not materially affect our consolidated financial position or our results of operations. 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 fiscal 2001. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since April 19, 1984, our common stock 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 our 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.
CASH PRICE RANGE ------------------------ DIVIDENDS LOW HIGH DECLARED* ------ ------ --------- FISCAL YEAR 2000 First Quarter ended April 30, 2000 $51.00 $70.00 $ .040 Second Quarter ended July 30, 2000 44.13 58.75 .040 Third Quarter ended October 29, 2000 34.69 60.00 .040 Fourth quarter ended January 28, 2001 35.44 52.50 .040 FISCAL YEAR 2001 First Quarter ended April 29, 2001 $38.11 $49.00 $ .040 Second Quarter ended July 29, 2001 44.60 53.73 .040 Third Quarter ended October 28, 2001 30.30 50.90 .050 Fourth quarter ended February 3, 2002 37.15 52.04 .050
- --------- *The Company paid its first cash dividend on June 22, 1987, and has paid dividends during each subsequent quarter. Future dividend payments will depend on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors. The number of record holders of The Home Depot's Common Stock as of April 1, 2002 was 206,988 (excluding individual participants in nominee security position listings). 17 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data of The Home Depot, Inc. for and as of the end of each of the periods indicated in the five-year period ended February 3, 2002 have been derived from the audited consolidated financial statements of The Home Depot, Inc., which consolidated financial statements have been audited by KPMG LLP. The selected consolidated financial data should be read in conjunction with the consolidated financial statements of The Home Depot, Inc., including the notes to those consolidated financial statements, and the audit reports of KPMG LLP, which are incorporated by reference elsewhere herein.
Fiscal Year(1) -------------------------------------------------------------- 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- (amounts in millions, except per share data) Net Sales.......................... $53,553 $45,738 $38,434 $30,219 $24,156 Net Earnings....................... 3,044 2,581 2,320 1,614 1,160(2) Diluted Earnings per Share(3)...... 1.29 1.10 1.00 0.71 0.52(2) Total Assets....................... 26,394 21,385 17,081 13,465 11,229 Long-Term Debt..................... 1,250 1,545 750 1,566 1,303 Cash Dividends per Share(3)........ 0.17 0.16 0.11 0.08 0.06
(1) Fiscal 2001, 2000, 1999, 1998 and 1997 refer to the fiscal years ended February 3, 2002; January 28, 2001; January 30, 2000; January 31, 1999; and February 1, 1998, respectively. Fiscal year 2001 consisted of 53 weeks; all other fiscal years noted consisted of 52 weeks. (2) Includes the effect of a $104 million pre-tax non-recurring charge. (3) All per share data have been adjusted for a three-for-two stock split on December 30, 1999, a two-for-one stock split on July 2, 1998 and a three-for-one stock split on July 3, 1997. 18 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SELECTED CONSOLIDATED STATEMENTS OF EARNINGS DATA The data below reflect 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.
PERCENTAGE INCREASE (DECREASE) FISCAL YEAR(1) IN DOLLAR AMOUNTS ------------------------------------- ----------------------- 2001 2000 2001 2000 1999 vs. 2000 vs. 1999 ---------- -------- --------- -------- -------- NET SALES 100.0% 100.0% 100.0% 17.1% 19.0% GROSS PROFIT 30.2 29.9 29.7 18.0 19.9 OPERATING EXPENSES: Selling and Store Operating 19.0 18.6 17.8 19.4 24.8 Pre-Opening 0.2 0.3 0.3 (17.6) 25.7 General and Administrative 1.7 1.8 1.7 12.0 24.4 ---------- -------- -------- ----- ----- Total Operating Expenses 20.9 20.7 19.8 18.2 24.8 ---------- -------- -------- ----- ----- OPERATING INCOME 9.3 9.2 9.9 17.7 10.1 INTEREST INCOME (EXPENSE): Interest and Investment Income 0.1 0.1 0.1 12.8 27.0 Interest Expense (0.1) (0.1) (0.1) 33.3 (48.8) ---------- -------- -------- ----- ----- Interest, net -- -- -- (3.8) 750.0 ---------- -------- -------- ----- ----- EARNINGS BEFORE INCOME TAXES 9.3 9.2 9.9 17.5 10.9 Income Taxes 3.6 3.6 3.9 16.9 10.2 ---------- -------- -------- ----- ----- NET EARNINGS 5.7% 5.6% 6.0% 17.9% 11.3% ---------- -------- -------- ----- ----- SELECTED SALES DATA (2) Number of Transactions (000s) 1,090,975 936,519 797,229 16.5% 17.5% Average Sale per Transaction $ 48.64 $ 48.65 $ 47.87 -- 1.6 Weighted Average Weekly Sales per Operating Store $ 812,000 $864,000 $876,000 (6.0) (1.4) Weighted Average Sales per Square Foot(3) $ 387.93 $ 414.68 $ 422.53 (6.5) (1.9)
(1) Fiscal years 2001, 2000 and 1999 refer to the fiscal years ended February 3, 2002; January 28, 2001; and January 30, 2000, respectively. (2) Excludes Apex Supply Company, Georgia Lighting, Maintenance Warehouse, Your "other" Warehouse and National Blinds and Wallpaper. (3) Adjusted to reflect the first 52 weeks of the 53-week fiscal year in 2001. RESULTS OF OPERATIONS For an understanding of the significant factors that influenced our performance during the past three fiscal years, the following discussion should be read in conjunction with the consolidated financial statements and the notes to consolidated financial statements presented in this annual report. FISCAL YEAR ENDED FEBRUARY 3, 2002 COMPARED TO JANUARY 28, 2001. Fiscal year 2001 consisted of 53 weeks compared to 52 weeks in fiscal 2000. Net sales for fiscal 2001 increased 17.1% to $53.6 billion from $45.7 billion in fiscal 2000. This increase was attributable to, among other things, the 204 new stores opened during fiscal 2001 and full year sales from the 204 new stores opened during fiscal 2000. Approximately $880 million of the increase in sales was attributable to the additional week in fiscal 2001. Comparable store-for-store sales were flat in fiscal 2001 due to the weak economic environment resulting from certain factors including, but not limited to, low consumer confidence and high unemployment. 19 Gross profit as a percent of sales was 30.2% for fiscal 2001 compared to 29.9% for fiscal 2000. The rate increase was primarily attributable to a lower cost of merchandise resulting from product line reviews, purchasing synergies created by our newly centralized merchandising structure and an increase in the number of tool rental centers from 342 at the end of fiscal 2000 to 466 at the end of fiscal 2001. We expect to have tool rental centers in approximately 600 stores by the end of fiscal 2002. Operating expenses as a percent of sales were 20.9% for fiscal 2001 compared to 20.7% for fiscal 2000. Selling and store operating expenses as a percent of sales increased to 19.0% in fiscal 2001 from 18.6% in fiscal 2000. The increase was primarily attributable to growth in store occupancy costs resulting from higher depreciation and property taxes due to our investment in new stores, combined with increased energy costs. Also, credit card transaction fees were higher than the prior year due to increased penetration of total credit sales. These increases were partially offset by a decrease in store payroll expense caused by an improvement in labor productivity resulting from initiatives inside the store and new systems enhancements. Store initiatives include our Service Performance Improvement ("SPI") initiative which was implemented in every Home Depot store in fiscal 2001. Under SPI our stores receive and handle inventory at night, allowing our associates to spend more time with customers during peak selling hours. In addition, our Pro program was in 535 of our Home Depot stores at the end of fiscal 2001, providing dedicated store resources to serve the specific needs of professional customers. We expect to have our Pro initiative in more than 950 stores at the end of fiscal 2002. SPI and Pro have resulted in improved operational efficiency, safety and customer service. Pre-opening expenses as a percent of sales were 0.2% for fiscal 2001 and 0.3% for fiscal 2000. We opened 204 new stores in both fiscal 2001 and 2000. Pre-opening expenses averaged $569,000 per store in fiscal 2001 compared to $671,000 per store in fiscal 2000. The decrease in the average expense per store was primarily due to shorter pre-opening periods as we reengineered our store opening process. General and administrative expenses as a percent of sales were 1.7% for fiscal 2001 compared to 1.8% in fiscal 2000. This decrease was primarily due to cost savings associated with the reorganization of certain components of our general and administrative structure, such as the centralization of our merchandising organization, and our focus on expense control in areas such as travel. Interest and investment income as a percent of sales was 0.1% for both fiscal 2001 and 2000. Interest expense as a percent of sales was 0.1% for both fiscal 2001 and 2000. Our combined federal and state effective income tax rate decreased to 38.6% for fiscal 2001 from 38.8% for fiscal 2000. The decrease in fiscal 2001 was attributable to higher tax credits and a lower effective state income tax rate compared to fiscal 2000. Net earnings as a percent of sales were 5.7% for fiscal 2001 compared to 5.6% for fiscal 2000, reflecting the increased gross profit rate, which was partially offset by higher store operating expenses, as described above. Diluted earnings per share were $1.29 for fiscal 2001 compared to $1.10 for fiscal 2000. 20 FISCAL YEAR ENDED JANUARY 28, 2001 COMPARED TO JANUARY 30, 2000. Net sales for fiscal 2000 increased 19.0% to $45.7 billion from $38.4 billion in fiscal 1999. This increase was attributable to, among other things, full year sales from the 169 new stores opened during fiscal 1999, a 4% comparable store-for-store sales increase and 204 new store openings. Gross profit as a percent of sales was 29.9% for fiscal 2000 compared to 29.7% for fiscal 1999. The rate increase was primarily attributable to a lower cost of merchandise resulting from product line reviews, benefits from global sourcing programs and an increase in the number of tool rental centers from 150 at the end of fiscal 1999 to 342 at the end of fiscal 2000. Operating expenses as a percent of sales were 20.7% for fiscal 2000 compared to 19.8% for fiscal 1999. Selling and store operating expenses as a percent of sales increased to 18.6% in fiscal 2000 from 17.8% in fiscal 1999. The increase was primarily attributable to higher store selling payroll expenses resulting from market wage pressures and an increase in employee longevity. In addition, medical costs increased due to higher family enrollment in our medical plans, rising health care costs and higher prescription drug costs. Finally, store occupancy costs, including property taxes, property rent, depreciation and utilities, increased due to new store growth and energy rate increases. Pre-opening expenses as a percent of sales were 0.3% for both fiscal 2000 and 1999. We opened 204 new stores in fiscal 2000, compared to opening 169 new stores in fiscal 1999. Pre-opening expenses averaged $671,000 per store in fiscal 2000 compared to $643,000 per store in fiscal 1999. The higher average expense was primarily due to the opening of more EXPO Design Center stores and expansion of Home Depot stores into certain new markets including international locations, which involved longer pre-opening periods and higher training, travel and relocation costs. General and administrative expenses as a percent of sales were 1.8% for fiscal 2000 compared to 1.7% for fiscal 1999. The increase was primarily due to investments in Internet development and international operations, as well as a full year of payroll and other costs associated with operating four new divisional offices, which opened during the fourth quarter of fiscal 1999. Interest and investment income as a percent of sales was 0.1% for both fiscal 2000 and 1999. Interest expense as a percent of sales was 0.1% for both comparable periods. Our combined federal and state effective income tax rate decreased to 38.8% for fiscal 2000 from 39.0% for fiscal 1999. The decrease was attributable to higher tax credits in fiscal 2000 compared to fiscal 1999. Net earnings as a percent of sales were 5.6% for fiscal 2000 compared to 6.0% for fiscal 1999, reflecting higher selling and store operating expenses as a percent of sales partially offset by a higher gross profit rate as described above. Diluted earnings per share were $1.10 for fiscal 2000 compared to $1.00 for fiscal 1999. 21 LIQUIDITY AND CAPITAL RESOURCES Cash flow generated from operations provides us with a significant source of liquidity. For fiscal 2001, cash provided by operations increased to $6.0 billion from $2.8 billion in fiscal 2000. The increase was primarily due to significant growth in days payable outstanding from 23 days at the end of fiscal 2000 to 34 days at the end of fiscal 2001, a 12.7% decrease in average inventory per store as of the end of fiscal 2001 and increased operating income. The growth in days payable and decrease in average inventory per store are the result of our efforts to improve our working capital position by extending our payment terms to industry standards and enhancing inventory assortments. Cash used in investing activities, primarily comprised of capital expenditures, was $3.5 billion in both fiscal 2001 and 2000. We opened 204 new stores in both fiscal 2001 and 2000. We own 188 of the stores opened in 2001 and lease the remainder. We plan to open 200 stores in fiscal 2002 and expect total capital expenditures to be approximately $3.6 billion. Cash used in financing activities in fiscal 2001 was $173 million compared with cash provided by financing activities of $737 million in fiscal 2000. The increase in cash used was primarily due to the net effect of repaying $754 million of commercial paper and issuing $500 million of 5 3/8% Senior Notes during fiscal 2001. We have a commercial paper program that allows borrowings up to a maximum of $1 billion. As of February 3, 2002, there were no borrowings outstanding under the program. In connection with the program, we have a back-up credit facility with a consortium of banks for up to $800 million. The credit facility, which expires in September 2004, contains various restrictive covenants, none of which are expected to impact our liquidity or capital resources. We use capital, operating and other off-balance sheet leases to finance about 20% of our real estate. Off-balance sheet leases include three leases created under structured financing arrangements to fund the construction of certain stores, office buildings and distribution centers. Two of these lease agreements involve a special purpose entity which meets the criteria established by generally accepted accounting principles and is not owned by or affiliated with the Company, its management or officers. Operating and off-balance sheet leases are not reflected in our balance sheet in accordance with generally accepted accounting principles. The net present value of capital lease obligations is reflected in our balance sheet in long-term debt. As of the end of fiscal 2001, our debt to equity ratio was 6.9%. If the estimated present value of future payments under the operating and other off-balance sheet leases were capitalized, our debt to equity ratio would increase to approximately 30%. 22 The following table summarizes our significant contractual obligations and commercial commitments as of February 3, 2002 (amounts in millions):
Payments Due By Period ---------------------------------------------------------- Contractual Obligations(1) Total 2002 2003-2004 2005-2006 Thereafter ----- ---- --------- --------- ---------- Long-Term Debt $1,023 $ 1 $502 $502 $ 18 Capital Leases $ 791 $ 41 $ 85 $ 88 $ 577 Operating Leases $7,407 $517 $942 $809 $5,139
Amount of Commitment Expiration Per Period ---------------------------------------------------------- Commercial Commitments(2) Total 2002 2003-2004 2005-2006 Thereafter ----- ---- --------- --------- ---------- Letters of Credit $ 557 $551 $ 6 -- -- Guarantees $ 799 -- $504 $ 72 $ 223
