0001104659-02-006906.txt : 20021205 0001104659-02-006906.hdr.sgml : 20021205 20021205171230 ACCESSION NUMBER: 0001104659-02-006906 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20021103 FILED AS OF DATE: 20021205 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08207 FILM NUMBER: 02850069 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-Q 1 j6139_10q.htm 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 3, 2002

OR

o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-8207

THE HOME DEPOT, INC.
(Exact name of registrant as specified in its charter)

Delaware		95-3261426
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2455 Paces Ferry Road N.W., Atlanta, Georgia		30339
(Address of principal executive offices)		(Zip Code)

(770) 433-8211
(Registrant’s telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)

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 ý No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

$.05 par value 2,325,757,917 Shares, as of December 4, 2002

THE HOME DEPOT, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

November 3, 2002

Part I. Financial Information

	Item 1. Financial Statements

		CONSOLIDATED STATEMENTS OF EARNINGS - Three-Month and Nine-Month Periods Ended November 3, 2002 and October 28, 2001

		CONSOLIDATED BALANCE SHEETS - As of November 3, 2002 and February 3, 2002

		CONSOLIDATED STATEMENTS OF CASH FLOWS - Nine-Month Periods Ended November 3, 2002 and October 28, 2001

		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - Three-Month and Nine-Month Periods Ended November 3, 2002 and October 28, 2001

		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

	Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

	Item 3. Quantitative and Qualitative Disclosures about Market Risk

	Item 4. Controls and Procedures

Part II. Other Information:

	Item 6. Exhibits and Reports on Form 8-K

	Signature Page

	Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	Index to Exhibits

THE HOME DEPOT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(In Millions, Except Per Share Data)

	Three Months Ended							Nine Months Ended
	November 3, 2002				October 28, 2001			November 3, 2002			October 28, 2001

Net Sales	$		14,475		$	13,289		$	45,034		$	40,065
Cost of Merchandise Sold	9,895				9,279			31,148			28,074
Gross Profit	4,580				4,010			13,886			11,991

Operating Expenses:
Selling and Store Operating	2,813				2,495			8,368			7,458
Pre-Opening	19				28			67			87
General and Administrative	252				230			716			666
Total Operating Expenses	3,084				2,753			9,151			8,211

Operating Income	1,496				1,257			4,735			3,780

Interest Income (Expense):
Interest and Investment Income	21				17			63			39
Interest Expense	(10			)	(7		)	(25		)	(18		)
Interest, Net	11				10			38			21

Earnings Before Income Taxes	1,507				1,267			4,773			3,801

Income Taxes	567				489			1,795			1,467

Net Earnings	$	940			$	778		$	2,978		$	2,334

Weighted Average Number of Common Shares Outstanding	2,337				2,337			2,347			2,332

Basic Earnings Per Share	$	0.40			$	0.33		$	1.27		$	1.00

Weighted Average Number of Common Shares Outstanding Assuming Dilution	2,343				2,352			2,356			2,350

Diluted Earnings Per Share	$	0.40			$	0.33		$	1.26		$	0.99

Dividends Declared Per Share	$	0.06			$	0.05		$	0.16		$	0.13

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Millions, Except Per Share Data)

	November 3, 2002			February 3, 2002
ASSETS
Current Assets:
Cash and Cash Equivalents	$	3,980		$	2,477
Short-Term Investments	13			69
Receivables, Net	1,258			920
Merchandise Inventories	8,314			6,725
Other Current Assets	239			170
Total Current Assets	13,804			10,361

Property and Equipment, at cost	19,973			18,129
Less: Accumulated Depreciation and Amortization	3,369			2,754
Net Property and Equipment	16,604			15,375

Notes Receivable	125			83
Cost in Excess of the Fair Value of Net Assets Acquired	565			419
Other	249			156
	$	31,347		$	26,394

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	5,435		$	3,436
Accrued Salaries and Related Expenses	891			717
Sales Taxes Payable	363			348
Other Accrued Expenses	1,112			933
Deferred Revenue	1,142			851
Income Taxes Payable	128			211
Current Installments of Long-Term Debt	6			5
Total Current Liabilities	9,077			6,501

Long-Term Debt, excluding current installments	1,316			1,250
Other Long-Term Liabilities	472			372
Deferred Income Taxes	363			189

STOCKHOLDERS’ EQUITY
Common Stock, par value $0.05. Authorized: 10,000 shares; issued 2,358 shares at November 3, 2002 and 2,346 shares at February 3, 2002	118			117
Paid-In Capital	5,757			5,412
Retained Earnings	15,425			12,799
Accumulated Other Comprehensive Loss	(117		)	(220		)
Unearned Compensation	(64		)	(26		)
Treasury Stock at cost, 30 shares at November 3, 2002 and 0 shares at February 3, 2002	(1,000		)	—

Total Stockholders’ Equity	20,119			18,082

	$	31,347		$	26,394

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Millions)

	Nine Months Ended
	November 3, 2002			October 28, 2001
CASH FLOWS FROM OPERATIONS:
Net Earnings	$	2,978		$	2,334

Reconciliation of Net Earnings to Net Cash Provided by Operations:
Depreciation and Amortization	665			564
Increase in Receivables, Net	(225		)	(220		)
Increase in Merchandise Inventories	(1,574		)	(686		)
Increase in Accounts Payable and Accrued Expenses	2,421			1,909
Increase in Deferred Revenue	291			177
(Decrease) Increase in Income Taxes Payable	(19		)	152
Other	155			31
Net Cash Provided by Operations	4,692			4,261

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures	(1,954		)	(2,554		)
Payments for Businesses Acquired, Net	(231		)	(64		)
Proceeds from Sale of Business, Net	22			—
Proceeds from Sales of Property and Equipment	82			76
Purchases of Investments	(518		)	(14		)
Proceeds from Maturities of Investments	483			16
Other	(1		)	7
Net Cash Used In Investing Activities	(2,117		)	(2,533		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of Commercial Paper Obligations, Net	—			(754		)
Proceeds from Long-Term Debt	3			521
Proceeds from Sale of Common Stock, Net	272			279
Repurchase of Common Stock	(1,000		)	—
Cash Dividends Paid to Stockholders	(352		)	(280		)
Net Cash Used In Financing Activities	(1,077		)	(234		)

Effect of Exchange Rate Changes on Cash and Cash Equivalents	5			(7		)
Increase in Cash and Cash Equivalents	1,503			1,487
Cash and Cash Equivalents at Beginning of Period	2,477			167
Cash and Cash Equivalents at End of Period	$	3,980		$	1,654

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Millions)

	Three Months Ended						Nine Months Ended
	November 3, 2002			October 28, 2001			November 3, 2002		October 28, 2001

Net Earnings	$		940	$	778		$	2,978	$	2,334

Other Comprehensive Income (Loss)⁽¹⁾:

Foreign Currency Translation Adjustments	22			(33		)	82		(55		)

Cumulative Effect of Adopting SFAS 133	—			—			—		(5		)

Change in Fair Value of Derivatives Accounted for as Hedges	5			(5		)	13		(14		)

Derivative Losses Reclassified to Earnings	—			—			—		1

Total Other Comprehensive Income (Loss)	27			(38		)	95		(73		)

Comprehensive Income	$	967		$	740		$	3,073	$	2,261

⁽¹⁾ Components of comprehensive income are reported net of related taxes.

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 3, 2002, as filed with the Securities and Exchange Commission (File No. 1-8207).

2. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

On February 4, 2002, the Company adopted Statements of Financial Accounting Standards (“SFAS”) Nos. 142, “Goodwill and Other Intangible Assets,” and 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Under SFAS No. 142, goodwill is not amortized and is instead evaluated for impairment at least annually. The adoption of SFAS No. 142 did not have a material impact on the Company’s financial results. SFAS No. 144 amends Accounting Principles Board Opinion (“APB”) No. 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,” retaining many of the fundamental provisions of SFAS No. 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 No. 144 retains the basic provisions of APB No. 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. The adoption of SFAS No. 144 did not have a material impact on the Company’s financial results.

3. CHANGE IN ACCOUNTING METHOD

Effective February 3, 2003, the Company will adopt the fair value method of recording stock option expense under SFAS No. 123, “Accounting for Stock-Based Compensation.” Beginning in fiscal 2003, employee stock option grants will be expensed over the stock option vesting period based on the fair value at the date the options are granted. Based on the current accounting guidance under SFAS No. 123 the Company will begin to recognize stock option expense prospectively for all stock awards granted after February 2, 2003, resulting in an estimated negative impact on earnings per share of $.02 to $.03 for fiscal 2003. This estimate was based on certain assumptions regarding stock price, fair value and number of options granted. Currently, the Company applies the intrinsic value method permitted under SFAS No. 123, as defined in APB No. 25, “Accounting for Stock Issued to Employees,” in accounting for stock option plans, and accordingly, no compensation expense has been recognized for stock awards granted with an exercise price equal to the fair market value of the stock on the date of grant. The Company will continue to account for stock option costs under APB No. 25 until adoption of the fair value method beginning in fiscal 2003.