(1) Contractual obligations consist of long-term debt comprised primarily of $1 billion of Senior Notes further discussed in "Quantitative and Qualitative Disclosures about Market Risk" and future minimum lease payments under capital and operating leases, including off-balance sheet leases, used in the normal course of business. (2) Commercial commitments include letters of credit for certain business transactions and guarantees provided under certain off-balance sheet leases. We issue letters of credit for insurance programs, import purchases and construction contracts. Under certain off-balance sheet leases for retail locations, office buildings and distribution centers, we have provided residual value guarantees. The estimated maximum amount of the residual value guarantees at the end of the lease terms is $799 million. The leases expire at various terms from 2004 through 2008 with some carrying renewal options through 2025. The expiration date of the residual value guarantees in the table above is based on the original lease terms; however, the expiration period will change if the leases are renewed. As of February 3, 2002, we had $2.5 billion in cash and cash equivalents. We believe that our current cash position, internally generated funds, funds available from the $1 billion commercial paper program and the ability to obtain alternate sources of financing should be sufficient to enable us to complete our capital expenditure programs through the next several fiscal years. IMPACT OF INFLATION AND CHANGING PRICES Although we cannot accurately determine the precise effect of inflation on operations, we do not believe inflation has had a material effect on sales or results of operations. CRITICAL ACCOUNTING POLICIES Our significant accounting policies are disclosed in Note 1 to our consolidated financial statements. The following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results, and that require judgment. REVENUE RECOGNITION. We recognize revenue, net of estimated returns, at the time the customer takes possession of the merchandise or receives services. We estimate the liability for sales returns based on the historical return levels. The methodology used is consistent with other retailers. We believe that our estimate for sales returns is an accurate reflection of future returns. When we collect payment from customers before ownership of the merchandise has passed or the service has been performed, the amount received is recorded as a deferred revenue liability. INVENTORY. Our inventory is stated at the lower of cost (first-in, first-out) or market, with approximately 94% valued under the retail method and the remainder under the cost method. 23 Under the retail method, inventory is stated at cost which is determined by applying a cost-to-retail ratio to the ending retail value of inventory. As our inventory retail value is adjusted regularly to reflect market conditions, our inventory methodology approximates the lower of cost or market. Retailers with many different types of merchandise at low unit cost with a large number of transactions frequently use this method. In addition, we reduce our ending inventory value for estimated losses related to shrink. This estimate is determined based upon analysis of historical shrink losses and recent shrink trends. SELF INSURANCE. We are self-insured for certain losses related to general liability, product liability and workers' compensation. We maintain stop loss coverage with third party insurers to limit our total exposure. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates, and is reviewed by management and third party actuaries on a quarterly basis to ensure that the liability is appropriate. While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity or frequency of claims or fluctuations in premiums, differ from our estimates, our financial results could be impacted. In an attempt to mitigate our risks of workers' compensation and general liability claims, we have significantly enhanced our store safety procedures with SPI and other safety awareness programs. USE OF ESTIMATES. We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses in preparing our financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 142, "Goodwill and Other Intangible Assets." Under SFAS 142, which we will adopt on February 4, 2002, goodwill will no longer be amortized and will instead be evaluated for impairment at least annually. Without this change, amortization expense for goodwill in fiscal 2002 would have been approximately $11 million. We have reviewed our goodwill and completed our impairment analysis and, accordingly, have determined that the adoption of SFAS 142 will not have a material impact on our consolidated financial statements. In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which amends Accounting Principles Board Opinion No. 30 ("APB 30"), "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 retains the fundamental provisions of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while resolving significant implementation issues. SFAS 144 retains the basic provisions of APB 30 on the presentation of discontinued operations in the income statement, but expands the scope to include all distinguishable components of an entity that will be eliminated from ongoing operations in a disposal transaction. We plan to adopt SFAS 144 on February 4, 2002 and do not expect the adoption to have a material impact on our consolidated financial statements. 24 FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE Certain statements we make in this report, and other written or oral statements made by or on behalf of the Company, may constitute "forward-looking statements" within the meaning of the federal securities laws. Words or phrases such as "should result," "are expected to," "we anticipate," "we estimate," "we project," "we believe," or similar expressions are intended to identify forward-looking statements. Examples of such statements in this report include descriptions of our plans with respect to new store openings and relocations, our plans to enter new markets and expectations relating to our continuing growth. 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. Management believes that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. Such statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. The following are some of the factors that could cause the Company's actual results to differ materially from the expected results described in the Company's forward-looking statements: - - Adverse or unanticipated weather conditions, which may affect the Company's overall level of sales and sales of particular lines of products, such as building materials, lumber and lawn and garden supplies. - - Instability of costs and availability of sourcing channels, which may affect the prices that the Company pays for certain commodity products, such as lumber and plywood, as well as the Company's ability to improve its mix of merchandise. Our cost of sales is affected by our ability to maintain favorable arrangements and relationships with our suppliers. Our sources of supply may be affected by trade restrictions, tariffs, currency exchange rates, transportation costs and capacity, and other factors affecting domestic and international markets. - - Our ability to attract, train and retain highly-qualified associates to staff both existing and new stores. - - Conditions affecting the availability, acquisition, development and ownership of real estate, including local zoning and land use issues, environmental regulations and general conditions in the commercial real estate market. - - General economic conditions, which affect consumer confidence and home improvement and home-building spending, including interest rates, the overall level of economic activity, the availability of consumer credit and mortgage financing and unemployment rates. - - The impact of competition, including competition for customers, locations and products and in other important aspects of our business. Our primary competitors include electrical, plumbing and building materials supply houses, lumber yards, home improvement stores and other local, regional or national hardware stores, as well as 25 discount department stores and any other channel of distribution that offers products that we sell. Our business is highly competitive, and we may face new types of competitors as we enter new markets or lines of business. - - Changes in laws and regulations, including changes in accounting standards, tax statutes or regulations and environmental and land use regulations, and uncertainties of litigation. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risks results primarily from fluctuations in interest rates. Although we have international operating entities, our exposure to foreign currency rate fluctuations is not significant to our financial condition and results. Our objective for holding derivative instruments is to decrease the volatility of earnings and cash flow associated with fluctuations in these rates. We have financial instruments that are sensitive to changes in interest rates. These instruments include fixed rate debt and other contractual arrangements. We issued $500 million of 5 3/8% Senior Notes in fiscal 2001 maturing on April 1, 2006 and $500 million of 6 1/2% Senior Notes in fiscal 1999 maturing on September 15, 2004. As of February 3, 2002, the market values of the publicly traded 5 3/8% and 61/2% Senior Notes were approximately $511 million and $531 million, respectively. We have two interest rate swap agreements, both designed to hedge the market risk associated with interest rate volatility. We have one agreement in the notional amount of $300 million that swaps fixed rate interest on $300 million of our $500 million 5 3/8% Senior Notes for a variable interest rate equal to LIBOR plus 30 basis points and expires on April 1, 2006. We have another agreement expiring January 31, 2003 in the notional amount of $690 million that swaps a variable interest rate for a fixed rate of 6 3/4%, designed to mitigate the interest rate risk related to the portfolio of our proprietary credit card, which is serviced by a third party. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA We refer you to the "Consolidated Statements of Earnings," "Consolidated Balance Sheets," "Consolidated Statements of Stockholders' Equity and Comprehensive Income," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements" and "Independent Auditors' Report" contained in our Annual Report to Stockholders for the fiscal year ended February 3, 2002, which are incorporated by reference herein. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 26 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT We refer you to the information in our Proxy Statement for the 2002 Annual Meeting of Stockholders under the headings "Election of Directors and Director Biographies," "Board of Directors Information" and "General - Compliance with Section 16(a) Beneficial Ownership Reporting Requirements," which is incorporated by reference herein. Biographical information on our executive officers is contained in Item I of this Annual Report on Form 10-K. Item 11. EXECUTIVE COMPENSATION We refer you to the information in our Proxy Statement for the 2002 Annual Meeting of Stockholders under the headings "Executive Compensation," "Board of Directors Information" and "General - Compensation Committee Interlocks and Insider Participation," which is incorporated by reference herein. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT We refer you to the information in our Proxy Statement for the 2002 Annual Meeting of Stockholders under the heading "Stock Ownership," which is incorporated by reference herein. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We refer you to the information in our Proxy Statement for the 2002 Annual Meeting of Stockholders under the heading "General - Insider Transactions," which is incorporated by reference herein. 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 24 through 35 of our Annual Report to Stockholders for the fiscal year ended February 3, 2002, as provided in Item 8 hereof: - Consolidated Statements of Earnings for the fiscal years ended February 3, 2002; January 28, 2001; and January 30, 2000. - Consolidated Balance Sheets as of February 3, 2002 and January 28, 2001. - Consolidated Statements of Stockholders' Equity and Comprehensive Income for the fiscal years ended February 3, 2002; January 28, 2001; and January 30, 2000. 27 - Consolidated Statements of Cash Flows for the fiscal years ended February 3, 2002; January 28, 2001; and January 30, 2000. - Notes to Consolidated Financial Statements. - 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 Current Reports on Form 8-K filed during the fourth quarter of fiscal 2001. (c) Exhibits Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the SEC, as indicated by the references in brackets. The Registrant agrees to furnish a copy of all agreements relating to long-term debt upon request of the Commission. *3.l Restated Certificate of Incorporation of The Home Depot, Inc., as amended. [FORM 10-Q FOR THE FISCAL QUARTER ENDED JULY 30, 2000, EXHIBIT 3.1] *3.2 By-laws, as amended and restated. [FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 2000, EXHIBIT 3.2] *4.1 Indenture, dated as of September 27, 1999 among The Home Depot, Inc., Credit Suisse First Boston Corporation and Invemed Associates. [FORM S-4 (FILE NO. 333-89935) FILED OCTOBER 29, 1999, EXHIBIT 4.1] *4.2 Indenture, dated as of April 12, 2001, between The Home Depot, Inc. and The Bank of New York. [FORM S-4 (FILE NO. 333-61548) FILED MAY 24, 2001, EXHIBIT 4.1] *4.3 Form of 5-3/8% Note due April 1, 2006 (INCLUDED IN EXHIBIT 4.2). *10.1 Credit Agreement dated September 17, 1999 (the "Credit Agreement") by and among The Home Depot, Inc., Bank of America, N.A., as Administrative Agent, Wachovia Bank, N.A., as Syndication Agent, First Union National Bank and The Bank of New York, as Co-Documentation Agents, and banks party thereto. [FORM 10-Q FOR THE FISCAL QUARTER ENDED OCTOBER 31, 1999, EXHIBIT 10.1]
28 *10.2 Assignment and Acceptance of the Credit Agreement dated February 23, 2000 by and among The Home Depot, Inc., the banks party thereto, Bank of America, N.A., as Administrative Agent, Wachovia Bank, N.A., as Syndication Agent, and First Union National Bank and Bank of New York, as Co-Documentation Agents. [FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 2000, EXHIBIT 10.2] *10.3 Assignment and Acceptance of the Credit Agreement dated March 31, 2000 by and among The Home Depot, Inc., the banks party thereto, Bank of America, N.A., as Administrative Agent, Wachovia Bank, N.A., as Syndication Agent, and First Union National Bank and The Bank of New York, as Co-Documentation Agents. [FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 2000, EXHIBIT 10.3] *10.4 +Corporate Office Management Bonus Plan of the Registrant dated March 1, 1991. [FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1998, EXHIBIT 10.2] *10.5 +Employee Stock Purchase Plan, as amended. [FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 28, 2001, EXHIBIT 10.5] *10.6 +Senior Officers' Bonus Pool Plan, as amended. [APPENDIX A TO REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS HELD MAY 26, 1999] *10.7 +Executive Officers' Bonus Plan. [APPENDIX B TO REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS HELD MAY 27, 1998] *10.8 +The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan. [FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1998, EXHIBIT 10.5] *10.9 +Executive Medical Reimbursement Plan, effective January 1, 1992. [FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 1999, EXHIBIT 10.7] *10.10 +The Home Depot ESOP Restoration Plan. *10.11 Participation Agreement dated as of October 22, 1998 among The Home Depot, Inc. as Guarantor; Home Depot U.S.A., Inc. as Lessee; HD Real Estate Funding Corp. II as Facility Lender; Credit Suisse Leasing 92A L.P. as Lessor; The Bank of New York as Indenture Trustee; and Credit Suisse First Boston Corporation and Invemed Associates, Inc. as Initial Purchasers. [FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999, EXHIBIT 10-10.] *10.12 Participation Agreement dated as of June 25, 1996 among The Home Depot, Inc. as Guarantor; Home Depot U.S.A., Inc. as Lessee and Construction Agent; HD Real Estate Funding Corp. as Facility Lender; the lenders named on the Schedule thereto as Lenders; Credit Suisse First Boston Corporation as Agent Bank and Lender; and Credit Suisse Leasing 92A L.P. as Lessor. [FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999, EXHIBIT 10.11] *10.13 First Amendment and Supplement to the Participation Agreement dated as of May 8, 1997 among The Home Depot, Inc. as Guarantor; Home Depot U.S.A., Inc. as Lessee and Construction Agent; HD Real Estate Funding Corp. as Facility Lender; the lenders named on the Schedule thereto as Lenders; Credit Suisse First Boston Corporation as Agent Bank and Lender; and Credit Suisse Leasing 92A L.P. as Lessor. [FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999, EXHIBIT 10-12.]
29 *10.14 Master Modification Agreement dated as of April 20, 1998 among The Home Depot, Inc. as Guarantor; Home Depot U.S.A., Inc., as Lessee and Construction Agent; HD Real Estate Funding Corp., as Facility Lender; Credit Suisse Leasing 92A L.P. as Lessor; the lenders named on the Schedule thereto as Lenders; and Credit Suisse First Boston Corporation as Agent Bank. [FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999, EXHIBIT 10.13] 10.15 +Supplemental Executive Choice Program, effective January 1, 1999. *10.16 +Employment Agreement between Robert L. Nardelli and The Home Depot, Inc., dated as of December 4, 2000. [FORM 10-Q FOR THE QUARTER ENDED OCTOBER 28, 2001, EXHIBIT 10.1] *10.17 +Promissory Note between Robert L. Nardelli and The Home Depot, Inc. dated as of December 4, 2000. [FORM 10-K FOR THE YEAR ENDED JANUARY 28, 2001, EXHIBIT 10.18] *10.18 Deferred Stock Units Plan and Agreement between Robert L. Nardelli and The Home Depot, Inc., effective as of September 17, 2001. [FORM 10-Q FOR THE QUARTER ENDED OCTOBER 28, 2001, EXHIBIT 10.2] *10.19 Commercial Paper Dealer Agreement between Credit Suisse First Boston Corporation, as Dealer, and The Home Depot, Inc., dated as of January 24, 2001. [FORM 10-K FOR THE YEAR ENDED JANUARY 28, 2001, EXHIBIT 10.19] *10.20 +Non-Qualified Stock Option and Deferred Stock Unit Plan and Agreement dated as of December 4, 2001. [FORM 10-K FOR THE YEAR ENDED JANUARY 28, 2001, EXHIBIT 10.20] *10.21 +Agreement between Bernard Marcus and The Home Depot, Inc. dated as of February 22, 2001. [FORM 10-K FOR THE YEAR ENDED JANUARY 28, 2001, EXHIBIT 10.21] *10.22 +Employment Agreement between Dennis M. Donovan and The Home Depot, Inc., dated March 16, 2001. [FORM S-4 (FILE NO. 333-61548) FILED MAY 24, 2001, EXHIBIT 10.1] *10.23 +Employment Agreement between Frank L. Fernandez and The Home Depot, Inc., dated April 2, 2001. [FORM S-4 (FILE NO. 333-61548) FILED MAY 24, 2001, EXHIBIT 10.2] *10.24 +Deferred Stock Units Plan and Agreement between Frank L. Fernandez and The Home Depot, Inc. dated April 2, 2001. [FORM S-4 (FILE NO. 333-61548) FILED MAY 24, 2001, EXHIBIT 10.3]
30 10.25 +Deferred Stock Units Plan and Agreement between Dennis M. Donovan and The Home Depot, Inc., dated as of May 30, 2001. 10.26 +Promissory Note between Dennis M. Donovan and The Home Depot, Inc. dated June 7, 2001. 10.27 +Promissory Note between Frank L. Fernandez and The Home Depot, Inc. dated June 18, 2001. *11 Computation of Earnings Per Common and Common Equivalent Share. [ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2002, FILED HEREWITH AS EXHIBIT 13, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, NOTE 7] 13 The Registrant's Annual Report to Stockholders for the fiscal year ended February 3, 2002. 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. [FORM 10-K FOR THE YEAR ENDED JANUARY 28, 2001, EXHIBIT 21] 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 Gregory D. Brenneman. Power of Attorney from Richard H. Brown. Power of Attorney from John L. Clendenin. Power of Attorney from Berry R. Cox. Power of Attorney from William S. Davila. Power of Attorney from Claudio X. Gonzalez. Power of Attorney from Richard A. Grasso. Power of Attorney from Milledge A. Hart, III. Power of Attorney from Bonnie G. Hill. Power of Attorney from Kenneth G. Langone. Power of Attorney from Roger S. Penske.