4. ACQUISITIONS

In October 2002, the Company acquired substantially all of the assets of FloorWorks, Inc. and Arvada Hardwood Floors Co., and common stock of Floors, Inc., three flooring installation companies primarily servicing the new home industry. These acquisitions were accounted for under the purchase method of accounting.

5. SERVICE REVENUES

Total revenues include service revenues generated through a variety of installation and home maintenance programs in our Home Depot and EXPO stores. In these programs, the customer selects and purchases materials for a project and the Company provides and/or arranges professional installation. When the Company subcontracts the installation of a project and the subcontractor provides material as part of the installation, both the material and labor are included in service revenues. The Company recognizes this revenue when the service for the customer is completed. All payments collected prior to the completion of services are recorded as a deferred revenue liability. Gross service revenues generated by our Home Depot and EXPO stores, excluding the impact of deferred revenue, were $547 million and $1.5 billion for the three- and nine-month periods ended November 3, 2002, respectively, compared to $427 million and $1.2 billion for the three- and nine-month periods ended October 28, 2001, respectively. Net service revenues, including the impact of deferred revenue, were $524 million and $1.4 billion for the three- and nine-month periods ended November 3, 2002, respectively, compared to $403 million and $1.1 billion for the three- and nine-month periods ended October 28, 2001, respectively.

6. VALUATION RESERVES

As of the end of the third quarter of fiscal 2002, the valuation allowances for merchandise inventories and bad debts were not material.

THE HOME DEPOT, INC. AND SUBSIDIARIES

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Stockholders

The Home Depot, Inc.:

We have reviewed the accompanying consolidated balance sheet of The Home Depot, Inc. and subsidiaries as of November 3, 2002, and the consolidated statements of earnings and comprehensive income for the three-month and nine-month periods ended November 3, 2002 and the consolidated statement of cash flows for the nine-month period ended November 3, 2002. These consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of The Home Depot, Inc. and subsidiaries as of February 3, 2002, 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 then ended (not presented herein); and in our report dated February 26, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February 3, 2002, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP
KPMG LLP
Atlanta, Georgia

November 18, 2002

THE HOME DEPOT, INC. AND SUBSIDIARIES

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

SELECTED CONSOLIDATED STATEMENTS OF EARNINGS DATA

The data below reflect selected sales data, the percentage relationship between sales and major categories in the Consolidated Statements of Earnings and the percentage change in the dollar amounts of each of the items.

	Three Months Ended						Nine Months Ended						Percentage Increase (Decrease) in Dollar Amounts
	November 3, 2002			October 28, 2001			November 3, 2002			October 28, 2001			Three Months		Nine Months

Net Sales	100.0		%	100.0		%	100.0		%	100.0		%	8.9	%	12.4	%

Gross Profit	31.6			30.2			30.8			29.9			14.2		15.8

Operating Expenses:
Selling and Store Operating	19.4			18.8			18.6			18.6			12.7		12.2
Pre-Opening	0.2			0.2			0.1			0.2			(32.1	)	(23.0	)
General and Administrative	1.7			1.7			1.6			1.7			9.6		7.5

Total Operating Expenses	21.3			20.7			20.3			20.5			12.0		11.4

Operating Income	10.3			9.5			10.5			9.4			19.0		25.3

Interest Income (Expense):
Interest and Investment Income	0.2			0.1			0.2			0.1			23.5		61.5
Interest Expense	(0.1		)	(0.0		)	(0.1		)	(0.0		)	42.9		38.9

Interest, Net	0.1			0.1			0.1			0.1			10.0		81.0

Earnings Before Income Taxes	10.4			9.6			10.6			9.5			18.9		25.6

Income Taxes	3.9			3.7			4.0			3.7			16.0		22.4
Net Earnings	6.5		%	5.9		%	6.6		%	5.8		%	20.8		27.6

Selected Consolidated Sales Data
Number of Transactions (000’s)	286,212			268,812			892,589			813,502			6.5		9.7

Average Sale Per Transaction	$	49.66		$	49.03		$	50.07		$	48.87		1.3		2.5

Weighted Average Weekly Sales Per Operating Store (000’s)	$	754		$	805		$	814		$	845		(6.3	)	(3.7	)

Weighted Average Sales Per Square Foot	$	360		$	384		$	389		$	403		(6.3	)	(3.5	)

FORWARD-LOOKING STATEMENTS

Certain written and oral statements made by us or our authorized executive officers on our behalf constitute “forward-looking statements” as defined under 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 our historical experience and our 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; the 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 of the making of such statements. Additional information concerning these risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended February 3, 2002.

RESULTS OF OPERATIONS

Net sales for the third quarter of fiscal 2002 increased 8.9% to $14.5 billion from $13.3 billion for the third quarter of fiscal 2001. For the first nine months of fiscal 2002, net sales increased 12.4% to $45.0 billion from $40.1 billion for the comparable period in fiscal 2001. The sales increase for both periods was primarily attributable to new stores opened since the end of the third fiscal quarter of last year (1,471 stores open at the end of the third quarter of fiscal 2002 compared with 1,295 at the end of the third quarter of fiscal 2001). Comparable store-for-store sales decreased 2% for the third quarter of fiscal 2002 and increased 1% for the first nine months of fiscal 2002. The decrease in comparable store-for-store sales for the third quarter of fiscal 2002 was attributable to a number of factors, including our ongoing aggressive merchandise reset campaign which interrupted customer traffic as we made necessary investments to position our stores for future growth; depressed lumber prices; pressure on millwork as we anniversaried last year’s energy conservation product demand and cannibalization as discussed below. We expect the merchandise resets to continue through the fourth quarter of 2002 into fiscal 2003. The increase in comparable store-for-store sales for the first nine months of fiscal 2002 was primarily due to strong sales in kitchen and bath driven by appliances; as well as strong sales in paint and in flooring.

In order to achieve our long term strategy of market dominance, we strategically open (“cannibalize”) stores near market areas served by existing stores to enhance service levels, gain incremental sales and increase market penetration. As of the third quarter of fiscal 2002, our new stores cannibalized 22% of our existing stores and we estimate that store cannibalization reduced comparable store-for-store sales by approximately 4%, about the same as in prior periods. As more than 30% of our existing stores were cannibalized in some of our most productive divisions, including New England and the West Coast, our weighted average weekly sales per store decreased during the third quarter of fiscal 2002 to $754,000 from $805,000 in the third quarter of fiscal 2001. Additionally, we believe that our sales performance has been, and could continue to be, negatively impacted by the level of competition that we encounter in various markets. However, due to the highly-fragmented home improvement industry, in which we estimate our market share is approximately 10%, measuring the impact on our sales by our competitors is extremely difficult.

In the third quarter of fiscal 2002, we continued the implementation or expansion of a number of in-store initiatives. We believe these initiatives will increase customer loyalty and operating efficiencies as they are fully implemented in the stores. The professional business customer (“Pro”) initiative adds programs to our stores to enhance service levels to the Pro customer base. By the end of the third quarter of fiscal 2002 we had the Pro initiative in 1,072 stores or 73% of total stores, compared to a total of 385 stores as of the third quarter of

fiscal 2001. We added the Pro initiative to 151 stores during the third quarter of fiscal 2002. This initiative is still in its early stages as approximately half of our stores implemented the Pro initiative this fiscal year. As the Pro initiative matures within the stores in which it has been implemented, we expect to generate improvements in sales and operating performance. We expect to have the Pro initiative in 1,141 stores by the end of fiscal 2002.

In addition to Pro, we continue to implement the Appliance initiative in our stores, the roll out of which was started in the third quarter of fiscal 2001. We have the Appliance initiative in 588 stores as of the end of the third quarter of fiscal 2002 and expect to add the Appliance initiative in 87 more stores by the end of fiscal 2002. The Appliance initiative provides customers with an assortment of in-stock name brand appliances, including General Electric® and Maytag®, and offers the ability to special order over 2,000 additional related products through computer kiosks located in the stores. In these stores we have enhanced the offering of appliances through 1,500 to 2,000 square feet of dedicated appliance selling space. Comparable store-for-store sales in the Appliance category for the third quarter and first nine months of fiscal 2002 approximated 37% and 32%, respectively.

In addition to our Appliance and Pro initiatives, we continue to implement our DesignPlace^SM initiative. The initiative offers a pleasant shopping experience to our design/décor customers by providing personalized service from specially trained associates and an enhanced merchandise selection in an attractive setting. Although the DesignPlace initiative is in its early stages, indications show a positive store sales trend shortly after implementation. We have the DesignPlace initiative in 746 stores as of the end of the third quarter of fiscal 2002 compared to 205 stores as of the end of the third quarter of fiscal 2001, and expect to add the DesignPlace initiative in 120 more stores by the end of fiscal 2002.

Gross profit as a percent of sales was 31.6% for the third quarter of fiscal 2002 compared with 30.2% for the third quarter of fiscal 2001. For the first nine months of fiscal 2002, gross profit as a percent of sales was 30.8% compared with 29.9% for the comparable period of fiscal 2001. The gross profit rate increase for both periods was primarily attributable to improvements in shrink, benefits from the rationalization of our merchandise assortment and increased penetration of import products, which typically have a lower cost, from 6% last year to 7% this year. Although the increase in the number of tool rental centers continues to provide margin benefits, the year-over-year margin impact is diminishing as the initiative matures. At the end of the third quarter of fiscal 2002, we were operating 559 tool rental centers compared to 442 at the end of the third quarter of fiscal 2001. We expect to have tool rental centers in approximately 600 stores by the end of fiscal 2002.

Selling and store operating expenses as a percent of sales were 19.4% for the third quarter of fiscal 2002 compared to 18.8% for the same period in fiscal 2001 and 18.6% for the first nine months of fiscal 2002 and 2001. The increase in the third quarter of fiscal 2002 was primarily attributable to continuing pressure on workers’ compensation and general liability expense due in part to rising medical costs; increased costs for new signage, fixtures, and general maintenance related to merchandise resets and renovations in our stores; increased advertising spend and an increased investment in labor in our stores to ensure better in-stock position and customer service. The increase in selling and store operating expenses during the third quarter of fiscal 2002 was partially offset by the continued improvement in wage rate management. For the first nine months of fiscal 2002, selling and store operating expenses remained flat compared to the prior year, driven by strong improvements in wage rate management and higher labor productivity, offset by higher workers’ compensation and general liability expense and increased costs of fixtures and general maintenance related to merchandise resets and renovations in our stores.

Pre-opening expenses as a percent of sales were 0.2% for the third quarters of fiscal 2002 and 2001 and 0.1% and 0.2% for the first nine months of fiscal 2002 and 2001, respectively. The decrease in pre-opening expenses

for the first nine months of fiscal 2002 reflects a reduction in the average pre-opening period by two weeks and the timing of store openings.

For the third quarters of fiscal 2002 and 2001, general and administrative expenses as a percent of sales were 1.7%. General and administrative expenses as a percent of sales were 1.6% compared to 1.7% for the first nine months of fiscal 2002 and 2001, respectively. The decrease for the first nine months of fiscal 2002 was primarily due to the continuation of benefits realized from organizational realignments, including the centralization of our merchandise organization and the consolidation of two of our operating divisions last year.

As a percent of sales, interest and investment income was 0.2% for the third quarter of fiscal 2002 as compared to 0.1% for the third quarter of fiscal 2001, and 0.2% and 0.1% for the first nine months of fiscal 2002 and 2001, respectively. The increases for all comparable periods reflect higher cash balances offset by a lower interest rate environment. Interest expense as a percent of sales was 0.1% for the third quarter of fiscal 2002 as compared to 0.0% for the third quarter of fiscal 2001, and 0.1% and 0.0% for the first nine months of fiscal 2002 and 2001, respectively.

Our combined federal and state effective income tax rate decreased to 37.6% for the third quarter and first nine months of fiscal 2002 from 38.6% for the comparable periods of fiscal 2001. The decrease was attributable to higher projected tax credits and a lower effective state income tax rate. For the remainder of fiscal 2002, we expect the federal and state effective income tax rate to be 37.6%.

Net earnings as a percent of sales were 6.5% and 6.6% for the third quarter and first nine months of fiscal 2002, respectively, compared with 5.9% and 5.8% for the third quarter and first nine months of fiscal 2001, respectively. These increases as a percent of sales were primarily attributable to higher gross profit margin, as described above.

Diluted earnings per share were $0.40 and $1.26 for the third quarter and first nine months of fiscal 2002, respectively, compared to $0.33 and $0.99 for the third quarter and first nine months of fiscal 2001, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from store operations provides a significant source of liquidity. During the first nine months of fiscal 2002, cash provided by operations increased to $4.7 billion compared to $4.3 billion in the same period of fiscal 2001. The increase was primarily due to higher net earnings in fiscal 2002 and improvement in days payable outstanding, offset by growth in average inventory per store as we added inventory during the third quarter of fiscal 2002 to enhance our in-stock condition. We believe our in-stock position at the end of the third quarter of fiscal 2002 was approximately 97%.

Cash used in investing activities in the first nine months of fiscal 2002 was $2.1 billion compared to $2.5 billion in the same period of fiscal 2001. This decrease is due to a reduction in capital expenditures reflecting lower land acquisition costs and a shift in the timing of some technology spending. These decreases were partially offset by an increase in payments for businesses acquired. During the first nine months of fiscal 2002, we added 142 stores compared to 161 new stores in the comparable period of fiscal 2001. We plan to add a total of 200 new stores during fiscal 2002, compared to 204 in fiscal 2001, and expect total capital expenditures to be approximately $3.3 billion in fiscal 2002.

During the first nine months of fiscal 2002, cash used in financing activities was $1.1 billion compared with $234 million in the same period of fiscal 2001. As announced in August 2002, our board of directors approved a $2 billion share repurchase program. During the third quarter of fiscal 2002, we purchased approximately 30 million

shares of our common stock for approximately $1 billion under the share repurchase program. We expect to continue these repurchases during the fourth quarter of fiscal 2002 in accordance with Securities and Exchange Commission guidelines and based on market conditions.

We have a commercial paper program that allows borrowings up to a maximum of $1 billion. As of November 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 2004, contains various restrictive covenants, none of which are expected to impact our liquidity and capital resources.

As of November 3, 2002, we had $4 billion in cash, cash equivalents and short-term investments. 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.

CHANGE IN ACCOUNTING METHOD

Effective February 3, 2003, we will adopt the fair value method of recording stock option expense under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” Beginning in fiscal 2003, employee stock option grants will be expensed over the stock option vesting period based on the fair value at the date the options are granted. Based on the current accounting guidance under SFAS No. 123, we will begin to recognize stock option expense prospectively for all stock awards granted after February 2, 2003, resulting in an estimated negative impact on earnings per share of $.02 to $.03 for fiscal 2003. This estimate was based on certain assumptions regarding stock price, fair value and number of options granted. Currently, we apply the intrinsic value method permitted under SFAS No. 123, as defined in Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” in accounting for stock option plans, and accordingly, no compensation expense has been recognized for stock awards granted with an exercise price equal to the fair market value of the stock on the date of grant. We will continue to account for stock option costs under APB 25 until adoption of the fair value method beginning in fiscal 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 is effective for activity initiated after December 31, 2002 and is not expected to have a material impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risks results primarily from fluctuations in interest rates. There have been no material changes to our market risks as disclosed in our Annual Report on Form 10-K for the year ended February 3, 2002.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized

and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

During the 90-day period prior to the date of this report, an evaluation was performed under the supervision and with the participation of the Company’s Disclosure Committee and management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, and no corrective actions taken with regard to significant deficiencies or material weaknesses in such controls, subsequent to the date of our most recent evaluation of internal controls.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)		Exhibits

10.1		Employment Agreement between Frank Blake and The Home Depot, Inc., effective as of March 9, 2002

10.2		Employment Agreement between Robert DeRodes and The Home Depot, Inc., effective as of February 7, 2002

10.3		Employment Agreement between John Costello and The Home Depot, Inc., effective as of September 29, 2002

10.4		Separation Agreement & Release between Larry M. Mercer and The Home Depot, Inc., effective as of October 7, 2002

11.1		Computation of Basic and Diluted Earnings Per Share

15.1		Letter of KPMG LLP, Independent Accountants’ Acknowledgement, dated December 5, 2002

99.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)		Reports on 8-K

		No reports on Form 8-K were filed during the quarter ended November 3, 2002

SIGNATURES

Pursuant to the requirements 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.
		(Registrant)


	By:	/s/ Robert L. Nardelli
		Robert L. Nardelli
		Chairman, President and
		Chief Executive Officer


		/s/ Carol B. Tomé
		Carol B. Tomé
		Executive Vice President and
		Chief Financial Officer


December 5, 2002
(Date)

CERTIFICATIONS

I, Robert L. Nardelli, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Home Depot, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: December 5, 2002

	/s/ Robert L. Nardelli
	Robert L. Nardelli
	Chairman, President and
	Chief Executive Officer

I, Carol B. Tomé, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Home Depot, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: December 5, 2002
	/s/ Carol B. Tomé
	Carol B. Tomé
	Executive Vice President and
	Chief Financial Officer

THE HOME DEPOT, INC. AND SUBSIDIARIES

INDEX TO EXHIBITS

Exhibit		Description

10.1		Employment Agreement between Frank Blake and The Home Depot, Inc., effective as of March 9, 2002

10.2		Employment Agreement between Robert DeRodes and The Home Depot, Inc., effective as of February 7, 2002

10.3		Employment Agreement between John Costello and The Home Depot, Inc., effective as of September 29, 2002

10.4		Separation Agreement & Release between Larry M. Mercer and The Home Depot, Inc., effective as of October 7, 2002

11.1		Computation of Basic and Diluted Earnings Per Share

15.1		Letter of KPMG LLP, Independent Accountants’ Acknowledgement, dated December 5, 2002

99.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.1 3 j6139_ex10d1.htm EX-10.1

Exhibit 10.1

REVISED

February 5, 2002

Frank Blake

1077 30th Street NW, Apt. 407

Washington, D.C. 20007

Dear Frank,

This will confirm The Home Depot, Inc.’s offer and your acceptance of employment effective March 21, 2002 in the position of Executive Vice President - Strategy, Business Development and Corporate Operations, reporting directly to me. Your initial base annual salary will be $525,000, payable in equal bi-weekly installments. Your first salary review will be held in April of 2002, with salary reviews held annually thereafter.