- ----------- +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. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE HOME DEPOT, INC. By: /s/ Robert L. Nardelli ----------------------------------------------- (Robert L. Nardelli, Chairman, President & CEO) Date: April 19, 2002 --------------------------------------------- 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 Director April 19, 2002 - ------------------------------- (Bernard Marcus) /s/ Robert L. Nardelli Chairman, President & CEO April 19, 2002 - ------------------------------- (Principal Executive Officer) (Robert L. Nardelli) /s/ Carol B. Tome Executive Vice President and April 19, 2002 - ------------------------------- Chief Financial Officer (Carol B. Tome) (Principal Financial Officer and Principal Accounting Officer)
32
Signature Title Date --------- ----- ---- * Director - ------------------------------- (Gregory D. Brenneman) * Director - ------------------------------- (Richard H. Brown) * Director - ------------------------------- (John L. Clendenin) * Director - ------------------------------- (Berry R. Cox) * Director - ------------------------------- (William S. Davila) * Director - ------------------------------- (Claudio X. Gonzalez) * Director - ------------------------------- (Richard A. Grasso) * Director - ------------------------------- (Milledge A. Hart, III) * Director - ------------------------------- (Bonnie G. Hill) * Director - ------------------------------- (Kenneth G. Langone) * Director - ------------------------------- (Roger S. Penske)
33 * 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/ Robert L. Nardelli ------------------------------------- (Robert L. Nardelli, Attorney-in-fact) 34 EXHIBIT INDEX 10.15 +Supplemental Executive Choice Program, effective January 1, 1999. 10.25 +Deferred Stock Units Plan and Agreement between Dennis M. Donovan and The Home Depot, Inc., dated as of May 30, 2001. 10.26 +Promissory Note between Dennis M. Donovan and The Home Depot, Inc. dated June 7, 2001. 10.27 +Promissory Note between Frank L. Fernandez and The Home Depot, Inc. dated June 18, 2001. 13 The Registrant's Annual Report to Stockholders for the fiscal year ended February 3, 2002. 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. 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 Gregory D. Brenneman. Power of Attorney from Richard H. Brown. Power of Attorney from John L. Clendenin. Power of Attorney from Berry R. Cox. Power of Attorney from William S. Davila. Power of Attorney from Claudio X. Gonzalez. Power of Attorney from Richard A. Grasso. Power of Attorney from Milledge A. Hart, III. Power of Attorney from Bonnie G. Hill. Power of Attorney from Kenneth G. Langone. Power of Attorney from Roger S. Penske.
- --------------- +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. EX-10.15 3 g75478ex10-15.txt SUPPLEMENTAL EXECUTIVE CHOICE PROGRAM EXHIBIT 10.15 MY SUPPLEMENTAL EXECUTIVE CHOICE PROGRAM WHAT IS THE SUPPLEMENTAL EXECUTIVE CHOICE PROGRAM? The SECP was designed to further enhance the total value of your executive compensation package and give you even more flexibility when making benefits choices. The SECP puts you in control of making decisions that best meets your personal and family needs. From Supplemental Life Insurance to the Car Program and Personal Excess Liability benefits, the SECP provides you with access to a wide variety of rich benefits and programs offered exclusively to Executives of The Home Depot. HOW THE PLAN WORKS Each calendar year, on January 1st, you will receive a supplemental benefits allowance. You can use your allowance to purchase and enroll in additional benefits. The money you spend from your allowance is considered taxable income. It will be reported on your W-2 and will be taxed in the year your benefits are paid. Each March, the Company will make an additional payment to you to help cover the taxes incurred for benefits paid in the previous year. This additional payment also will be considered part of your taxable income and will be reported on your W-2 in the year it was paid. SECP BENEFIT OPTIONS AT A GLANCE SUPPLEMENTAL LONG-TERM DISABILITY INCOME PROTECTION (SDIP). You can purchase additional LTD insurance designed to replace a greater percentage of the value of your total compensation. SUPPLEMENTAL LIFE INSURANCE (SLI). Choose from two options: (1)You can purchase Variable Universal Life Insurance for up to three times your base salary, plus incentive, and minus the $300,000 already provided by The Home Depot, up to a maximum of $700,000, or (2) purchase Term Life Insurance up to a maximum of $5 million. MEDICAL/DENTAL REIMBURSEMENT. You may use any portion of your allowance to receive reimbursement for most medical and dental expenses not covered under the standard medical and dental plans for yourself and covered dependents. FINANCIAL SERVICES. You may elect to receive reimbursement for financial services up to 50% of your allowance. PERSONAL EXCESS LIABILITY INSURANCE. This liability insurance covers claims against you for bodily injury, property damage, and personal injury liability after your primary contract limits exhaust, up to $5 million. You may increase your coverage up to $15 million. 1 CAR PROGRAM. You may elect to receive up to 50% of your allowance, paid quarterly, for gasoline, repairs, and car insurance on your personal vehicle. SERVICEMASTER. In the near future, The Home Depot will provide you the option to purchase residential maintenance and repair services as part of your SECP benefits. ENROLLING After you have reviewed all your options, you must complete and return the EXECUTIVE BENEFITS ELECTION WORKSHEET and other pertinent forms to enroll. Please use the SECP enrollment checklist on the following page as your guide. Every year you will have a chance to change your elections and redistribute all of your allowance dollars. FORMS YOU WILL USE - - SECP Enrollment Checklist - - Executive Benefits Election Worksheet - - UNUM Application - - Nationwide Application - - Nationwide Notice and Consent for Blood, Urine, or Oral Fluid Testing - - Nationwide Authorization to Obtain and Disclose Information - - Variable Life Supplement Allocation - - Security-Connecticut Application JUST FOR YOU For your convenience, the information in the SECP section has been personalized for you, based on your base salary, target incentive, target stock option grants, age, sex, and current position. Please refer to the appropriate tab for a detailed description of the options available and how each can work for you. If you wish to spend more on SECP options than your annual supplemental benefits allowance permits, you may write a personal check directly to The Home Depot for the difference, and return it with the EXECUTIVE BENEFITS ELECTION WORKSHEET. 2 SECP ENROLLMENT CHECKLIST For your convenience, we have prepared the following enrollment checklist. Please follow these steps before returning your EXECUTIVE BENEFITS ELECTION WORKSHEET. Review EACH SECTION before making your final elections. Complete the EXECUTIVE BENEFITS ELECTION WORKSHEET, located in the back pocket of this binder. Complete the SDIP AND/OR SUPPLEMENTAL LIFE INSURANCE FORM(S) if you choose any of these options. (These forms are also located in the back pocket of this binder.) Review all forms for completeness and accuracy. Sign and date all forms. Keep a copy of all forms. Return all original forms to the Executive Benefits Representative, Benefits Department, C-9, Atlanta SSC within two weeks of receiving this enrollment kit. If you have questions about how the program works, or about any of the options, please call the Executive Benefits Representative at the Store Support Center in Atlanta. Refer to the Resource List behind the Updates Tab for contact information. 3 SUPPLEMENTAL LONG-TERM DISABILITY INCOME PROTECTION (SDIP) WHAT IS SDIP? Supplemental Long-Term Disability Income Protection is an additional way to protect your income should you become disabled. It enhances your current disability benefit by allowing you to protect the value of stock options through an individual disability policy. To further add to the value of your Total Value Package, The Home Depot has obtained from UNUM special premium rates for our Executives. Your premium will be 20% lower than UNUM's regular premium. HOW THE PLAN WORKS If your employment ends because of your permanent and total disability, your existing stock options will generally become 100% vested, but you should check your grant agreement for your particular vesting provisions. In addition, you will not be eligible to receive new stock option grants while on disability. SDIP will pay 60% of the current value of stock option grants, for as long as you are considered permanently disabled (up to an additional $5,000 per month of benefit). In addition, if you are approved for disability benefits under the Company's Long-Term Disability (LTD) Plan, you will receive 60% of your base salary plus bonus, tax-free, up to a maximum benefit of $25,000 per month. If you are receiving income from other eligible sources, your monthly benefit plus "other income" cannot be more than 70% of your gross monthly earnings. For full details on the Company-paid LTD Plan, refer to your Salaried Benefits Summary. IF YOU ARE A NEW ASSOCIATE If you are a newly eligible Associate with no history of stock option grants, you will be allowed to purchase a policy equal to 10% of your base salary in your initial year of eligibility. If you have received stock option grants, you will be eligible to insure them at 60% up to a maximum of $5,000 per month of benefit. Each year you will be able to update your coverage to protect your stock option grants. CURRENT DISABILITY INSURANCE If you already own individual disability insurance, you can acquire a benefit equal to the maximum available under the SDIP, less the amount of your individual coverage. However, because of the 20% premium discount, it may be in your best interest to consolidate your coverage with this new plan through UNUM. IMPORTANT NOTE: You must NOT modify, lapse, or cancel your personal coverage until your new coverage becomes effective. You will receive a confirmation with the SDIP effective date after your enrollment is processed and approved. 4 THE ADVANTAGES OF SDIP NO MEDICAL AND FINANCIAL REQUIREMENTS. You will not have to provide evidence of good health or be subject to any pre-existing condition limitation if you enroll when you first become eligible, and you have been actively working full time during the past 30 days. Otherwise, you will be required to provide evidence of good health during subsequent annual enrollment periods. TAX-FREE BENEFITS. Since you will pay the SDIP premiums with money from your supplemental benefits allowance, any benefits you receive from this plan will be tax free. Please consult with your personal tax advisor for tax laws that may apply to your personal situation. PERMANENT DISCOUNTS. As long as you are employed with The Home Depot, your premiums will be based on preferred rates, normally at a 20% discount. GUARANTEED PORTABLE COVERAGE. SDIP is individually owned by you and can be taken with you should you leave The Home Depot, provided you personally continue to pay the premiums. GUARANTEED BENEFITS. Your benefits cannot be reduced, and your policy cannot be canceled before age 65 without your permission -- even if your compensation is reduced. However, each year you will have the opportunity to increase your benefit in the event there is an increase in the value of your stock option grants, (up to $5,000/month of benefit). CATASTROPHIC BENEFITS. If you suffer a catastrophic disability resulting in your inability to perform two or more activities of daily living (such as bathing, dressing, toileting, continence, eating), your SDIP benefit amount will increase by an additional $5,000 per month. LONG-TERM CARE CONVERSION. Should you retire or decide that you no longer need additional disability protection, this policy is convertible to a long-term care policy with no evidence of good health. IMPORTANT NOTE: Your premium will be approximately 25% higher if you smoke. If you stop smoking for one year, your premium can be reduced. This policy does not pay benefits that are based on injury or sickness caused by, contributed to or which result from the following: war or an act of war, whether declared or undeclared; intentionally self-inflicted injury; your commission of or your attempt to commit a crime under a state or federal law or your engagement in an illegal occupation; or the suspension, revocation or surrender of your professional or occupational license or certification. No benefits will be payable for any period of disability in which you are incarcerated in a penal or correctional institution for a period of 30 consecutive days or longer. No benefits are payable at death. 5 SUPPLEMENTAL LIFE INSURANCE (SLI) You have the choice of two Individual Supplemental Life Insurance options as part of your Total Value Package for Executives. VARIABLE UNIVERSAL LIFE POLICY. You may purchase up to 3 times your base pay, plus targeted incentive, minus the $300,000 of coverage already provided by The Home Depot through the medical plan's $50,000 Basic Life Insurance and $250,000 Executive Life Death Benefit Only up to a maximum of $700,000. Variable universal life insurance is a combination of VARIABLE LIFE and UNIVERSAL LIFE INSURANCE. Variable life offers cash value benefits that vary according to the investments backing the contract. Universal life offers death benefits and accumulates cash values. Cash value withdrawals are not allowed until after you retire or terminate employment with The Home Depot. TERM LIFE POLICY. You may purchase $1 million to $5 million Term Life Insurance in $500,000 increments. Your premiums will be fixed for a period of 10 or 15 years, whichever you choose. PLEASE REVIEW THE CHART ON THE FOLLOWING PAGE TO COMPARE THESE TWO SUPPLEMENTAL LIFE INSURANCE OPTIONS. 7 SUPPLEMENTAL LIFE INSURANCE COMPARISON CHART
FEATURES VARIABLE UNIVERSAL LIFE TERM LIFE - -------- ----------------------- --------- POLICY TYPE A permanent policy that builds cash values. Life insurance policy that offers coverage for a fixed period of time of 10 or 15 years. MAXIMUM Up to $700,000. Up to $5 million. COVERAGE AMOUNT INVESTMENT You choose the investments into which the cash value dollars Not available on this policy. OPTIONS are placed. Your investment options consist primarily of a portfolio of mutual funds ranging from money market to stock funds. Please refer to the enclosed prospectus for details. CASH VALUES Cash values are not guaranteed. It depends on the investment Not available on this policy. performance of your underlying funds. MEDICAL EXAM Based on your age and the amount of life insurance you are Requires full medical underwriting. REQUIREMENT purchasing, you may be required to take a medical exam or provide other medical underwriting requirements. PORTABILITY Should you leave The Home Depot, you can continue this coverage Should you leave The Home Depot, provided you personally continue to pay any future premiums that you can continue this coverage may be required. provided you personally continue to pay any future premiums that may be required. COMPANY Nationwide Life Insurance Company Security-Connecticut Insurance Company MINIMUM Increases each year based on your age and builds minimal cash Not available on this policy. PREMIUM values. LEVEL Normally stays the same and builds cash values. The premium is level for the period PREMIUM of time chosen, 10 or 15 years, and then increases. TAX-FREE Cash values will accumulate on a tax-deferred basis. At your At your death, your beneficiaries DEATH BENEFIT death, your beneficiaries will receive an income tax-free death will receive an income tax-free benefit. death benefit. FLEXIBILITY You choose which premium you wish to pay towards the SLI policy It allows you to buy a greater -- Minimum Premium or Level Premium. amount of life insurance. TERMINATION The cash value, if any, is returned to you tax free. The policy will cease upon the OF POLICY expiration of the premium paid date.