In addition to your base salary, you will participate in the Management Incentive Program, which provides an annual incentive target of up to 100% of your base salary, based upon achieving established goals. We will guarantee a full incentive payment of 100% of your base salary for fiscal year 2002, payable in 2003. To be eligible for payment of any incentive, you must be employed on the day on which the incentive is paid.

In addition to the compensation outlined above, we will give you a $100,000 signing bonus. This will be payable to you within 30 days of your first day of employment.

You will also participate in the Long-Term Incentive Plan (LTIP), which provides an incentive target of 75% of your base salary. This plan’s payout is based on a three year performance period and a new three year performance period begins every year. Upon hire you will receive the plan documents explaining this plan.

At the next meeting of The Home Depot, Inc. Compensation Committee following the commencement of your employment, you will receive a grant of 250,000 non-qualified stock options exercisable in accordance with the 1997 Omnibus Stock Option Plan, a copy of which is enclosed for your information. Twenty-five percent of the stock options will become exercisable on the second, third, fourth, and fifth anniversaries of the grant date. Expiration of all stock options will be the earlier of ten years from the grant date or termination of employment. The issuance of stock options is a continuing pattern in our company; you will be reviewed in April of 2002 for additional stock option grants and in the years to come, beyond what is being offered in this letter.

Also, at the next meeting of The Home Depot, Inc. Compensation Committee following the commencement of your employment, you will receive a grant of 70,000 shares of restricted stock in accordance with the 1997 Omnibus Stock Option Plan. The restrictions on twenty-five percent of the shares will lapse on the third anniversary of the grant date, twenty-five percent will lapse on the sixth anniversary, and the remaining 50% will lapse at age 62, and the shares will be yours, free and clear of restrictions.

In addition to the above stock option grant, you will be eligible to participate in The Home Depot Employee Stock Purchase Plan. The plan affords you the opportunity to purchase Home Depot stock at a 15% discount through payroll deductions. See the enclosed brochure for a detailed explanation of the plan.

You will also be eligible to participate in The Home Depot Nonqualified Deferred Compensation Program. This plan affords you the opportunity to defer up to fifty percent of your base salary and one hundred percent of your annual management incentive payment into the plan. Upon hire you will receive the plan document explaining this plan.

The Home Depot offers an extensive benefits program for our associates and their dependents. The insurance coverages begin on your employment date with the Company. After one year of service, you are also eligible to participate in The Home Depot FutureBuilder, a 401(k) and Stock Ownership Plan. For full details on our various benefits, please review the enclosed benefits summary.

In addition to the standard benefits package for salaried associates, as an officer of the Company, you will receive an additional $250,000 Death Benefit Only insurance policy. You are also able to participate in the Supplemental Executive Choice Program. Under this program you will receive an annual supplemental benefit allowance of $25,000. This amount will be grossed up for income tax purposes. You can use this annual allowance to purchase additional disability or life insurance benefits, personal excess liability insurance, or you can use it to reimburse yourself for financial services or health care expenses not covered under our standard health plans. Additionally, you will be eligible to participate in a new leased car program that we are in the process of implementing. Upon hire you will receive your personalized Supplemental Executive Choice Program package for enrollment in this plan.

Our standard vacation policy will be waived and you will be entitled to four weeks of vacation during each anniversary year of employment with Home Depot. Should you leave the employment of the Company at any time you will be paid for unused vacation strictly in accordance with Home Depot’s standard vacation policy.

The Home Depot offers a comprehensive relocation package. In general, authorized relocation benefits include: (a) one home-finding trip (not to exceed five days) for two (yourself and your spouse) to the new location; (b) packing and hauling of typical household belongings and the shipment of one automobile (if two are owned) for moves between 500-1,500 miles and both automobiles if the move is over 1,500 miles; (c) reimbursement for eligible travel expenses to your new location; (d) a relocation allowance of $25,000 (appropriate taxes withheld) to assist with miscellaneous expenses; (e) the Company will reimburse reasonable and customary closing costs net to you for the purchase of a home; and (f) to assist with the sale of your current home, the Company will extend an Appraised Value Offer (guaranteed buy-out) following ninety days of marketing assistance through The Home Depot Relocation Department.

The Relocation Department has a network of quality brokers in place across the United States to assist you at your destination whether you plan to rent or purchase. Do not list your home with a Realtor until you speak with a Relocation Coordinator. It is critical that the Relocation Department at The Home Depot be involved in all aspects of your relocation, including all travel plans, in order to receive the above benefits. If you have questions regarding any of the relocation benefits, you may call Lee Cagle, Director of Relocation at (770) 384-2903.

You agree that you shall not, without the prior express written consent of an officer of the Company, engage in or have any financial or other interests in, or render any service in any capacity to any competitor or supplier of the Company during the course of your employment with the Company. Notwithstanding the foregoing, you shall not be restricted from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers, provided that such investment does not exceed 1% of the market value of the outstanding securities of such corporation. The provisions of this paragraph shall apply to you and your immediate family.

You have stated that you have not agreed to and are not subject to any covenant not to compete with any prior employer, except as set forth in your severance arrangement with GE, a copy of which you have provided to us. You understand that it is not the intention of Home Depot to receive or obtain any trade secrets of others. Accordingly you agree that you will not disclose or use during the period of your employment with Home Depot any proprietary information or confidential information which you may have acquired because of employment with an employer other than Home Depot. Further, you agree that you will not bring Home Depot any documents in any form containing proprietary or confidential information from a prior employer.

In the event your employment with Home Depot is terminated for any reason, you agree not to disclose any Home Depot proprietary or confidential information to any future employer or third party or to take copies in any form of any documents containing such information.

By accepting this offer you acknowledge that you will be exposed to Company materials which are proprietary and confidential in nature and/or which constitute trade secrets, and, further, that you will receive training in the Company’s various merchandising, operations, financial, and/or other business processes. You further acknowledge that such proprietary and confidential information, including trade secrets and human resources and other business processes, are utilized by the Company throughout the entire United States. Consequently, you agree that you will not, for a period of thirty-six (36) months subsequent to your termination from Home Depot, regardless of the reason for the termination, enter into or maintain an employment or contractual relationship, either directly or indirectly, with any company or entity engaged in any way in a business that competes directly or indirectly with Home Depot, its parents, subsidiaries, affiliates or related entities (collectively referred to as the “Company”), in the United States without the prior written consent of the Company. Businesses that compete with the Company specifically include, but are not limited to, the following entities and each of their subsidiaries affiliates, assigns, or successors in interest: Lowe’s Companies, Inc. (including, but not limited to, Eagle Hardware and Garden); Hechinger Investment Company, Inc. (including, but not limited to, Home Quarters, Hechinger, and Builder’s Square); Sears (including, but not limited to, Orchard Supply and Hardware Company); Wal-Mart; Home Base, Inc; and Menard, Inc.

In the event you wish to enter into any relationship or employment prior to the end of the above referenced thirty-six (36) month period which may be covered by the above non-compete provision, you agree to request written permission from the Executive Vice President, Human Resources of the Company prior to entering any such relationship or employment. The Company may approve or not approve of the relationship or employment in its absolute discretion.

You agree that prior to the end of the thirty-six (36) month period stated above that you will not directly or indirectly solicit any person who is an employee of the Company to terminate his or her relationship with the Company without prior written approval from the Executive Vice President, Human Resources of the Company.