IMPORTANT NOTE: If you elect the Variable Universal Life, you need to designate on your enrollment form which funds you would like to invest your money in and in what proportion. Your selections must total 100%. IF YOU DO NOT ELECT AN INVESTMENT OPTION, YOU WILL AUTOMATICALLY RECEIVE THE MONEY MARKET FUND. Information on each fund can be found in the prospectus on web site www.bestofamerica.com. If you would like a copy of the prospectus, please contact the Executive Benefits Representative. 8 THE HOME DEPOT Supplemental Executive Choice Program Term Life Insurance Annual Premium Rates Premium Rates Per $1,000,000 of Life Insurance Coverage NON-TOBACCO/NON-SMOKER RATES
ANNUAL PREMIUM ANNUAL PREMIUM AGE FOR 10 YR. LEVEL TERM FOR 15 YR LEVEL TERM --- --------------------- -------------------- 25-29 625 765 30-34 635 805 35-39 645 845 40-44 945 1,325 45-49 1,415 1,955 50-54 2,045 2,975 55-59 3,015 4,375 60-64 4,705 6,635 65-69 8,395 13,035
TOBACCO/SMOKER RATES
ANNUAL PREMIUM ANNUAL PREMIUM AGE FOR 10 YR. LEVEL TERM FOR 15 YR LEVEL TERM --- --------------------- -------------------- 25-29 1,855 2,605 30-34 1,915 2,735 35-39 1,995 2,775 40-44 2,705 3,845 45-49 4,345 6,205 50-54 6,955 10,215 55-59 10,065 14,985 60-64 16,115 20,965 65-69 27,835 31,415
Please note that the above figures are an estimate of annual premiums required for $1,000,000 of term life insurance coverage and is hypothetical in nature. The executive will need to be medically underwritten. Based on the underwriting results, the executive's premium could be higher or lower than those illustrated above. 9 THE HOME DEPOT Supplemental Executive Choice Program Variable Universal Life Insurance Annual Level Premium Premium Rates Per $100,000 of Life Insurance Coverage Tobacco/Smoker Rates
ANNUAL AGE RANGE PREMIUM - --------- ------- Under 35 $1,025 35-39 $1,300 40-44 $1,750 45-48 $2,300 49-52 $3,225 53-57 $4,625 58-62 $5,600 63-64 $6,400 65 $6,675
Assumptions Used: Pay annual premiums to age 65 or minimum of 10 years Assuming 8% Gross Rate of Return Option 1 Level Death Benefit Endowment for specified amount at maturity (age 100) Tobacco Usage 10 THE HOME DEPOT Supplemental Executive Choice Program Variable Universal Life Insurance Annual Level Premium Premium Rates Per $100,000 of Life Insurance Coverage Non-Tobacco/Non-Smoker Rates
ANNUAL AGE RANGE PREMIUM - --------- ------- Under 35 $725 35-39 $975 40-44 $1,325 45-48 $1,750 49-52 $2,500 53-57 $3,650 58-62 $4,575 63-64 $5,000 65 $5,250
Assumptions Used: Pay annual premiums to age 65 or minimum of 10 years Assuming 8% Gross Rate of Return Option 1 Level Death Benefit Endowment for specified amount at maturity (age 100) Non-Tobacco Usage 11 THE HOME DEPOT Supplemental Executive Choice Program Variable Universal Life Insurance Annual Minimum Premium Premium Rates Per $100,000 of Life Insurance Coverage NON-TOBACCO/NON-SMOKER RATES
AGE YEAR 1 YEAR 10 YEAR 15 YEAR 20 YEAR 25 YEAR 30 --- ------ ------- ------- ------- ------- ------- 26-30 395 432 454 477 502 527 31-35 431 471 495 521 547 575 36-40 552 604 635 667 701 737 41-45 674 805 889 982 1,084 1,197 46-50 893 1,165 1,351 1,566 1,815 2,104 51-55 1,202 1,711 2,081 2,532 3,081 3,749 56-60 1,844 2,625 3,193 3,885 4,727 5,751 61-65 2,557 3,639 4,428 5,387 6,554 7,974
TOBACCO/SMOKER RATES
AGE YEAR 1 YEAR 10 YEAR 15 YEAR 20 YEAR 25 YEAR 30 --- ------ ------- ------- ------- ------- ------- 26-30 475 520 546 574 603 634 31-35 557 666 735 811 896 989 36-40 774 925 1,021 1,128 1,245 1,375 41-45 1,054 1,260 1,391 1,535 1,695 1,872 46-50 1,426 1,861 2,157 2,501 2,899 3,360 51-55 1,916 2,500 2,898 3,360 3,895 4,515 56-60 2,758 3,599 4,172 4,836 5,606 6,499 61-65 4,095 5,343 6,194 7,181 8,324 9,650
Please note that the above figures are an estimate of annual premiums required to keep a minimally funded life insurance contract in force and is hypothetical in nature. Please refer to an illustration for more detailed information about the policy premium, cash value and death benefit. 12 MEDICAL/DENTAL REIMBURSEMENT ABOUT THE PLAN The Medical/Dental Reimbursement option allows you to set aside any portion of your annual allowance to reimburse yourself for most medical and dental expenses not covered under the standard medical and dental plans. Only expenses that are considered tax-deductible under the IRS rules for personal income tax purposes will be eligible for reimbursement under this account. HOW THE PLAN WORKS - - You decide how much of your annual allowance you wish to allocate toward the Medical/Dental Reimbursement account. - - Home Depot will set up a Medical/Dental Reimbursement account for you with CIGNA Healthcare - FSA Unit/Home Depot Executives. - - Any patient balances will be submitted to CIGNA Healthcare - FSA Unit for reimbursement from your Medical/Dental Reimbursement Account. TO RECEIVE PAYMENT To receive payment of any patient balances eligible for reimbursement under the Medical/Dental Reimbursement Account, please follow instructions listed below. - - Always submit the original charges for medical and dental services to your insurance company first. - - If you are enrolled in CIGNA PPO, CIGNA Traditional/Traditional Plus Dental, or United Healthcare PPO, any patient balances will be automatically submitted to CIGNA Healthcare FSA Unit for payment. - - If you are enrolled in Aetna PPO or Health Net POS, you will be required to submit copies of your Explanation of Benefits (EOB) to CIGNA Healthcare - FSA Unit. - - If you are enrolled in an HMO and/or the CIGNA Managed Dental Plan, you will be required to submit copies of any receipts to CIGNA Healthcare - FSA Unit. - - Submit copies of all prescription and vision care receipts directly to CIGNA Healthcare - FSA Unit for payment. - - Use the envelopes located in the pocket at the back of this binder to send EOBs and receipts to CIGNA Healthcare - FSA Unit. 14 APPROVED EXPENSES UNDER IRS REGULATIONS - - Prescribed drugs and insulin - - Doctors and clinics - - Dentists and orthodontists - - Glasses, contact lenses, eye examinations - - Contact lens insurance - - Hospitals, nurses, alcoholism treatment & ambulance - - Lab tests, therapy, x-ray, anesthesiology - - Prescribed medical equipment (with doctor's written orders) - - Corrective devices, thermometers, vaporizers - - Hearing aids, batteries & related equipment costs - - Artificial limbs & teeth - - Nursing or retirement home (medical care only) - - Schooling for disabled dependents To allocate any of your supplemental annual allowance to your Medical/Dental Reimbursement account, enter the amount on the EXECUTIVE BENEFITS ELECTION WORKSHEET. 15 FINANCIAL SERVICES ABOUT THE PLAN With all the many compensation and benefits programs available to you as an Executive of The Home Depot, we want to facilitate the opportunity for you to seek professional assistance in making financial decisions. The Home Depot is proud to offer you the option to allocate up to 50% of your annual allowance for Financial Services. HOW THE PLAN WORKS You can be reimbursed for expenses related to any of the following Financial Services up to 50% of your annual allowance: - - Investment Planning and Management - - Financial Position Assessment - - Income Tax Planning - - Tax Preparation - - Insurance Review - - Estate Planning You may choose any financial planner. If you do not currently have a financial planner, for your convenience, we are providing a limited list of companies that provide an integrated approach to financial planning and counseling services. REIMBURSEMENT To receive reimbursement, you must submit your invoice(s) no later than December 1st of each year. If you select AMG Guaranty Trust, The Home Depot will be billed directly for the amount shown in the Financial Planning and Counseling section of your worksheet. To use some of your supplemental benefits allowance for Financial Services, enter the amount you wish to allocate towards financial services reimbursement on the EXECUTIVE BENEFITS ELECTION WORKSHEET. This amount cannot exceed 50% of your annual allowance. 16 COMPANY PROFILES IMPORTANT NOTICE The following list of financial planners is provided to assist you in finding a professional to help you with your financial planning needs. The list is compiled solely from information obtained from other Home Depot Associates as to planners they have used and companies that have contacted us. The Home Depot does not endorse any of these financial planners and has not verified that they are appropriately licensed, certified or otherwise qualified or competent. The Home Depot specifically disclaims any liability or responsibility for any actions or omissions of any individuals or institutions listed. The decision to use a financial planner and the identity of any financial planner that you choose to work with are entirely within your discretion. You are encouraged to research, interview, and evaluate several financial planners to find the one that is right for you. See http://www.bbb.org/library/finplanner.asp and www.laicfp.org for information about selecting a financial planner. 17 COMPANY PROFILES AMG GUARANTY TRUST AMG Guaranty Trust, N.A., provides comprehensive financial counseling, investment advisory, trust and wealth management services to corporate executives, high-net-worth individuals, and institutions. We manage more than $1 billion of assets and advise on more than $4 billion. As of August 2001, AMG Guaranty Trust is a nationally chartered, non-depository trust bank. PLANNING PHILOSOPHY As a fee-only, independent firm, AMG Guaranty Trust provides objective advice. We do not sell insurance, recommend or manage our own mutual funds, underwrite securities, or receive commissions from the sale of financial products. We believe that it is important to look at a client's entire financial situation and that planning must be comprehensive in scope. We offer a wide range of services in order to provide our clients with an integrated financial strategy that addresses all of their planning needs. AMG Guaranty Trust focuses on developing customized solutions to help our clients achieve their financial goals, manage their wealth, and obtain peace of mind. INVESTMENT PHILOSOPHY AMG's investment philosophy is based on the key concepts of modern portfolio theory and asset class diversification. We identify the client's long-run financial goals and risk tolerance level and identify a strategic investment plan that includes a customized asset allocation by investment category (large cap growth, small cap value, etc). We recommend specific investments in mutual funds, separate accounts, and/or other suitable investments such as alternative investments for each asset class. EQUITY MARKET PHILOSOPHY We develop a diversified asset allocation by investment style that includes large and small cap growth, large and small cap value, international (developed countries and emerging countries) and depending on the client, we may also include REITs, energy and precious metals. We typically select mutual funds and in certain cases, separate account managers for each asset class. In certain situations, we recommend alternative investments such as venture capital, hedge funds, etc. depending on the client's goals, risk tolerance and net-worth position. We have the capability, if the client is interested, to put together an individual stock portfolio that is customized to his/her current holdings. However, our primary function is to serve as "asset allocators," not individual stock pickers. There are no additional fees or commission unless we have discretion over the portfolio (this means that we implement our investment recommendations and provide quarterly performance reporting). In that case, we charge a percentage based on the dollar amount of assets managed by AMG. 18 BOND MARKET PHILOSOPHY We believe that a well-diversified portfolio includes fixed-income investments and thus, we determine the percentage invested in fixed income based on the client's overall objectives and risk tolerance. Typically, we structure a laddered portfolio of various maturities and purchase the bonds rather than invest in mutual funds or separate accounts due to the economic advantage. We consider holdings in government corporate and tax-exempt investments with varying maturities depending on our view of the economy and interest rate policy. There are no additional fees or commissions unless we have discretion over the portfolio (this means that we implement our investment recommendations and provide quarterly performance reporting). In that case, we charge a percentage based on the dollar amount of assets managed by AMG. INDIVIDUALIZED SERVICES AND ASSOCIATED FEES TAX PLANNING. Included in AMG's financial counseling service for Home Depot executives: tax planning includes preparation of income tax projections and withholding analysis. AMG's financial counselors along with the firm's in-house CPAs make recommendations to help clients reduce their tax burden. TAX RETURN PREPARATION. Included in AMG's financial counseling service for Home Depot executives; federal, state, and local individual tax returns prepared by firm's in-house CPAs. ESTATE DESIGN COUNSELING. Included in AMG's financial counseling service for Home Depot executives; estate planning involves the review of existing estate plan arrangements, identifying alternative estate plan techniques and recommending adjustments. AMG counselors can work with outside estate attorneys to complete the drafting of estate documents since that is not done in-house. ESTATE DOCUMENT PREPARATION. AMG does not do this. FINANCIAL REPORTS. Included in AMG's financial counseling service for Home Depot executives; includes reports such as cash flow and net worth analysis, financial security analysis in the event of retirement, death, and disability, compensation and benefits analysis, stock option exercise strategy, investment plan, and overall strategic financial plan. BILL PAYING. $50/hour. PRODUCT SALES. AMG does not sell any type of products. FINANCIAL COUNSELING FEES HAVE BEEN NEGOTIATED DIRECTLY WITH THE HUMAN RESOURCES/BENEFITS DEPARTMENT AND VARY DEPENDING ON THE EXECUTIVE'S LEVEL IN THE ORGANIZATION. 19 CLIENT PROFILE AMG Guaranty Trust works with high-net-worth individuals throughout the US, many of whom are senior and mid-level executives with Fortune 100 companies. AMG works with corporate clients in a number of sectors and works with companies such as AT&T, AT&T Wireless, Ball Aerospace, Conoco, DuPont, Eastman Kodak, PPG, Qwest and VF Corporation. AMG also works with entrepreneurs, small business owners, foundations and endowments. EMPLOYEE PROFILE AMG counselors, portfolio managers, and technical specialists are highly educated and credentialed, and most hold degrees or designations such as CFP, CFA, CPA, MBA, JD, or PhD. At AMG, each financial counselor works with a team consisting of a financial analyst and an administrative assistant. Counselors are also supported by in-house professionals who specialize in economic research, investment analysis, corporate compensation and benefits, and tax research and preparation. FEE STRUCTURE (AS NEGOTIATED WITH HOME DEPOT IN DECEMBER 1998) EVPs and SVPs - first year $8,190 and $6,300 ongoing VPs - first year $6,825 and $5,250 ongoing This includes financial counseling and tax return preparation. Other services like discretionary investment management are additional. HISTORY AMG was founded in 1972 by Earl Wright and Michael Bergmann as a wealth management firm to provide a broad range of financial advisory services to high-net-worth individuals and institutions. To expand its services and better serve its clients, AMG consolidated with the trust division of Guaranty Bank and Trust in August 2001 to form AMG Guaranty Trust, a nationally chartered, non-depository trust bank. AMG Guaranty Trust has more than 100 employees located in Denver, Chicago, New Jersey, and Philadelphia, serving more than 1,500 clients nationwide FIRM CHARACTERISTICS AMG Guaranty Trust distinguishes itself in the corporate planning marketplace in a few ways. One, the firm does not sell insurance or any type of financial product because of its commitment to deliver objective, unbiased advice to our clients. Two, the cornerstone of AMG's business is financial counseling in the corporate marketplace, and the firm has more than thirty years of experience in providing comprehensive services to executives to meet all of their planning needs. Servicing our clients is extremely important to AMG, and the firm carefully manages the number of clients each counselor has in order to provide the highest quality of personal service. LOCATION AND CONTACT INFORMATION Headquarters are in Denver with offices in Chicago, New Jersey and Philadelphia. AMG financial counselors meet with clients at the location of their choosing. Nancy Hallowell Director, Marketing Communications nmhallowell@amg-trust.com Telephone: 303-486-1440 800-999-2190 20 THE AYCO COMPANY, L.P. The Ayco Company, L.P., is the nation's premier financial counseling organization, having originated objective, fee-based financial counseling more than 30 years ago. Our firm has grown because of our dedication to our clients and their families and our desire to provide the highest quality and most comprehensive financial counseling advice. Ayco is organized into four business groups: Ayco Financial Counseling, Financial Related Services (FRS), Management Benefit Services (MBS), and Ayco Investment Services. Ayco is unique in that our size and commitment to excellence allows us to provide Account Managers and clients with technical support that is unparalleled in the areas of Benefits and Compensation, Substantive Policy, Investment Planning, Tax and Insurance. Each of these technical groups provides extensive, on-going training, research and a variety of written communications designed to educate Ayco's Account Managers and keep them current on all technical issues. PLANNING PHILOSOPHY The delivery of Ayco Financial Counseling is predicated upon a five-point philosophy: - - OBJECTIVITY - We are fee-based and are focused entirely on what is best for each client. - - CONFIDENTIALITY - Under no circumstances will we divulge any information to any source, for any reason whatsoever, without the express authority of our client. We treat client material and information with the highest possible degree of confidentiality. - - COMPREHENSIVENESS - Our systems approach to comprehensive financial counseling integrates our clients' benefits and compensation plans with their estate planning, income tax, risk protection, retirement and investment planning needs. - - CONTINUITY - Our business is built and sustained on relationships. Our clients' financial affairs are very personal to them and their families. We become their trusted advisors and develop long-term relationships. Our low turnover rate in our Account Manager ranks - less than 1% per year - is evidence of our loyalty and commitment to our clients. - - PROACTIVE IMPLEMENTATION - We get things done for our clients, thereby achieving an effective and integrated financial plan. INVESTMENT PHILOSOPHY The underpinnings of Ayco's investment planning are strategic asset allocation, coupled with modern portfolio theory, to match each client's personal investment goals and risk tolerance with an asset allocation. The ultimate objective is to design and implement an investment plan that accounts for a client's investment philosophy and achieves his or her short- term and long-term financial goals. 