If you accept Home Depot’s offer of employment, and Home Depot notifies you of its intention to terminate your employment involuntarily and without cause subsequent to your written acceptance of this employment agreement, you will be eligible to receive, in exchange for your execution of a general release in a form acceptable to Home Depot’s legal counsel, twelve (12) months base salary continuation, target incentive, and medical coverage during the period of salary continuation. In this circumstance, all unvested stock options from the initial grant of 250,000 non-qualified stock options will vest immediately and all restrictions on the initial grant of 70,000 shares of restricted stock shall lapse immediately. During the twelve (12) months of salary continuation, outstanding options other than the initial grant referenced above will continue to vest and restrictions on outstanding restricted shares will continue to lapse. You will not receive any additional stock option or restricted stock grants during the twelve (12) months salary continuation period. You will have 90 days from the end of the salary continuation period to exercise any options that are vested at that time.

You will not be entitled to receive these payments and benefits, or any other type of payment or benefit, if you voluntarily resign from Home Depot, regardless of when or why you have resigned from your employment. You also are not entitled to receive these payments or benefits, or any other type of payment or benefit, if you terminated from Home Depot “for cause.” Termination “for cause” includes, but is not limited to, termination for:

• Violation of the Company’s Respect Policy

• Harassment of or discrimination against associates, customers, or vendors

• Unethical conduct (including, but not limited to, accepting bribes, disclosure of confidential information, etc.)

• Falsification of Company records or documents

• Violation of the Company’s Conflict of Interest policy

• Theft

• Failure to meet the Company’s performance expectations or standards that are communicated to you during your performance reviews. In the event the Company determines that you are not meeting its performance expectations or standards, you will be notified of the specific performance issues in writing and provided a reasonable period of time (not less than 90 days) to correct such issues

• Failure to accept a reassignment or restructured role within the Atlanta Metropolitan area, provided the new role has an equivalent base salary, maintains the Executive Vice President title and reports to Bob Nardelli

• Violation of the Company’s Mutual Attraction policy

• Violation of the Company’s Substance Abuse policy

If you terminate your employment with Home Depot for “good reason,” you will be entitled to the same benefits that you would be entitled to if you were involuntarily terminated by the Company without cause, subject to the same terms and conditions. “Good reason” shall mean, without your consent:

• Your assignment or restructured role outside the Atlanta Metropolitan area

• Your assignment or restructured role with a decrease in base salary

• Your assignment to a position other than Executive Vice President , or a position that does not report to Bob Nardelli

You must give at least 30 days written notice if you wish to terminate your employment for good reason.

As a condition of employment, you must take and pass a drug test. A positive test will result in the denial of your employment. Testing must be done within seven days from the signing of this letter. Enclosed is information regarding your test.

This employment agreement does not obligate the Company to continue your employment for any specified period of time, subject to the termination “without cause” and “good reason” provisions outlined above.

We are pleased to welcome you to the Home Depot family. I have enclosed a copy of this letter for your records. Please sign, date and return the original to me.

Sincerely,

/s/ Robert L. Nardelli

Robert L. Nardelli
Chairman, President & CEO

Enclosures

pc: Dennis Donovan

Carol Tomé

DeWayne Truitt

I accept this offer of employment.

/s/ Frank Blake		March 9, 2002
Frank Blake		Date

EX-10.2 4 j6139_ex10d2.htm EX-10.2

Exhibit 10.2

REVISED

February 5, 2002

Robert DeRodes

252 Smokerise Trace

Peachtree City, GA 30269

Dear Bob,

This will confirm The Home Depot, Inc.’s offer and your acceptance of employment effective February 25, 2002 in the position of Executive Vice President - Information Technology and Chief Information Officer, reporting directly to me. Your initial base annual salary will be $550,000, payable in equal bi-weekly installments. Your first salary review will be held in April of 2003, with salary reviews held annually thereafter.

In addition to your base salary, you will participate in the Management Incentive Program which provides an annual incentive target of up to 100% of your base salary, based upon achieving established goals. We will guarantee a full incentive payment of 100% of your base salary in the amount of $550,000, payable no later than April 15, 2002, less bonus, if any, paid by your former employer for 2001. Additionally, we will guarantee a full incentive payment of 100% of your base salary for fiscal year 2002, payable in 2003. To be eligible for payment of any incentive, you must be employed on the day on which the incentive is paid.

In addition to the compensation outlined above, we will give you a cash payment of $150,000. This will be payable to you in July of 2002, to cover the estimated value of a restricted share grant that you will forfeit with your previous employer.

You will also participate in the Long-Term Incentive Plan (LTIP), which provides an incentive target of 75% of your base salary. This plan’s payout is based on a three-year performance period and a new three-year performance period begins every year. Upon hire you will receive the plan documents explaining this plan.

At the next meeting of The Home Depot, Inc. Compensation Committee following the commencement of your employment, you will receive a grant of 220,000 non-qualified stock options exercisable in accordance with the 1997 Omnibus Stock Option Plan, a copy of which is enclosed for your information. Twenty-five percent of the stock options will become exercisable on the second, third, fourth, and fifth anniversaries of the grant date. Expiration of all stock options will be the earlier of ten years from the grant date or termination of employment. The issuance of stock options is a continuing pattern in our company; you will be reviewed in April 2003 for additional stock option grants and in the years to come, beyond what is being offered in this letter.

Also, at the next meeting of The Home Depot, Inc. Compensation Committee following the commencement of your employment, you will receive a grant of 70,000 shares of restricted stock in accordance with the 1997 Omnibus Stock Option Plan. The restrictions on 25,000 of the shares will lapse on each of the first and second anniversaries of the grant date, the restrictions on 10,000 shares will lapse on each of the third and forth anniversaries of the grant date, and the shares will be yours, free and clear of restrictions.

You will also be eligible to participate in The Home Depot Nonqualified Deferred Compensation Program. This plan affords you the opportunity to defer up to fifty percent of your base salary and up to one hundred percent of your annual management incentive payment into the plan. Upon hire you will receive the plan document explaining this plan.

Our standard vacation policy will be waived and you will be entitled to five weeks of vacation during each anniversary year of employment with Home Depot. Should you leave the employment of the Company at any time you will be paid for unused vacation strictly in accordance with Home Depot’s standard vacation policy.

You have stated that you have not agreed to and are not subject to any covenant not to compete with any prior employer. You understand that it is not the intention of Home Depot to receive or obtain any trade secrets of others. Accordingly you agree that you will not disclose or use during the period of your employment with Home Depot any proprietary information or confidential information which you may have acquired because of employment with an employer other than Home Depot. Further, you agree that you will not bring Home Depot any documents in any form containing proprietary or confidential information from a prior employer.

If you accept Home Depot’s offer of employment, and Home Depot notifies you of its intention to terminate your employment involuntarily and without cause subsequent to your written acceptance of this employment agreement, you will receive, in exchange for your execution of a general release in a form acceptable to Home Depot’s legal counsel, twelve (12) months base salary continuation, target incentive, and medical coverage during the period of salary continuation. In this circumstance, all unvested stock options from the initial grant of 220,000 non-qualified stock options will vest immediately and all restrictions on the initial grant of 70,000 shares of restricted stock shall lapse immediately. During the twelve (12) months of salary continuation, outstanding options other than the initial grant referenced above will continue to vest and restrictions on outstanding restricted shares will continue to lapse. You will not receive any additional stock option or restricted stock grants during the twelve (12) months salary continuation period. You will have 90 days from the end of the salary continuation period to exercise any options that are vested at that time.

• Violation of the Company’s Respect Policy

• Harassment of or discrimination against associates, customers, or vendors

• Unethical conduct (including, but not limited to, accepting bribes, disclosure of confidential information, etc.)

• Falsification of Company records or documents

• Violation of the Company’s Conflict of Interest policy

• Theft

• Violation of the Company’s Mutual Attraction policy

• Violation of the Company’s Substance Abuse policy

• Your assignment or restructured role outside the Atlanta Metropolitan area

• Your assignment or restructured role with a decrease in base salary

• Your assignment to a position other than Executive Vice President , or a position that does not report to the Chief Executive Officer

You must give at least 30 days written notice if you wish to terminate your employment for good reason.

As a condition of employment, you must take and pass a drug test. A positive test will result in the denial of your employment. Testing must be done within 48 hours from the receipt of this letter. Enclosed is information regarding your test.

We are pleased to welcome you to the Home Depot family. I have enclosed a copy of this letter for your records. Please sign, date and return the original to me.

Sincerely,

/s/ Robert L. Nardelli

Robert L. Nardelli
Chairman, President & CEO

Enclosures

pc: Dennis Donovan

Carol Tomé

DeWayne Truitt

I accept this offer of employment.

/s/ Robert DeRodes		2/7/02
Robert DeRodes		Date

EX-10.3 5 j6139_ex10d3.htm EX-10.3

Exhibit 10.3

September 26, 2002

John Costello

860 Gloucester Crossing

Lake Forest, IL 60045

Dear John,

This will confirm The Home Depot, Inc.’s offer and your acceptance of employment effective November 4, 2002 in the position of Executive Vice President and Chief Marketing Officer, reporting directly to me. You have agreed to tender your resignation to your current employer by October 15, 2002 and continue your employment with your current employer until November 1, 2002. Your initial base annual salary will be $550,000, payable in equal bi-weekly installments. Your first salary review will be held in April of 2003, with salary reviews held annually thereafter.