21 EQUITY MARKET PHILOSOPHY Ayco does not subscribe to tactical asset allocation (short-term portfolio changes based on market forecasts and/or economic assumptions) or market timing. Clients should remain fully invested at all times. Ayco's bias is toward large cap growth, large cap value, and fixed income investments. BOND MARKET PHILOSOPHY Ayco recommends high quality (AA or AAA) laddered bond portfolios with maturities between two and ten years. INDIVIDUALIZED SERVICES AND ASSOCIATED FEES Ayco's Comprehensive Counseling service is all encompassing. All issues affecting the financial well-being of our clients are within the parameters of this program. We provide thorough, comprehensive analyses, integration and implementation in the following financial planning areas: Tax Planning, Tax Return Preparation, Estate Design Counseling, Estate Document Preparation, Financial Reports, Bill Paying, Product Sales and Executive Compensation and Benefits Planning. Our counseling services also focus on investment planning, risk management, retirement planning, education funding and financial counseling for dependents. CLIENT PROFILE The type of client organizations Ayco serves are primarily publicly traded, medium-to-large sized FORTUNE 100 blue chip and technology firms. Our client organizations range from long-standing corporate icons to the new start-up companies and e-businesses. Our clients also include small companies, privately held entities and individual business people, entrepreneurs and other high net worth individuals. Ayco offers a portfolio of services designed to meet the needs of corporate employees at all levels of an organization. Ayco's Comprehensive Counseling Service is designed for senior executives earning greater than $250,000 annually. EMPLOYEE PROFILE EXPERIENCE - Ayco Account Managers all have advanced degrees (JD, MBA, or CPA). Further, Ayco Account Managers have successfully completed the NASD Series 7, Series 63 and/or 65 licensing and have their individual state sanctioned insurance license. Ayco Account Managers participate in all ongoing formal training provided by our company and are certified by our Quality Control Office as meeting "Ayco Standard" in the delivery of financial planning services. In addition, they are seasoned professionals who have had several years of experience with Ayco. ADVISOR RETENTION - The annual turnover rate for Ayco associates is extremely low compared with the industry standard of 35%. The turnover rate for our Account Managers is less than 1%, which provides strong evidence of their loyalty, as well as Ayco's commitment to continuity for Home Depot's executives. Our upper management, including our Account Managers, are strongly motivated by the fact that they are partners in the firm or are on a partnership track. 22 FEE STRUCTURE The first year fee for Ayco Financial Counseling is $15,000 and the Continuing Service fee is $10,000. We reserve the right, subject to company approval, to adjust the counseling fees for individuals with unusually complex financial situations. HISTORY OF AYCO This year, Ayco celebrates its 30th anniversary of delivering objective, fee- based comprehensive financial counseling and education services to corporate executives and employees. Prior to our incorporation as a privately held firm in 1971, our founders identified an opportunity to be personal chief financial officers and oversee the financial affairs for extremely busy corporate executives charged with achieving corporate goals and increasing shareholder value. When the day was done, these executives had little time, interest and/or desire to understand and navigate the complex and sophisticated company benefits and comprehensive plans and integrate those with their estate planning, income tax and wealth accumulation needs. Ayco remained privately held until 1983 when it was acquired by one of our corporate clients, The American Express Company. The infusion of capital and name recognition allowed us to grow our business. In December 1994, Ayco underwent a management buyout resulting in our current entity: The Ayco Company, L.P. Ayco has a history rich in the development of creative ideas that are now mainstays in the industry. We do not advertise - we grow our business with client referrals. Our business has grown because of our dedication to our clients and their families and our desire to provide the highest quality and most comprehensive financial advice. FIRM CHARACTERISTICS Ayco has the largest market share and greatest national presence of all fee-based counseling firms. Ayco serves 9,100 executives at over 325 major corporations. - - While many accounting firms, banks, brokers or insurance companies offer "financial planning," it is not their core business. At Ayco, objective, corporate-sponsored financial counseling is our business. - - Ayco Financial Counseling allows executives to focus on running the business and achieving corporate goals with the knowledge and comfort that a professional is overseeing and managing their financial affairs. - - Ayco's Account Managers are the best trained in the world, with credentials that surpass the industry-standard Certified Financial Planner (CFP) designation. - - Ayco Account Managers' compensation is tied directly to extraordinarily high levels of client satisfaction and retention. We place a strong emphasis on quality control to ensure continued commitment to expert advice. Our quality control staff conducts random audits of client files to ensure completeness, accuracy and creativity of ideas as well as adherence to company policies and legal positions. 23 - - In addition to the formal education and training required, Ayco conducts continuous comprehensive internal training to ensure that our Account Managers are always aware of all legislative and regulatory changes that will affect their clients' financial well-being. - - Ayco Financial Counseling is comprehensive. Executives are not put in a position of having to choose among services, thereby exposing them to the danger of making incorrect choices about the assistance they require because they are not aware of the high degree of interrelation among various financial decisions. - - Ayco Financial Counseling is the most objective, comprehensive, and proactive in advice and implementation of any service offered to corporate executives. LOCATION AND CONTACT INFORMATION Ayco is headquartered in Albany, New York, and has nine offices strategically located across the country for the convenience of our clients. Ayco's counseling offices are in the following locations: Atlanta, Georgia; Ballston Spa, New York; Clifton Park, New York; Chicago, Illinois; Dallas, Texas; Parsippany, New Jersey; Los Angeles, California; Pittsburgh, Pennsylvania; and Troy, Michigan. Mr. Eric Chew, Senior Account Manager The Ayco Company, L. P. Executive Woods, Suite 120 855 Route 146 P. O. Box 8009 Clifton Park, NY 12065-8009 Phone: 518-373-2500 Fax: 518-373-0395 E-mail: echew@ayco.com 24 SIGMA FINANCIAL, INC. Provides corporate officers with comprehensive, highly individualized financial counseling, including investment, estate and tax planning and education funding. PLANNING PHILOSOPHY - - Highly analytical - - Utilizes compensation and insurance benefits provided through the employer as the primary source of wealth creation and protection - - Emphasizes long-term equity and bond holdings - - Minimizes transaction and holding costs - - Minimizes taxable gain recognition INVESTMENT PHILOSOPHY Concentration on the management of company plan resources, particularly stock option diversification strategies. EQUITY MARKET PHILOSOPHY BIAS. Emphasizes long-term continuity of investment holdings. ADDITIONAL FEES OR COMMISSIONS. None. BOND MARKET PHILOSOPHY BIAS. To provide a liquid counterbalance to company stock concentration. ADDITIONAL FEES OR COMMISSIONS. None. INDIVIDUALIZED SERVICES AND ASSOCIATED FEES TAX PLANNING. Tax and withholding planning available; no additional fee. TAX RETURN PREPARATION. No. ESTATE DESIGN COUNSELING. Complete estate counseling available; no additional fee. ESTATE DOCUMENT PREPARATION. No. FINANCIAL REPORTS. Comprehensive financial asset summary provided quarterly; no additional fee. BILL PAYING. No. PRODUCT SALES. No CLIENT PROFILE Sigma Financial has approximately 140 active and retired corporate officers from various Fortune 500 companies, including General Electric, AOL Time Warner, IPG, TRW, and The HomeDepot. EMPLOYEE PROFILE EXPERIENCE. Education and employment backgrounds in accounting, finance, computer science, law, and economics. ADVISOR RETENTION. Client's direct advisor very seldom changed. 25 FEE STRUCTURE FIXED OR INITIAL FEE. Initial Fee (currently $13,500), billed only when client is satisfied with financial plan; initial fee includes one year of ongoing financial management/analysis. MAINTENANCE FEE. Annual maintenance fee equal to 60% of that year's initial fee. ANCILLARY FEES. No commissions, management or miscellaneous fees. HISTORY Sigma Financial was founded in 1981. FIRM CHARACTERISTICS - - Closely held firm - - Corporate officer specialty firm - - Smaller client base provides for more comprehensive and personalized counseling services - - Provides all necessary assistance to accomplish recommendations - - No revenue-sharing agreements with brokerage or insurance companies - - High advisor continuity - - High client retention, clients are located in 25 states or foreign countries LOCATION AND CONTACT INFORMATION Allentown, Pennsylvania Lisa Gotto, Client Service Director 610-481-9870 fax: 610-481-9873, e-mail:sigma.financial@verizon.net. 26 PERSONAL EXCESS LIABILITY INSURANCE ABOUT THE PLAN As an added protection for you, The Home Depot provides you coverage under a Group Personal Excess Liability insurance policy. This policy will cover liability claims made against you for bodily injury, property damage, and personal injury liability after your primary liability contract limits are exhausted. HOW THE PLAN WORKS You are automatically enrolled for $5 million in coverage. The annual premium for this coverage is automatically deducted from your annual allowance. You will have the option to increase the coverage amount to either $10 million or $15 million in coverage. ANNUAL PREMIUM $5 Million $550 $10 Million $1,100 $15 Million $1,650 If for any reason you no longer qualify as an eligible participant, your coverage will cease January 31st following the date of your termination of employment or when you no longer have officer status. At that time you will be given the option to apply for an individual policy. 27 CAR PROGRAM ABOUT THE PLAN As an Executive, you spend a considerable amount of time traveling between Home Depot locations. The Car Program is designed to make this process more convenient. The Home Depot now offers you the opportunity to use some of your annual allowance towards car-related expenses. You can use up to 50% of your annual allowance for maintenance, gas, repairs, and other upkeep on your personal car. This car allowance will be automatically paid to you quarterly and will reimburse you for the wear and tear your work travel puts on your personal vehicle. TO RECEIVE PAYMENT - - You may elect any amount up to 50% of your annual allowance toward the car allowance. - - This amount will be divided into four equal payments. These payments will be paid on March 31, June 30, September 30, and December 31 each year. - - To receive this benefit, you must have officer status on the date payment is made. 28 SERVICEMASTER -- FUTURE ENHANCEMENT ABOUT THE PLAN Your Total Value Package contains many traditional compensation and benefits programs, but the value we provide doesn't reside solely in the realm of the traditional. Home Depot will team up with the ServiceMaster Company to test the sale of the types of services listed below. - - Professional lawn, tree and shrub care - - Landscape installation and maintenance - - Termite and pest control - - Plumbing and drain cleaning - - Carpet and upholstery cleaning - - Home warranties You may use your annual allowance to purchase any of the above services. Special rates will be available in the near future -- more information about this benefit will be sent within the next four weeks. 29 EX-10.25 4 g75478ex10-25.txt DEFERRED STOCK UNITS PLAN AND AGREEMENT THE HOME DEPOT, INC. DEFERRED STOCK UNITS PLAN AND AGREEMENT THIS DEFERRED STOCK UNITS PLAN AND AGREEMENT evidences that, subject to the following terms and conditions, on May 31, 2001 (the "Grant Date"), The Home Depot, Inc., a Delaware Corporation, (the "Company") granted to Dennis M. Donovan (the "Executive") an award of deferred stock units corresponding to three hundred twenty-eight thousand eight hundred twenty-one (328,821) shares of Common Stock, $.05 par value ("Common Stock"), of the Company (each a "Deferred Stock Unit"): 1. DEFINITIONS. Unless otherwise noted, all terms have the same meaning as set forth in the Employment Agreement between Dennis M. Donovan and The Home Depot, Inc., dated March 16, 2001 (the "Employment Agreement"). 2. DEFERRED STOCK UNITS (a) VESTING SCHEDULE; ISSUANCE OF SHARES; DEFERRAL. The award shall vest in equal one-third (1/3) tranches of one hundred nine thousand six hundred seven (109,607) units on each of the first, third and fifth anniversaries of the Employment Date, provided that each tranche shall vest only if the Executive is employed by the Company on that tranche's vesting date, except as otherwise provided in the Employment Agreement. On the April 3 following the fifth anniversary of the Employment Date one (1) share of Common Stock for each deferrable restricted stock unit shall be distributed to the Executive, unless such distribution is further deferred by the Executive by December 31, 2005 or accelerated pursuant to the Employment Agreement. Unless otherwise agreed to by the Executive and the Company, the Company shall, within ten (10) days after termination of the Executive's employment for any reason, deliver to the Executive stock certificates representing one (1) share of Common Stock for each vested deferred restricted stock unit for which shares have not yet been distributed to the Executive. This award shall be subject to equitable adjustment for stock splits, stock dividends, and other similar changes in the Company's capitalization after the Effective Date. (b) TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL. If (i) the Company shall terminate Executive's employment other than for Cause, (ii) the Executive shall terminate his employment for Good Reason (or for any reason within the twelve-month period following a Change in Control), or (iii) the Executive's employment terminates due to death or he is terminated by the Company due to Disability, or (iv) a Change in Control occurs while Executive is employed by the Company, all Deferred Stock Units that have not yet vested shall immediately 100% vest. (c) DIVIDEND EQUIVALENTS. The Executive shall receive a dividend equivalent cash payment on all vested deferred restricted stock units when dividends are paid to shareholders of the Company. 3. ADMINISTRATION. This Plan and Agreement shall be administered by the Committee, in a manner consistent with the terms and conditions of the Employment Agreement. 4. TRANSFERABILITY. Executive may transfer the Deferred Stock Units, in whole or in part, as he desires, including without limitation, to a "Family Member," a trust for the exclusive benefit of Executive and/or Family Members, a partnership or other entity in which all the beneficial owners are Executive and/or Family Members, or any other entity affiliated with Executive, provided that Executive receives the prior written consent of the Company. Subsequent transfers of the Deferred Stock Units shall be prohibited except in accordance with this Paragraph 4. All terms and conditions of the Deferred Stock Units, including without limitation provisions relating to the termination of Executive's employment with the Company, shall continue to apply following a transfer made in accordance with this Paragraph 4. 5. ADJUSTMENTS. The number of shares covered by the Deferred Stock Units and, if applicable, the kind of shares covered by the Deferred Stock Units shall be adjusted to reflect any stock dividend, stock split, or combination of shares of the Company's Common Stock. In addition, the Committee may make or provide for such adjustment in the number of shares covered by the Deferred Stock Units, and the kind of shares covered by the Deferred Stock Units, as the Committee determines to be equitably required in order to prevent dilution of Executive's rights that otherwise would result from a transaction event, including without limitation (a) any exchange of shares of the Company's Common Stock, recapitalization or other change in the capital structure of the Company, (b) 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 (c) any other corporate transaction or event having an effect similar to any of the foregoing. 6. TAXES. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any benefit realized by Executive or any other person under this Plan and Agreement, in accordance with Section 13 of the Employment Agreement, it shall be a condition to the realization of such benefit that the Executive or such other person make arrangements satisfactory to the Company for payment of all such taxes required to be withheld, which arrangements may include Executive's delivery to the Company of a check equal to the amount of such taxes. Upon the payment of any dividend equivalents payable pursuant to Paragraph 2(c) above, Executive agrees that the Company shall deduct therefrom such amounts as are necessary to satisfy applicable withholding requirements. 7. NO IMPACT ON OTHER BENEFITS AND EMPLOYMENT. The terms of Executive's employment shall be at all times governed by the Employment Agreement and this Plan and Agreement shall not diminish any right conferred therein nor interfere with the rights set forth therein. Nothing herein contained shall affect Executive's right to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance or other employment plan or program of the Company or any of its subsidiaries nor constitute an obligation for continued employment. 8. ARBITRATION GOVERNING LAW. Any disputes or controversies arising out of this Plan and Agreement shall be resolved by Arbitration, in accordance with Section 14 of the Employment Agreement. This Plan and Agreement shall be governed by and will be determined in accordance with the laws of the State of Georgia in accordance with Section 19.1 of the Employment Agreement. 9. AMENDMENT. This Plan and Agreement may be amended only in writing signed by the Company and Executive. Please indicate your understanding and acceptance of the foregoing by signing and returning a copy of this Plan and Agreement. 2 THE HOME DEPOT, INC. /s/ Robert L. Nardelli --------------------------- By: Robert L. Nardelli Chairman of the Board I hereby acknowledge receipt of the Deferred Stock Units granted on May 31, 2001, which have been granted to me under the foregoing terms and conditions. EXECUTIVE /s/ Dennis M. Donovan --------------------------- Dennis M. Donovan Date: 4/18/02 -------------------- 3 EX-10.26 5 g75478ex10-26.txt PROMISSORY NOTE, DATED JUNE 7, 2001 EXHIBIT 10.26 PROMISSORY NOTE $3,000,000.00 June 7, 2001 FOR VALUE RECEIVED, Dennis M. Donovan (the "Borrower"), promises to pay to The Home Depot, Inc., a Delaware corporation ("Lender"), or its assignee, the principal sum of Three Million Dollars ($3,000,000.00) with interest from the date hereof at a rate of five and eight tenths percent (5.8%) per annum, compounded annually, on the unpaid balance of such principal sum. Such principal and interest shall be due and payable and/or forgiven (as the case may be) in accordance with subsection 5.4.5 of that certain Employment Agreement effective as of March 16, 2001, by and between the Borrower and the Lender (the "Employment Agreement"). If the Borrower's employment with the Company is terminated prior to payment in full of this Note, either by the Company for Cause (as defined in the Employment Agreement) or by the Executive without Good Reason (as defined in the Employment Agreement) this note shall be immediately due and payable in accordance with subsection 5.4.5 of the Employment Agreement. All payments by the Borrower under this Note shall be in immediately available funds. This Note may be prepaid in whole or in part at any time or from time to time. Any such prepayment shall be without premium or penalty. If any amount due under this Note becomes due and payable on a Saturday, Sunday, or public or other banking holiday under the laws of the State of Georgia, the due date thereof shall be extended to the next succeeding business day. Upon the failure to pay principal under this Note when due, which shall remain unremedied for twenty (20) days following the date when principal was due hereunder; then, the Lender may declare, by written notice of default given to the Borrower, the entire principal amount of this Note to be due and payable, whereupon if such default remains unremedied for five (5) days after borrower's receipt of such notice, the entire principal amount of this Note outstanding shall become due and payable without presentment, demand, protest, notice of dishonor and all other demands and notices of any kind. Should suit be commenced to collect any sums due under this Note, such sum as the Court may deem reasonable shall be added hereto as attorneys' fees. No delay or failure by the Lender in the exercise of any right or remedy shall constitute a waiver thereof, and no single or partial exercise by the Lender of any right or remedy shall preclude other or future exercise thereof or the exercise of any other right or remedy. None of the terms or provisions of this Note may be excluded, modified or amended except by a written instrument duly executed on behalf of the holder expressly referring to this Note and setting forth the provision so excluded, modified, or amended. As used herein, the Borrower includes the successors, assigns and distributees of the undersigned. As used herein, the Lender includes the successors, assigns and distributees of the Lender, as well as a holder in due course of this Note. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). /s/ Dennis M. Donovan ---------------------------------------------------- Dennis M. Donovan EX-10.27 6 g75478ex10-27.txt PROMISSORY NOTE, DATED JUNE 18, 2001 EXHIBIT 10.27 PROMISSORY NOTE $500,000.00 June 18, 2001 FOR VALUE RECEIVED, Frank L. Fernandez (the "Borrower"), promises to pay to The Home Depot, Inc., a Delaware corporation ("Lender"), or its assignee, the principal sum of Five Hundred Thousand Dollars ($500,000.00) with interest from the date hereof at a rate of five and eight tenths percent (5.8%) per annum, compounded annually, on the unpaid balance of such principal sum. The obligation to pay such interest shall be forgiven twenty five percent (25%) on each of the first four anniversaries of the date hereof. All income taxable to the Borrower as a result of any imputed or forgiven interest will be fully grossed-up by the Lender for any applicable taxes. The principal of this Note shall be repaid by the Borrower upon the earlier of (i) the fourth anniversary of the date hereof or (ii) ninety (90) days following the termination of the Borrower's employment by the Lender for Cause (as defined in that certain Employment Agreement effective as of April 2, 2001 by and between the Borrower and the Lender (the "Employment Agreement")) or by the Executive without Good Reason (as defined in the Employment Agreement). All payments by the Borrower under this Note shall be in immediately available funds. This Note may be prepaid in whole or in part at any time or from time to time. Any such prepayment shall be without premium or penalty. If any amount due under this Note becomes due and payable on a Saturday, Sunday, or public or other banking holiday under the laws of the State of Georgia, the due date thereof shall be extended to the next succeeding business day. Upon the failure to pay principal under this Note when due, which shall remain unremedied for twenty days following the date when principal was due hereunder; then, the Lender may declare, by written notice of default given to the Borrower, the entire principal amount of this Note to be due and payable, whereupon if such default remains unremedied for five days after borrower's receipt of such notice, the entire principal amount of this Note outstanding shall become due and payable without presentment, demand, protest, notice of dishonor and all other demands and notices of any kind. Should suit be commenced to collect any sums due under this Note, such sum as the Court may deem reasonable shall be added hereto as attorneys' fees. No delay or failure by the Lender in the exercise of any right or remedy shall constitute a waiver thereof, and no single or partial exercise by the Lender of any right or remedy shall preclude other or future exercise thereof or the exercise of any other right or remedy. None of the terms or provisions of this Note may be excluded, modified or amended except by a written instrument duly executed on behalf of the holder expressly referring to this Note and setting forth the provision so excluded, modified, or amended. As used herein, the Borrower includes the successors, assigns and distributees of the undersigned. As used herein, the Lender includes the successors, assigns and distributees of the Lender, as well as a holder in due course of this Note. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). /s/ Frank L. Fernandez ---------------------------------------------------- Frank L. Fernandez EX-13 7 g75478ex13.txt THE REGISTRANT'S ANNUAL REPORT CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal Year Ended ------------------------------------------------------- amounts in millions,except per share data FEBRUARY 3, 2002 January 28, 2001 January 30, 2000 - --------------------------------------------------------------------------------------------------------------------------------- NET SALES $ 53,553 $ 45,738 $ 38,434 Cost of Merchandise Sold 37,406 32,057 27,023 - --------------------------------------------------------------------------------------------------------------------------------- Gross Profit 16,147 13,681 11,411 Operating Expenses: Selling and Store Operating 10,163 8,513 6,819 Pre-Opening 117 142 113 General and Administrative 935 835 671 - --------------------------------------------------------------------------------------------------------------------------------- Total Operating Expenses 11,215 9,490 7,603 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 4,932 4,191 3,808 Interest Income (Expense): Interest and Investment Income 53 47 37 Interest Expense (28) (21) (41) - --------------------------------------------------------------------------------------------------------------------------------- Interest,net 25 26 (4) - --------------------------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 4,957 4,217 3,804 Income Taxes 1,913 1,636 1,484 - --------------------------------------------------------------------------------------------------------------------------------- NET EARNINGS $ 3,044 $ 2,581 $ 2,320 =================================================== BASIC EARNINGS PER SHARE $ 1.30 $ 1.11 $ 1.03 Weighted Average Number of Common Shares Outstanding 2,335 2,315 2,244 =================================================== DILUTED EARNINGS PER SHARE $ 1.29 $ 1.10 $ 1.00 Weighted Average Number of Common Shares Outstanding Assuming Dilution 2,353 2,352 2,342 ===================================================
See accompanying notes to consolidated financial statements. 24 The Home Depot,Inc.and Subsidiaries CONSOLIDATED BALANCE SHEETS
amounts in millions, except share data FEBRUARY 3, 2002 January 28,2001 - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and Cash Equivalents $ 2,477 $ 167 Short-Term Investments,including current maturities of long-term investments 69 10 Receivables, net 920 835 Merchandise Inventories 6,725 6,556 Other Current Assets 170 209 - ---------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 10,361 7,777 - ---------------------------------------------------------------------------------------------------------------------------------- Property and Equipment, at cost: Land 4,972 4,230 Buildings 7,698 6,167 Furniture, Fixtures and Equipment 3,403 2,877 Leasehold Improvements 750 665 Construction in Progress 1,049 1,032 Capital Leases 257 261 - ---------------------------------------------------------------------------------------------------------------------------------- 18,129 15,232 Less Accumulated Depreciation and Amortization 2,754 2,164 - ---------------------------------------------------------------------------------------------------------------------------------- Net Property and Equipment 15,375 13,068 - ---------------------------------------------------------------------------------------------------------------------------------- Notes Receivable 83 77 Cost in Excess of the Fair Value of Net Assets Acquired,net of accumulated amortization of $49 at February 3, 2002 and $41 at January 28, 2001 419 314 Other 156 149 - ---------------------------------------------------------------------------------------------------------------------------------- $ 26,394 $ 21,385 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 3,436 $ 1,976 Accrued Salaries and Related Expenses 717 627 Sales Taxes Payable 348 298 Other Accrued Expenses 933 752 Deferred Revenue 851 650 Income Taxes Payable 211 78 Current Installments of Long-Term Debt 5 4 - ---------------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 6,501 4,385 - ---------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt, excluding current installments 1,250 1,545 Other Long-Term Liabilities 372 249 Deferred Income Taxes 189 195 Minority Interest -- 7 STOCKHOLDERS' EQUITY Common Stock, par value $0.05. Authorized:10,000,000,000 shares; issued and outstanding - 2,345,888,000 shares at February 3, 2002 and 2,323,747,000 shares at January 28, 2001 117 116 Paid-In Capital 5,412 4,810 Retained Earnings 12,799 10,151 Accumulated Other Comprehensive Loss (220) (67) - ---------------------------------------------------------------------------------------------------------------------------------- 18,108 15,010 Less Unearned Compensation 26 6 - ---------------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 18,082 15,004 - ---------------------------------------------------------------------------------------------------------------------------------- $ 26,394 $ 21,385 ============================
See accompanying notes to consolidated financial statements. The Home Depot,Inc. and Subsidiaries 25 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Accu- mulated Other Compre- Total Common Stock hensive Stock- Compre- amounts in millions, ---------------- Paid-In Retained Income holders' hensive except per share data Shares Amount Capital Earnings (Loss) Other Equity Income(1) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 31, 1999 2,213 $111 $2,817 $ 5,876 $ (61) $ (3) $ 8,740 =============================================================================== Shares Issued Under Employee Stock Purchase and Option Plans 19 1 273 -- -- -- 274 Tax Effect of Sale of Option Shares by Employees -- -- 132 -- -- -- 132 Conversion of 3 1/4% Convertible Subordinated Notes, net 72 3 1,097 -- -- -- 1,100 Net Earnings -- -- -- 2,320 -- -- 2,320 $ 2,320 Translation Adjustments -- -- -- -- 34 -- 34 34 Unearned Compensation -- -- -- -- -- (4) (4) Cash Dividends ($0.11 per share) -- -- -- (255) -- -- (255) ------- Comprehensive Income for Fiscal 1999 $ 2,354 - ------------------------------------------------------------------------------------------------------------------ ======= BALANCE, JANUARY 30, 2000 2,304 $115 $4,319 $ 7,941 $ (27) $ (7) $ 12,341 =============================================================================== Shares Issued Under Employee Stock Purchase and Option Plans 20 1 348 -- -- -- 349 Tax Effect of Sale of Option Shares by Employees -- -- 137 -- -- -- 137 Net Earnings -- -- -- 2,581 -- -- 2,581 $ 2,581 Translation Adjustments -- -- -- -- (40) -- (40) (40) Stock Compensation Expense -- -- 6 -- -- -- 6 Unearned Compensation -- -- -- -- -- 1 1 Cash Dividends ($0.16 per share) -- -- -- (371) -- -- (371) ------- Comprehensive Income for Fiscal 2000 $ 2,541 - ------------------------------------------------------------------------------------------------------------------ ======= BALANCE, JANUARY 28, 2001 2,324 $116 $4,810 $ 10,151 $ (67) $ (6) $ 15,004 =============================================================================== Shares Issued Under Employee Stock Purchase and Option Plans 22 1 448 -- -- -- 449 Tax Effect of Sale of Option Shares by Employees -- -- 138 -- -- -- 138 Net Earnings -- -- -- 3,044 -- -- 3,044 $ 3,044 Translation Adjustments -- -- -- -- (124) -- (124) (124) Unrealized Loss on Derivatives -- -- -- -- (29) -- (29) (18) Stock Compensation Expense -- -- 16 -- -- -- 16 Unearned Compensation -- -- -- -- -- (20) (20) Cash Dividends ($0.17 per share) -- -- -- (396) -- -- (396) ------- Comprehensive Income for Fiscal 2001 $ 2,902 - ------------------------------------------------------------------------------------------------------------------ ======= BALANCE, FEBRUARY 3, 2002 2,346 $117 $5,412 $ 12,799 $(220) $(26) $ 18,082 ===============================================================================
(1) Components of comprehensive income are reported net of related taxes. See accompanying notes to consolidated financial statements. 26 The Home Depot,Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended ---------------------------------------------------- amounts in millions FEBRUARY 3, 2002 January 28,2001 January 30,2000 - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS: Net Earnings $ 3,044 $ 2,581 $ 2,320 Reconciliation of Net Earnings to Net Cash Provided by Operations: Depreciation and Amortization 764 601 463 Increase in Receivables, net (119) (246) (85) Increase in Merchandise Inventories (166) (1,075) (1,142) Increase in Accounts Payable and Accrued Liabilities 2,078 754 820 Increase in Income Taxes Payable 272 151 93 Other 90 30 (23) - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operations 5,963 2,796 2,446 - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures, net of $5, $16 and $37 of non-cash capital expenditures in fiscal 2001, 2000 and 1999, respectively (3,393) (3,558) (2,581) Payments for Businesses Acquired, net (190) (26) (101) Proceeds from Sale of Business, net 64 -- -- Proceeds from Sales of Property and Equipment 126 95 87 Purchases of Investments (85) (39) (32) Proceeds from Maturities of Investments 25 30 30 Other (13) (32) (25) - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (3,466) (3,530) (2,622) - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: (Repayments) Issuance of Commercial Paper Obligations, net (754) 754 (246) Proceeds from Long-Term Debt 532 32 522 Repayments of Long-Term Debt -- (29) (14) Proceeds from Sale of Common Stock, net 445 351 267 Cash Dividends Paid to Stockholders (396) (371) (255) Minority Interest Contributions to Partnership -- -- 7 - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash (Used In) Provided by Financing Activities (173) 737 281 - ---------------------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (14) (4) 1 - ---------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 2,310 (1) 106 Cash and Cash Equivalents at Beginning of Year 167 168 62 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 2,477 $ 167 $ 168 ============================================= SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS MADE FOR: Interest, net of interest capitalized $ 18 $ 16 $ 26 Income Taxes $ 1,685 $ 1,386 $ 1,396 =============================================