In addition to your base salary, you will participate in the Senior Officer Management Incentive Program, which provides an annual incentive target of up to 100% of your base salary, based upon achieving established goals. We will guarantee a payment of $450,000 for fiscal year 2002, payable in 2003 (offset by any Yahoo! award received for fiscal year 2002). To be eligible for payment of any incentive, you must be employed on the day on which the incentive is paid.

In addition to the compensation outlined above, we will give you a $200,000 signing bonus. This will be payable to you within 30 days of your first day of employment. In the event you have an obligation to your current employer to repay signing bonuses and/or relocation expenses, you will be reimbursed for up to $400,000 within 30 days following written verification of such repayments. In the event that you voluntarily terminate your service with The Home Depot, Inc. within your first three years of employment, you will, at the Company’s discretion, be required to repay the signing bonus and reimbursements outlined in this paragraph.

Commencing in fiscal year 2003 you will be eligible to participate in the Long-Term Incentive Plan (LTIP), which provides an incentive target of 75% of your base salary. This plan’s payout is based on a three-year performance period and a new three-year performance period begins every year. Upon hire you will receive the plan documents explaining this plan.

At the next meeting of The Home Depot, Inc. Compensation Committee following the commencement of your employment, you will receive a grant of 250,000 non-qualified stock options exercisable in accordance with the 1997 Omnibus Stock Option Plan, a copy of which is enclosed for your information. Twenty-five percent of the stock options will become exercisable on the second, third, fourth, and fifth anniversaries of the grant date. Expiration of all stock options will be the earlier of ten years from the grant date or termination of employment. While there can be no guarantee of future stock option grants, the issuance of stock options is a continuing pattern in our company. You will be reviewed in April of 2003 for additional stock option grants beyond what is being offered in this letter.

Also, at the next meeting of The Home Depot, Inc. Compensation Committee following the commencement of your employment, you will receive a grant of 70,000 shares of restricted stock in accordance with the 1997 Omnibus Stock Option Plan. The restrictions on twenty-five percent of the shares will lapse on the third anniversary of the grant date, twenty-five percent will lapse on the sixth anniversary of the grant date, and the remaining fifty percent will lapse at age 62.

In addition to the standard benefits package for salaried associates, as an officer of the Company, you will receive an additional $250,000 Death Benefit Only insurance policy. You are also able to participate in the Supplemental Executive Choice Program. Under this program you will receive an annual supplemental benefit allowance of $25,000. This amount will be grossed up for income tax purposes. You can use this annual allowance to purchase additional disability or life insurance benefits, personal excess liability insurance, or you can use it to reimburse yourself for financial services or health care expenses not covered under our standard health plans. Additionally, you will be eligible to participate in the leased car program. Upon hire you will receive your personalized Supplemental Executive Choice Program package for enrollment in this plan.

The Home Depot offers a comprehensive relocation package. Relocation benefits include: (a) one home-finding trip (not to exceed five days) for two (yourself and your spouse/domestic partner) to the new location; (b) packing and hauling of typical household belongings and the shipment of one automobile (if two are owned) for moves between 500-1,500 miles and both automobiles if the move is over 1,500 miles; (c) reimbursement for eligible travel expenses to your new location; (d) a relocation allowance of $ 25,000 to assist with miscellaneous expenses (appropriate taxes will be withheld); and (e) to assist with the sale of your current home, following ninety days of marketing assistance through The Home Depot Relocation Department, the Company will extend an Appraised Value Offer (guaranteed buy-out) utilizing a third party home purchase provider (see enclosed Relocation brochure for details). You will also be reimbursed for the loss-on-sale of your principal residence based on the difference in the contract purchase price and the contract sale price. Appropriate taxes will be withheld from the loss-on-sale. If you sell your current home, you are entitled to the reimbursement of 2% of closing costs on the purchase of a new home excluding loan origination and discount point(s) and a home inspection up to $400.

The Relocation Department has a network of quality brokers in place across the United States to assist you at your destination whether you plan to rent or purchase. It is our understanding that your Illinois home is currently listed. The Relocation department will work with your current agent in order to facilitate the sale of your residence. You may call Mike Lequier of Relocation at (770) 384-3506.

By accepting this offer you acknowledge that you will be exposed to Company materials which are proprietary and confidential in nature and/or which constitute trade secrets, and, further, that you will receive training in the Company’s various merchandising, operations, financial, and/or other business processes. You further acknowledge that such proprietary and confidential information, including trade secrets and human resources and other business processes, are utilized by the Company throughout the entire United States and in other locations in which it conducts business. Consequently, you agree that you will not, for a period of thirty-six months subsequent to your termination from Home Depot, regardless of the reason for the termination, enter into or maintain an employment or contractual relationship, either directly or indirectly, with any company or entity in the home improvement industry engaged in any way in a business that competes with Home Depot, its parents, subsidiaries, affiliates or related entities (collectively referred to as the “Company”), in the United States, Canada, Puerto Rico, Mexico, or any other location in which the Company conducts business or may conduct business prior to the end of the above referenced thirty-six month period, without the prior written consent of the Company. Businesses that compete with the Company in the home improvement industry specifically include, but are not limited to, the following entities and each of their subsidiaries affiliates, assigns, or successors in interest: Lowe’s Companies, Inc. (including, but not limited to, Eagle Hardware and Garden); Sears (including, but not limited to, Orchard Supply and Hardware Company); Menard Inc.; and Wal-Mart.

In the event you wish to enter into any relationship or employment prior to the end of the above referenced thirty-six month period which may be covered by the above non-compete provision, you agree to request written permission from the Executive Vice President, Human Resources of the Company prior to entering any such relationship or employment. The Company may approve or not approve of the relationship or employment in its absolute discretion.

You agree that prior to the end of the thirty-six month period stated above that you will not directly or indirectly solicit any person who is an employee of the Company to terminate his or her relationship with the Company without prior written approval from the Executive Vice President, Human Resources of the Company.

If you accept Home Depot’s offer of employment, and Home Depot notifies you of its intention to terminate your employment involuntarily and without cause subsequent to your written acceptance of this employment agreement, you will be eligible to receive, in exchange for your execution of a general release in a form acceptable to Home Depot’s legal counsel, twenty-four (24) months base salary continuation and medical coverage during the period of salary continuation. In this circumstance, all unvested stock options from the initial grant of 250,000 non-qualified stock options will vest immediately and all restrictions on the initial grant of 70,000 shares of restricted stock shall lapse immediately. During the twenty-four (24) months of salary continuation, outstanding options, other than the initial grant referenced above, will continue to vest and restrictions on outstanding restricted shares will continue to lapse. You will not receive any additional stock option or restricted stock grants during the twenty-four (24) months salary continuation period. You will have 90 days from the end of the salary continuation period to exercise any options that are vested at that time.

You will not be entitled to receive these payments and benefits, or any other type of payment or benefit, if you voluntarily resign from Home Depot, regardless of when or why you have resigned from your employment. You also are not entitled to receive these payments or benefits, or any other type of payment or benefit, if you terminated from Home Depot “for cause.” For purposes of this letter, termination “for cause” shall mean:

• Conviction of a felony involving theft or moral turpitude

• Conduct that constitutes willful gross neglect or willful gross misconduct with respect to your employment duties which results in material economic harm to the Company

• Willful conduct that constitutes a material violation of the Company’s mutual attraction policy, substance abuse policy, or compliance policies (each as shall be in place from time to time)

For purposes of determining whether conduct constitutes willful gross misconduct or willful conduct or whether neglect constitutes willful gross neglect, no act or omission on your part shall be considered “willful” unless it is done in bad faith and without reasonable belief that your action or inaction was in the best interests of the Company.

• Your assignment or restructured role outside the Atlanta Metropolitan area

• Your assignment or restructured role with a decrease in base salary

• Your assignment to a position other than Executive Vice President (EVP), or a position that does not report to the CEO

You must give at least 30 days written notice if you wish to terminate your employment for good reason.

This is a conditional offer of employment contingent on a background check and drug test results. As a condition to your employment, you must take and pass a drug test and pass the background check. A positive test result or failure to pass the background check will result in the denial of your employment. Drug testing must be done within 48 hours from receipt of this letter. Enclosed is information regarding your drug test.

We are pleased to welcome you to the Home Depot family. I have enclosed a copy of this letter for your records. Please sign, date and return the original to me.

Sincerely,

/s/ Bob Nardelli
Bob Nardelli
Chairman, President & CEO

Enclosures

pc: Dennis Donovan

Carol Tome

Tim Crow

I accept this offer of employment.

	/s/ John Costello		9/29/02
	John Costello		Date

EX-10.4 6 j6139_ex10d4.htm EX-10.4

Exhibit 10.4

SEPARATION AGREEMENT & RELEASE

This is an Agreement between Home Depot U.S.A., Inc. (hereinafter “Home Depot” or the “Company”) and Larry M. Mercer (the “Executive”).

WHEREAS, the Company and the Executive intend the terms and conditions of this Agreement to govern all issues related to the Executive’s employment and termination from the Company; and,

WHEREAS, the Executive acknowledges that he has been given a reasonable period of time, up to and including twenty-one (21) days, to consider the terms of this Agreement; and,

WHEREAS, the Company advises the Executive to consult with a lawyer before signing this Agreement; and,

WHEREAS, the Executive acknowledges that the consideration provided him under this Agreement is sufficient to support the releases provided by him under this Agreement; and,

WHEREAS, the Executive represents that he has not filed any charges, claims or lawsuits against the Company involving any aspect of his employment which have not been terminated as of the date of this Agreement; and,

WHEREAS, the Executive understands that the Company regards the representations by him as material and that the Company is relying on these representations in entering into this Agreement,

NOW, THEREFORE, the Company and the Executive agree as follows:

1. Employment Status and Termination Date. The Executive will be placed on a paid Leave of Absence (“LOA”) commencing on December 1, 2002 and extending through the earlier of either (a) March 1, 2004 or (b) Executive’s acceptance of employment outside the Company. If Executive accepts other employment before March 1, 2004, the paid LOA will end immediately and Executive will be placed on an unpaid LOA, without pay or benefits, until May 1, 2004. If Executive has not accepted other employment before March 1, 2004, Executive will be placed on the unpaid LOA, without pay or benefits, from March 1, 2004 until May 1, 2004. Executive’s last day of employment will be May 1, 2004 (“Termination Date”), or as otherwise provided in Paragraph 9 (Breach by Executive) below. Executive will notify the Company, in writing, as soon as he has accepted employment outside the Company. Executive shall not accrue any vacation days or credit subsequent to December 1, 2002.

2. Annual Salary. Executive shall continue at his current salary level during the paid LOA.

3. Annual Bonus. Executive will be eligible for a bonus for Fiscal Year 2002. There is no minimum or guaranteed bonus. The bonus, if any, will be paid at the same time other officers receive their bonuses. Executive will not be eligible for any other bonus payments, including any bonus payments relating to Fiscal Year 2003 or Fiscal Year 2004.

4. Benefits. The Executive will be eligible to continue to participate in the Company’s health and welfare benefit plans, including the Supplemental Executive Choice Program, during the paid LOA.

5. Stock Options/Restricted Stock.

(a) All of Executive’s outstanding, non-vested stock options will vest in accordance with the terms of the original grant except that none of such options shall vest after the Termination Date. All of Executive’s vested stock options must be exercised within 90 days of the Termination Date.

(b) The restrictions on Executive’s outstanding shares of restricted stock will lapse in accordance with the terms of the original grant. The restrictions on 24,000 outstanding shares of restricted stock, originally scheduled to lapse between August 16, 2004 and September 18, 2007, will lapse instead on the Termination Date. The remainder of Executive’s outstanding shares of restricted stock (30,000 shares) shall be forfeited.

(c) Executive shall not be eligible to receive any other equity-based awards after the Effective Date set forth in Paragraph 16.

6. Release of Claims. The Executive and his heirs, assigns, and agents release, waive and discharge the Company and its past and present directors, officers, employees, parents, subsidiaries, affiliates, related entities, and agents from each and every claim, action or right of any sort, known or unknown, arising on or before the Effective Date.

(a) The foregoing release includes, but is not limited to, any claim of discrimination on the basis of race, sex, religion, sexual orientation, national origin, disability, age, or citizenship status; any other claim based on any local, state, or federal prohibition, including but not limited to claims under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended, or the Americans With Disabilities Act; any claim arising out of or related to any alleged express or implied employment contract, any other alleged contract affecting terms and conditions of employment, or an alleged covenant of good faith and fair dealing; or any claim for severance pay, bonus, salary, sick leave, stocks, attorneys’ fees, holiday pay, vacation pay, life insurance, health or medical insurance or any other fringe benefit, workers’ compensation or disability.

(b) The Executive represents that he understands the foregoing release, that rights and claims under the Age Discrimination in Employment Act of 1967, as amended, are among the rights and claims against the Company he is releasing, and that he understands that he is not presently releasing any future rights or claims that might arise after the Effective Date.

(c) The Executive further agrees never to sue the Company or cause the Company to be sued regarding any matter within the scope of the above release. If the Executive

violates this Release by suing the Company or causing the Company to be sued, the Company may recover all damages as allowed by law, including all costs and expenses, including reasonable attorneys’ fees, incurred by the Company in defending against the suit.

7. Confidential Information. The Executive acknowledges that through his employment with the Company he has acquired and had access to the Company’s confidential and proprietary business information and trade secrets. The Executive agrees that the Company may prevent the use or disclosure of its confidential information and proprietary business information and trade secrets and acknowledges that the Company has taken all reasonable steps necessary to protect the secrecy of the information. “Confidential Information” shall include any data or information that is valuable to the Company and not generally known to competitors of the Company or other outsiders, regardless of whether the confidential information is in printed, written or electronic form, retained in the Executive’s memory or has been compiled or created by the Executive. This includes, but is not limited to: technical, financial, personnel, staffing, payroll, computer systems, marketing, advertising, merchandising, product, vendor, customer or store planning data, trade secrets, or other information similar to the foregoing. The Executive agrees that he has not and in the future will not use or disclose to any third party Confidential Information, unless compelled by law and after notice to the Company, and further agrees to return all documents, disks, or any other item or source containing Confidential Information, or any other Company property, to the Company on or before December 1, 2002. If the Executive has any question regarding what data or information would be considered by the Company to be information subject to this provision, the Executive agrees to contact the Executive Vice President, Human Resources for written clarification.

8. Non-Competition and Non-Solicitation.

(a) The Executive agrees that he will not, prior to December 1, 2005, enter into or maintain an employment or contractual relationship, either directly or indirectly, to provide executive or managerial services in the same or similar manner as he did for the Company to any company or entity engaged in any way in a business that competes directly or indirectly with the Company, its parents, subsidiaries, affiliates or related entities, in the United States, Canada, Puerto Rico, Mexico, or any other location in which the Company, its parents, subsidiaries, affiliates or related entities currently conduct business or may conduct business prior to December 1, 2005, without the prior written consent of the Company. Businesses that compete with the Company specifically include, but are not limited to, the following entities and each of their subsidiaries, affiliates, assigns, or successors in interest: Lowe’s Companies, Inc. (including, but not limited to, Eagle Hardware and Garden); Hechinger Investment Company, Inc. (including, but not limited to, Home Quarters, Hechinger, and Builder’s Square); Payless Cashways, Inc.; Dekor; Sears (including, but not limited to, Orchard Supply and Hardware Company); Wal-Mart; Home Base, Inc; and Menard, Inc.

(b) In the event the Executive wishes to enter into any relationship or employment prior to December 1, 2005 which would be covered by the above non-compete provision, Executive agrees to request written permission from the Executive Vice President, Human Resources of the Company prior to entering any such relationship or

employment. The Company may approve or not approve of the relationship or employment at its absolute discretion.

(c) The Executive agrees that prior to December 1, 2005, he will not directly or indirectly solicit any person who is an employee of the Company to terminate his or her relationship with the Company without prior written approval from the Executive Vice President, Human Resources of the Company.

9. Breach by Executive. The Company’s obligations to the Executive under this Agreement are contingent on Executive’s performance of his obligations under this Agreement. Any material breach by Executive of this Agreement will result in the immediate cancellation of all Executive’s stock options and restricted stock, the immediate termination of Executive’s employment, as well as entitle the Company to all its other remedies allowed in law or equity, including but not limited to the return of any payments that it made to Executive under this Agreement and the return to the Company of any proceeds Executive received from stock options exercised after December 1, 2002 or from shares of restricted stock where the restrictions lapsed after December 1, 2002.

10. Executive Availability.

(a) During the paid LOA, the Executive shall be available to provide services to the Company, as requested and authorized by the Company from time to time, not to exceed forty (40) hours in any given month. During the unpaid LOA, the Executive agrees to make himself reasonably available to the Company to respond to requests by the Company for information pertaining to or relating to the Company and/or the Company’s affiliates, subsidiaries, agents, officers, directors or employees which may be within the knowledge of the Executive.

(b) At all times, including after the Termination Date, Executive agrees to cooperate fully with the Company in connection with any and all existing or future litigation, charges, or investigations brought by or against the Company or any of its past or present affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which and to the extent the Company deems the Executive’s cooperation necessary.

(c) In conjunction with Executive’s commitments under subsections (a) or (b) of this paragraph, the Company will reimburse the Executive for reasonable out-of-pocket expenses incurred as a result of such cooperation.