See accompanying notes to consolidated financial statements. The Home Depot, Inc. and Subsidiaries 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Home Depot, Inc. and subsidiaries (the "Company") operates Home Depot stores, which are full-service, warehouse-style stores averaging approximately 109,000 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, and Villager's Hardware stores, which offer products and services for home enhancement and smaller project needs in a convenience hardware store format. Additionally, the Company operates one Home Depot Floor Store, a test store that offers only flooring products and installation services. At the end of fiscal 2001, the Company was operating 1,333 stores, including 1,201 Home Depot stores, 41 EXPO Design Center stores, 4 Villager's Hardware stores and 1 Home Depot Floor Store in the United States; 78 Home Depot stores in Canada; 4 Home Depot stores in Argentina, which were sold on February 18, 2002; and 4 Home Depot stores in Mexico. Included in the Company's Consolidated Balance Sheet at February 3, 2002, were $946 million of net assets of the Canada, Argentina and Mexico operations. Also included in consolidated results are several wholly- owned subsidiaries. The Company offers facilities maintenance and repair products, as well as wallpaper and custom window treatments via direct shipment through subsidiaries Maintenance Warehouse and National Blinds and Wallpaper, Inc. Georgia Lighting is a specialty lighting designer, distributor and retailer to both commercial and retail customers. The Company offers plumbing, HVAC and other professional plumbing products through wholesale plumbing distributors Apex Supply Company and Your "other" Warehouse. FISCAL YEAR The Company's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal year 2001, which ended February 3, 2002, consisted of 53 weeks. Fiscal years 2000 and 1999, which ended January 28, 2001 and January 30, 2000, respectively, consisted of 52 weeks. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and its majority-owned partnership, The Home Depot Chile S.A. In October 2001, the Company sold its interest in The Home Depot Chile S.A. 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 December 30, 1999. 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 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. MERCHANDISE INVENTORIES The majority of the Company's inventory is stated at the lower of cost (first-in, first-out) or market, as determined by the retail inventory method. Certain subsidiaries and distribution centers value inventories at the lower of cost (first-in, first-out) or market, as determined by the cost method. These inventories represent approximately 6% of total inventory. INVESTMENTS The Company's investments, consisting primarily of high-grade debt securities, are recorded at fair value and are classified as available-for-sale. INCOME TAXES The Company provides for federal, state and foreign 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, state and foreign 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. Separate provisions for income taxes have been determined for these entities. 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. 28 The Home Depot, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 Computer software 3-5 years - ------------------------------------------------------
REVENUES The Company recognizes revenue, net of estimated returns, at the time the customer takes possession of merchandise or receives services. When the Company collects payment from customers before ownership of the merchandise has passed or the service has been performed, the amount received is recorded as a deferred revenue liability. SELF INSURANCE The Company is self-insured for certain losses related to general liability, product liability and workers' compensation. The Company has stop loss coverage to limit the exposure arising from these claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. The expected ultimate cost of claims is estimated based upon analysis of historical data and actuarial estimates. ADVERTISING Television and radio advertising production costs along with media placement costs are expensed when the advertisement appears. Included in current assets are $15 million and $20 million at the end of fiscal years 2001 and 2000, respectively, relating to prepayments of production costs for print and broadcast advertising. SHIPPING AND HANDLING COSTS The Company accounts for certain shipping and handling costs related to the shipment of product to customers from vendors as cost of goods sold. However, costs of shipments to customers by the Company are classified as selling and store operating expenses. The costs of shipments included in selling and store operating expenses amounted to $122 million, $73 million and $40 million in fiscal years 2001, 2000 and 1999, respectively. 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 cash flows using a discount rate reflecting the Company's average cost of funds. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. 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 selling and store operating 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 sublease income. STOCK COMPENSATION Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" encourages the use of a fair-value-based method of accounting. As allowed by SFAS 123, the Company has elected to account for its stock-based compensation plans under the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Under APB 25, compensation expense is recorded on the date of grant if the current market price of the underlying stock exceeds the exercise price. The Company complies with the disclosure requirements of SFAS 123. DERIVATIVES On January 29, 2001, the Company adopted Statement of Financial Accounting Standards Nos. 133, 137, and 138 (collectively "SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires an entity to measure derivatives at fair value and recognize these assets or liabilities on the balance sheet. Recognition of changes in the fair value of a derivative in the income statement or other accumulated comprehensive income (loss) depends on the intended use of the derivative and its designation. The Company designates its derivatives based upon criteria established by SFAS 133. The Company's objective for holding derivative instruments is to decrease the volatility of earnings and cash flow associated with fluctuations in interest rates and foreign currencies. The Home Depot, Inc. and Subsidiaries 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) COMPREHENSIVE INCOME Comprehensive income includes net earnings adjusted for certain 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 certain hedge transactions. FOREIGN CURRENCY TRANSLATION The assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period, revenues and expenses are translated at the average monthly exchange rates, and equity transactions are translated using the actual rate on the day of the transaction. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. RECLASSIFICATIONS Certain amounts in prior fiscal years have been reclassified to conform with the presentation adopted in the current fiscal year. NOTE 2. LONG-TERM DEBT The Company's long-term debt at the end of fiscal 2001 and fiscal 2000 consisted of the following (amounts in millions):
FEBRUARY 3, 2002 January 28,2001 - ---------------------------------------------------------------------------------- Commercial Paper; weighted average interest rate of 6.1% at January 28, 2001 $ -- $ 754 6 1/2% Senior Notes; due September 15, 2004; interest payable semi-annually on March 15 and September 15 500 500 5 3/8% Senior Notes; due April 1, 2006; interest payable semi-annually on April 1 and October 1 500 -- Capital Lease Obligations; payable in varying installments through January 31, 2027 232 230 Other 23 65 - ---------------------------------------------------------------------------------- Total long-term debt 1,255 1,549 Less current installments 5 4 - ---------------------------------------------------------------------------------- Long-term debt,excluding current installments $1,250 $1,545 ===========================
The Company has a commercial paper program with maximum available borrowings up to $1 billion. 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 September 2004, contains various restrictive covenants, none of which are expected to materially impact the Company's liquidity or capital resources. Commercial paper borrowings of $754 million outstanding at January 28, 2001, were classified as noncurrent pursuant to the Company's intent and ability to finance this obligation on a long-term basis. The Company issued $500 million of 5 3/8% Senior Notes in fiscal 2001 and $500 million of 6 1/2% Senior Notes in fiscal 1999, collectively referred to as "Senior Notes." The Senior Notes may be redeemed by the Company at any time, in whole or in part, at a redemption price plus accrued interest up to the redemption date. The redemption price is equal to the greater of (1) 100% of the principal amount of the Senior Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest to maturity. The Senior Notes are not subject to sinking fund requirements. Interest expense in the accompanying Consolidated Statements of Earnings is net of interest capitalized of $84 million, $73 million and $45 million in fiscal 2001, 2000 and 1999, respectively. Maturities of long-term debt are $5 million for fiscal 2002, $6 million for fiscal 2003, $507 million for fiscal 2004, $8 million for fiscal 2005 and $509 million for fiscal 2006. As of February 3, 2002, the market values of the publicly traded 5 3/8% and 6 1/2% Senior Notes were approximately $511 million and $531 million, respectively. The estimated fair value of all other long-term borrowings, excluding capital lease obligations, approximated the carrying value of $23 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 3, 2002 January 28, 2001 January 30, 2000 - -------------------------------------------------------------------------------------------------- Current: U.S. $ 1,594 $ 1,267 $ 1,209 State 265 216 228 Foreign 60 45 45 - -------------------------------------------------------------------------------------------------- 1,919 1,528 1,482 - -------------------------------------------------------------------------------------------------- Deferred: U.S. (12) 98 9 State (1) 9 (4) Foreign 7 1 (3) - -------------------------------------------------------------------------------------------------- (6) 108 2 - -------------------------------------------------------------------------------------------------- Total $ 1,913 $ 1,636 $ 1,484 =============================================================
30 The Home Depot, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company's combined federal, state and foreign effective tax rates for fiscal years 2001, 2000 and 1999, net of offsets generated by federal, state and foreign tax incentive credits, were approximately 38.6%, 38.8%, and 39.0%, respectively. A reconciliation of income tax expense at the federal statutory rate of 35% to actual tax expense for the applicable fiscal years is as follows (in millions):
Fiscal Year Ended --------------------------------------------------------------------- FEBRUARY 3, 2002 January 28, 2001 January 30, 2000 - -------------------------------------------------------------------------------------------------- Income taxes at U.S. statutory rate $ 1,735 $ 1,476 $ 1,331 State income taxes, net of federal income tax benefit 172 146 145 Foreign rate differences 4 5 2 Other, net 2 9 6 - -------------------------------------------------------------------------------------------------- Total $ 1,913 $ 1,636 $ 1,484 =============================================================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of February 3, 2002 and January 28, 2001 were as follows (in millions):
FEBRUARY 3, 2002 January 28,2001 - ----------------------------------------------------------------------------------- Deferred Tax Assets: Accrued self-insurance liabilities $ 220 $ 151 Other accrued liabilities 138 118 Net loss on disposition 31 -- - ----------------------------------------------------------------------------------- Total gross deferred tax assets 389 269 Valuation allowance (31) -- - ----------------------------------------------------------------------------------- Deferred tax assets, net of valuation allowance 358 269 - ----------------------------------------------------------------------------------- Deferred Tax Liabilities: Accelerated depreciation (492) (389) Other (55) (75) - ----------------------------------------------------------------------------------- Total gross deferred tax liabilities (547) (464) - ----------------------------------------------------------------------------------- Net deferred tax liability $ (189) $ (195) ===========================
A valuation allowance was established in fiscal 2001 for a deferred tax asset generated from the net loss on disposition of a business. Company management believes the existing net deductible temporary differences comprising the deferred tax assets, net of the valuation allowance, 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") 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 225 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 22.5 million shares. As of February 3, 2002, there were 121 million shares available for future grants under the 1997 Plan. Under the 1997 Plan, the Company has granted incentive and non-qualified options for 143 million shares, net of cancellations (of which 76 million had been exercised). Incentive stock options typically 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 but typically commence vesting on the second anniversary of the date of grant. Under the 1997 Plan, 712,000 shares of restricted stock have been issued, net of cancellations (the restrictions on 4,600 shares have lapsed). Generally, the restrictions on 25% of the restricted shares lapse upon the third and sixth year anniversaries of the date of issuance with the restrictions on the remaining 50% of the restricted shares lapsing upon attainment of age 62. The fair value of the restricted shares is expensed over the period during which the restrictions lapse. The Company recorded compensation expense related to restricted stock in the amount of $3 million and $455,000 in fiscal 2001 and 2000, respectively. Under the Non-Qualified Stock Option and Deferred Stock Unit Plans and Agreements, the Company issued 2.5 million non-qualified stock options with an exercise price of $40.75 per share in fiscal 2000. In addition, the Company granted 629,000 deferred stock units and 750,000 deferred stock units in fiscal years 2001 and 2000, respectively, to several key officers vesting at various dates. Each deferred stock unit entitles the officer to one share of common stock to be received up to five years after the vesting date of the deferred stock unit, subject to certain deferral rights of the officer. The fair value of the deferred stock units on the grant dates was $27 million and $31 million for deferred units granted in fiscal 2001 and 2000, respectively. These amounts are being amortized based upon the vesting dates. The Company recorded stock compensation expense related to deferred stock units in the amount of $16 million and $6 million in fiscal 2001 and 2000, respectively. The per share weighted average fair value of stock options granted during fiscal years 2001, 2000 and 1999 was $20.51, The Home Depot, Inc. and Subsidiaries 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) $31.96 and $18.86, respectively. The fair value of these options was determined at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Fiscal Year Ended -------------------------------------------------------- FEBRUARY 3, 2002 January 28,2001 January 30,2000 - ----------------------------------------------------------------------------------- Risk-free interest rate 5.1% 6.4% 5.1% Expected volatility of common stock 48.1% 54.6% 51.6% Dividend yield 0.4% 0.3% 0.3% Expected option term 6 years 7 years 5 years ===============================================
The Company applies APB 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 Ended -------------------------------------------------------------- FEBRUARY 3, 2002 January 28,2001 January 30,2000 - ----------------------------------------------------------------------------------------- Net Earnings As reported $3,044 $2,581 $2,320 Pro forma $2,800 $2,364 $2,186 Basic Earnings per Share As reported $ 1.30 $ 1.11 $ 1.03 Pro forma $ 1.20 $ 1.02 $ 0.97 Diluted Earnings per Share As reported $ 1.29 $ 1.10 $ 1.00 Pro forma $ 1.19 $ 1.01 $ 0.94 ====================================================
The following table summarizes options outstanding at February 3, 2002, January 28, 2001 and January 30, 2000 and changes during the fiscal years ended on these dates (shares in thousands):
Weighted Number Average of Shares Option Price - ---------------------------------------------------------------------- Outstanding at January 31,1999 71,592 $13.45 Granted 14,006 37.81 Exercised (13,884) 10.88 Cancelled (3,295) 18.88 - ---------------------------------------------------------------------- Outstanding at January 30,2000 68,419 $18.79 Granted 14,869 49.78 Exercised (14,689) 13.15 Cancelled (2,798) 30.51 - ---------------------------------------------------------------------- Outstanding at January 28,2001 65,801 $26.46 Granted 25,330 40.33 Exercised (16,614) 15.03 Cancelled (5,069) 39.20 - ---------------------------------------------------------------------- Outstanding at February 3,2002 69,448 $33.33 ========================= Exercisable 26,777 $22.68 =========================
The following table summarizes information regarding stock options outstanding as of February 3, 2002 (shares in thousands):
Weighted Weighted Weighted Average Average Average Range of Options Remaining Outstanding Options Exercisable Exercise Prices Outstanding Life (Yrs) Option Price Exercisable Option Price - ----------------------------------------------------------------------------------------------- $ 6.00 to 12.00 11,999 4.1 $10.10 11,631 $10.00 12.00 to 20.00 1,732 5.6 17.10 1,560 17.30 20.00 to 30.00 9,714 6.1 21.80 5,456 21.70 30.00 to 42.00 34,271 8.8 39.30 6,037 38.90 42.00 to 54.00 11,732 8.3 51.70 2,093 52.80 - ----------------------------------------------------------------------------------------------- 69,448 7.0 $33.33 26,777 $22.68 =======================================================================
In addition, the Company had 48 million shares available for future grants under the Employee Stock Purchase Plan ("ESPP") at February 3, 2002. The ESPP enables the Company to grant substantially all full-time associates options to purchase up to 152 million shares of common stock, of which 104 million 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. During fiscal 2001, 5.5 million shares were purchased under the ESPP at an average price of $35.87 per share. At February 3, 2002, there were 2.8 million options outstanding, net of cancellations, at an average price of $37.26 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. The Company has two off-balance sheet lease agreements totaling $882 million comprised of an initial lease agreement of $600 million and a subsequent agreement of $282 million. Off-balance sheet leases include leases created under structured financing arrangements. These lease agreements totaling $882 million involve a special purpose entity which meets the criteria established by generally accepted accounting principles and is not owned by or affiliated with the Company, its management or officers. The Company financed a portion of its new stores opened in fiscal 1997 through 2001, as well as a distribution center and office buildings, under these lease agreements. Under both agreements, the lessor purchases the properties, pays for the construction costs and subsequently leases the facilities to the Company. The lease term for the $600 million agreement expires in 2004 and includes four 2-year renewal options. The lease term for the $282 million agreement expires in 2008 with no renewal options. Both lease agreements provide for substantial residual value guarantees and include purchase options at original cost on each property. 32 The Home Depot, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company also leases an import distribution facility, including its related equipment, under an off-balance sheet lease arrangement totaling $85 million. The lease for the import distribution facility expires in 2005 and has four 5-year renewal options. The lease agreement provides for substantial residual value guarantees and includes purchase options at the higher of the cost or fair market value of the assets. The maximum amount of the residual value guarantees relative to the assets under the off-balance sheet lease agreements described above is projected to be $799 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 3, 2002, January 28, 2001 and January 30, 2000, was $522 million, $479 million and $389 million, respectively. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of the Company under the lease agreements. Certain store leases provide for contingent rent payments based on percentages of sales in excess of specified minimums. Contingent rent expense for the fiscal years ended February 3, 2002, January 28, 2001, and January 30, 2000 was approximately $10 million, $9 million and $11 million, respectively. The approximate future minimum lease payments under capital and operating leases, including off-balance sheet leases, at February 3, 2002 were as follows (in millions):
Capital Operating Fiscal Year Leases Leases - ---------------------------------------------------------------------- 2002 $ 41 $ 517 2003 42 495 2004 43 447 2005 44 415 2006 44 394 Thereafter 577 5,139 - ---------------------------------------------------------------------- 791 $7,407 ====== Less imputed interest 559 - ------------------------------------------------------- Net present value of capital lease obligations 232 Less current installments 4 - ------------------------------------------------------- Long-term capital lease obligations, excluding current installments $228 ====
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 $199 million and $213 million at February 3, 2002 and January 28, 2001, respectively. NOTE 6. EMPLOYEE BENEFIT PLANS The Company maintains a defined contribution plan ("401(k)") that covers substantially all associates meeting certain service requirements. The Company makes weekly matching cash contributions to purchase shares of the Company's common stock, up to specified percentages of associates' contributions as approved by the Board of Directors. The Company also maintains a 401(k) Restoration Plan to provide certain associates deferred compensation that they would have received under the 401(k) matching contribution if not for the maximum compensation limits under the Internal Revenue Code. The Company funds the 401(k) Restoration Plan through contributions made to a "rabbi trust," which are then used to purchase shares of the Company's common stock in the open market. Compensation expense related to this plan for fiscal years 2001, 2000 and 1999 was not material. During February 1999, the Company made its final contribution to the Employee Stock Ownership Plan and Trust ("ESOP"), which was originally established during fiscal 1988. The Company's combined contributions to the 401(k) and ESOP were $97 million, $84 million and $57 million for fiscal years 2001, 2000 and 1999, respectively. At February 3, 2002, the 401(k) and the ESOP held a total of 33 million shares of the Company's common stock in trust for plan participants. NOTE 7. BASIC AND DILUTED EARNINGS PER SHARE The calculations of basic and diluted earnings per share for fiscal years 2001, 2000 and 1999 were as follows (amounts in millions, except per share data):
Fiscal Year Ended ------------------------------------------------------------------ FEBRUARY 3, 2002 January 28, 2001 January 30, 2000 - ----------------------------------------------------------------------------------------------------------------------------- Calculation of Basic Earnings Per Share: Net earnings $ 3,044 $ 2,581 $ 2,320 Weighted average number of common shares outstanding 2,335 2,315 2,244 - ----------------------------------------------------------------------------------------------------------------------------- Basic Earnings Per Share $ 1.30 $ 1.11 $ 1.03 - ----------------------------------------------------------------------------------------------------------------------------- Calculation of Diluted Earnings Per Share: Net earnings $ 3,044 $ 2,581 $ 2,320 Tax-effected interest expense attributable to 3 1/4% Notes -- -- 17 - ----------------------------------------------------------------------------------------------------------------------------- Net earnings assuming dilution $ 3,044 $ 2,581 $ 2,337 - ----------------------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding 2,335 2,315 2,244 Effect of potentially dilutive securities: 3 1/4% Notes -- -- 51 Employee Stock Plans 18 37 47 - ----------------------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding assuming dilution 2,353 2,352 2,342 - ----------------------------------------------------------------------------------------------------------------------------- Diluted Earnings Per Share $ 1.29 $ 1.10 $ 1.00 =========================================================
The Home Depot, Inc. and Subsidiaries 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 year 1999, shares issuable upon conversion of the Company's 3 1/4% Notes, issued in October 1996 and converted in 1999, were included in weighted average shares outstanding 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 (prior to conversion to equity in October 1999) and divided by weighted average shares outstanding assuming dilution. NOTE 8. COMMITMENTS AND CONTINGENCIES At February 3, 2002, the Company was contingently liable for approximately $557 million under outstanding letters of credit issued for certain business transactions, including insurance programs, import inventory purchases and construction contracts. In addition, the Company has certain off-balance sheet leases that include residual value guarantees contingent on the value of underlying assets at the end of the lease term. The estimated maximum amount of the residual value guarantees at the end of the lease terms is $799 million. These leases expire at various terms from 2004 through 2008 with some containing renewal options through 2025. 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 9. ACQUISITIONS AND DISPOSITIONS In 2001, the Company acquired Your "other" Warehouse and TotalHOME de Mexico, S.A. de C.V. These acquisitions were accounted for under the purchase method of accounting. In October 2001, the Company sold all of the assets of The Home Depot Chile S.A., resulting in a gain of $31 million included in selling and store operating expenses. On February 18, 2002, the Company sold all of the assets of The Home Depot Argentina S.R.L. In connection with the sale, the Company received proceeds comprised of cash and secured notes. An impairment charge of $45 million was recorded in selling and store operating expenses in fiscal 2001 to write down the net assets of The Home Depot Argentina S.R.L. to fair value. During fiscal 2000, Maintenance Warehouse, a wholly-owned subsidiary of the Company, acquired N-E Thing Supply Company, Inc. The Company acquired Apex Supply Company, Inc. and Georgia Lighting, Inc. in fiscal 1999. These acquisitions were recorded under the purchase method of accounting. Pro forma results of operations for fiscal years 2001, 2000 and 1999 would not be materially different as a result of the acquisitions discussed above and therefore are not presented. NOTE 10. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for the fiscal years ended February 3, 2002 and January 28, 2001 (dollars in millions, except per share data):
Increase (Decrease) Basic Diluted In Comparable Gross Net Earnings Earnings Net Sales Store Sales Profit Earnings Per Share Per Share - ----------------------------------------------------------------------------------------------------------------------------- Fiscal year ended February 3, 2002: First quarter $12,200 (3)% $ 3,655 $ 632 $0.27 $0.27 Second quarter 14,576 1% 4,326 924 0.40 0.39 Third quarter 13,289 0% 4,010 778 0.33 0.33 Fourth quarter 13,488 5% 4,156 710 0.30 0.30 - ----------------------------------------------------------------------------------------------------------------------------- Fiscal year $53,553 0% $16,147 $3,044 $1.30 $1.29 ================================================================================= Fiscal year ended January 28, 2001: First quarter $11,112 7% $ 3,274 $ 629 $0.27 $0.27 Second quarter 12,618 6% 3,739 838 0.36 0.36 Third quarter 11,545 4% 3,450 650 0.28 0.28 Fourth quarter 10,463 0% 3,217 465 0.20 0.20 - ----------------------------------------------------------------------------------------------------------------------------- Fiscal year $45,738 4% $13,681 $2,581 $1.11 $1.10 =================================================================================
Note: The quarterly data may not sum to fiscal year totals due to rounding. 34 The Home Depot, Inc. and Subsidiaries MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The financial statements presented in this Annual Report have been prepared with integrity and objectivity and are the responsibility of the management of The Home Depot, Inc. These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and properly reflect certain estimates and judgments based upon the best available information. The Company maintains a system of internal accounting controls, which is supported by an internal audit program and is designed to provide reasonable assurance, at an appropriate cost, that the Company's assets are safeguarded and transactions are properly recorded. This system is continually reviewed and modified in response to changing business conditions and operations and as a result of recommendations by the external and internal auditors. In addition, the Company has distributed to associates its policies for conducting business affairs in a lawful and ethical manner. The financial statements of the Company have been audited by KPMG LLP, independent auditors. Their accompanying report is based upon an audit conducted in accordance with auditing standards generally accepted in the United States of America, including the related review of internal accounting controls and financial reporting matters. The Audit Committee of the Board of Directors, consisting solely of outside directors, meets five times a year with the independent auditors, the internal auditors and representatives of management to discuss auditing and financial reporting matters. The Audit Committee, acting on behalf of the stockholders, maintains an ongoing appraisal of the internal accounting controls, the activities of the outside auditors and internal auditors and the financial condition of the Company. Both the Company's independent auditors and the internal auditors have free access to the Audit Committee. /s/ Carol B. Tome Carol B. Tome Executive Vice President and Chief Financial Officer 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 3, 2002 and January 28, 2001 and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended February 3, 2002. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 3, 2002 and January 28, 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended February 3, 2002 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Atlanta, Georgia February 26, 2002 The Home Depot, Inc. and Subsidiaries 35 EX-23 8 g75478ex23.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 The Board of Directors The Home Depot, Inc.: We consent to incorporation by reference in the registration statements (Nos. 333-72016, 333-62318, 333-62316, 333-56724, 333-56722, 333-91943, 333-38946, 333-85759, 333-61733, 333-56207, 33-46476, 33-22531, 33-22299, 033-58807, 333-16695, 333-01385) on Form S-8 and (Nos. 333-81485, 333-03497) on Form S-3 of The Home Depot, Inc. of our report dated February 26, 2002, relating to the consolidated balance sheets of The Home Depot, Inc. and subsidiaries as of February 3, 2002 and January 28, 2001, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended February 3, 2002, which report is incorporated by reference in the February 3, 2002 annual report on Form 10-K of The Home Depot, Inc. /s/ KPMG Atlanta, Georgia April 19, 2002 EX-24 9 g75478ex24.txt SPECIAL POWERS OF ATTORNEY POWER OF ATTORNEY I, Gregory D. Brenneman, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 19th day of April 2002. /s/ Gregory D. Brenneman ------------------------------------------- Gregory D. Brenneman POWER OF ATTORNEY I, Richard H. Brown, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 10th day of April 2002. /s/ Richard H. Brown ------------------------------------------- Richard H. Brown POWER OF ATTORNEY I, John L. Clendenin, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 12th day of April 2002. /s/ John L. Clendenin ------------------------------------------- John L. Clendenin POWER OF ATTORNEY I, Berry R. Cox, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 10th day of April 2002. /s/ Berry R. Cox ------------------------------------------- Berry R. Cox POWER OF ATTORNEY I, William S. Davila, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 11th day of April 2002. /s/ William S. Davila ------------------------------------------- William S. Davila POWER OF ATTORNEY I, Claudio X. Gonzalez, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 10th day of April 2002. /s/ Claudio X. Gonzalez ------------------------------------------- Claudio X. Gonzalez POWER OF ATTORNEY I, Richard A. Grasso, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 11th day of April 2002. /s/ Richard A. Grasso ------------------------------------------- Richard A. Grasso POWER OF ATTORNEY I, Milledge A. Hart, III a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 10th day of April 2002. /s/ Milledge A. Hart ------------------------------------------- Milledge A. Hart, III POWER OF ATTORNEY I, Bonnie G. Hill, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 19th day of April 2002. /s/ Bonnie G. Hill ------------------------------------------- Bonnie G. Hill POWER OF ATTORNEY I, Kenneth G. Langone, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 19th day of April 2002. /s/ Kenneth G. Langone ------------------------------------------- Kenneth G. Langone POWER OF ATTORNEY I, Roger S. Penske, a director of The Home Depot, Inc., a Delaware corporation, do hereby constitute and appoint Robert L. Nardelli and Frank L. Fernandez, 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 3, 2002, 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, and 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 19th day of April 2002. /s/ Roger S. Penske ------------------------------------------- Roger S. Penske -----END PRIVACY-ENHANCED MESSAGE-----