11. Non-Disparagement. The Executive agrees that he will not make or cause to be made any statements that disparage, are inimical to, or damage the reputation of the Company or any of its past or present affiliates, subsidiaries, agents, officers, directors or employees. In the event such a communication is made to anyone, including but not limited to the media, public interest groups and publishing companies, it will be considered a material breach of the terms of this Agreement and the Executive will be required to reimburse the Company for any and all compensation and benefits paid under the terms of this Agreement and all commitments to make additional payments to the Executive will be null and void. Executive shall direct any inquiries

from prospective employers to the Executive Vice President, Human Resources for verification of his employment with the Company.

12. Insider Trading. The Executive acknowledges that prior to the Termination Date, he remains subject to the restrictions of the Company’s Insider Trading Policy. After the Termination Date, the Insider Trading Policy will no longer apply to the Executive. However, the Executive acknowledges that through his employment with the Company he may have learned material, non-public information regarding the Company. The federal securities laws prohibit trading by persons while aware of material, non-public information. The Executive should seek advice of his legal counsel prior to conducting any transactions in the Company’s stock if the Executive thinks he may possess such information.

13. Future Employment. The Executive hereby understands and agrees that he will not be re-employed by the Company in the future and that Executive will never knowingly apply to the Company, its subsidiaries, affiliates, parents or divisions for any job or position in the future.

14. Severability of Provisions. In the event that any provision in this Agreement is determined to be legally invalid or unenforceable by any court of competent jurisdiction, and cannot be modified to be enforceable, the affected provision shall be stricken from the Agreement, and the remaining terms of the Agreement and its enforceability shall remain unaffected.

15. Right to Revoke this Agreement. The Executive may revoke this Agreement in writing within seven (7) days of signing it. The Agreement will not take effect until the Effective Date. If the Executive revokes this Agreement, all of its provisions shall be void and unenforceable.

16. Effective Date. The Effective Date shall be the day after the end of the revocation period described in Paragraph 15.

17. Confidentiality. The Executive shall keep strictly confidential all the terms and conditions, including amounts, in this Agreement and shall not disclose them to any person other than the Executive’s spouse and the Executive’s legal or financial advisor, unless compelled by law to do so. If a person not a party to this Agreement requests or demands, by subpoena or otherwise, that the Executive disclose or produce this Agreement or any terms or conditions thereof, the Executive shall immediately notify the Company and shall give the Company an opportunity to respond to such notice before taking any action or making any decision in connection with such request or subpoena.

18. Arbitration. Any dispute regarding any aspect of this Agreement or any act which allegedly has or would violate any provision of this Agreement (“arbitrable dispute”) will be submitted for final and binding arbitration in Delaware before an experienced employment arbitrator licensed to practice law in Delaware and selected in accordance with the rules of the American Arbitration Association, as the exclusive remedy for such claim or dispute. The decision of the arbitrator shall be final and binding and judgment on the award may be entered in any court of competent jurisdiction. Should any party to this Agreement hereafter institute any legal action or administrative proceeding against the other with respect to any claim waived by

this Agreement or pursue any arbitrable dispute by any method other than said arbitration, the responding party shall be entitled to recover from the initiating party all damages as allowed by law, including but not limited to reasonable attorneys’ fees, costs and expenses incurred as a result of such action. This paragraph is not applicable to claims of violation of Paragraphs 7, 8, 11 or 17 (Confidential Information; Non-Competition and Non-Solicitation; Non-Disparagement; Confidentiality) of this Agreement.

19. Non-Assignment. The Executive represents and warrants that as of the date of this Agreement he has not assigned or transferred, or purported to assign or transfer, to any person, firm, corporation, association or entity whatsoever any released claim. Executive hereby agrees to indemnify and hold the Company harmless against, without any limitation, any and all rights, claims, warranties, demands, debts, obligations, liabilities, costs, court costs, expenses, including attorneys’ fees, causes of action or judgments based on or arising out of any such assignment or transfer.

20. Entire Agreement. This Agreement constitutes the entire understanding between the parties. The parties have not relied on any oral statements that are not included in this Agreement. Any modifications to this Agreement must be in writing and signed by the Executive and an authorized executive or agent of the Company.

21. Governing Law. This Agreement shall be construed, interpreted and applied in accordance with the law of the State of Delaware, without giving effect to the choice of law provisions thereof. Executive and the Company hereby irrevocably submit to the exclusive concurrent jurisdiction of the courts of Delaware. Executive and the Company also both irrevocably waive, to the fullest extent permitted by applicable law, any objection either may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute, and both parties agree to accept service of legal process in Delaware.

The Executive understands and acknowledges the significance and consequences of this Agreement, that the consideration provided herein is fair and adequate, and represents that the terms of this Agreement are fully understood and voluntarily accepted.

Home Depot U.S.A., Inc.

By:	/s/ Dennis Donovan	9/16/2002
	Dennis Donovan	Date

	/s/ Larry M. Mercer	10/7/2002
	Larry M. Mercer	Date

EX-11.1 7 j6139_ex11d1.htm EX-11.1

Exhibit 11.1

THE HOME DEPOT, INC. AND SUBSIDIARIES

COMPUTATION OF BASIC AND DILUTED
EARNINGS PER SHARE

(In Millions, Except Per Share Data)

	Three Months Ended				Nine Months Ended
	November 3, 2002		October 28, 2001		November 3, 2002		October 28, 2001

BASIC

Net Earnings Available to Common Shareholders	$	940	$	778	$	2,978	$	2,334

Weighted Average Number of Common Shares Outstanding	2,337		2,337		2,347		2,332

Basic Earnings Per Share	$	0.40	$	0.33	$	1.27	$	1.00

DILUTED

Net Earnings Available to Common Shareholders	$	940	$	778	$	2,978	$	2,334

Weighted Average Number of Common Shares Outstanding	2,337		2,337		2,347		2,332

Effect of Potentially Dilutive Securities: Employee Stock Plans	6		15		9		18

Weighted Average Number of Common Shares Outstanding Assuming Dilution	2,343		2,352		2,356		2,350

Diluted Earnings Per Share	$	0.40	$	0.33	$	1.26	$	0.99

Employee stock plans represent options and shares granted under the Company’s employee stock purchase, stock option and deferred compensation stock plans. Options to purchase 72.1 million and 11.4 million shares of common stock at November 3, 2002 and October 28, 2001, respectively, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

EX-15.1 8 j6139_ex15d1.htm EX-15.1

Exhibit 15.1

INDEPENDENT ACCOUNTANTS’ ACKNOWLEDGEMENT

To the Shareholders and Board of Directors of The Home Depot, Inc.:

We acknowledge our awareness of the incorporation by reference of our report dated November 18, 2002, included within the Quarterly Report on Form 10-Q of The Home Depot, Inc. for the quarter ended November 3, 2002, in the following Registration Statements:

DESCRIPTION:		REGISTRATION STATEMENT NUMBER

Form S-3

DepotDirect employee stock purchase program		333-03497

DepotDirect employee stock purchase program		333-81485

Form S-8

The Home Depot, Inc. Amended and Restated 1981 Incentive Stock Option Plan		33-22299

The Home Depot, Inc. Employee Stock Purchase Plan		33-22531

The Home Depot, Inc. 1991 Omnibus Stock Option Plan		33-46476

The Home Depot, Inc. Non-U.S. Employee Stock Purchase Plan		033-58807

The Home Depot Futurebuilder		333-01385

The Home Depot, Inc. Employee Stock Purchase Plan		333-16695

The Maintenance Warehouse Futurebuilder		333-91943

The Home Depot Futurebuilder		333-85759

The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan		333-61733

The Home Depot Futurebuilder for Puerto Rico		333-56207

The Home Depot Canada Registered Retirement Savings Plan		333-38946

The Home Depot, Inc. Restated and Amended Employee Stock Purchase Plan		333-56724

The Home Depot, Inc. Non-Qualified Stock Option and Deferred Stock Units Plan and Agreement		333-56722

The Home Depot, Inc. Deferred Stock Units Plan and Agreement		333-62316

The Home Depot, Inc. Deferred Stock Units Plan and Agreement		333-62318

The Home Depot, Inc. Deferred Stock Units Plan and Agreement		333-72016

Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ KPMG LLP
KPMG LLP
Atlanta, Georgia
December 5, 2002

EX-99.1 9 j6139_ex99d1.htm EX-99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Home Depot, Inc. (the “Company”) on Form 10-Q for the period ended November 3, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert L. Nardelli, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert L. Nardelli
Robert L. Nardelli
Chief Executive Officer
December 5, 2002

EX-99.2 10 j6139_ex99d2.htm EX-99.2

Exhibit 99.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Home Depot, Inc. (the “Company”) on Form 10-Q for the period ended November 3, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carol B. Tomé, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Carol B. Tomé
Carol B. Tomé
Chief Financial Officer
December 5, 2002