<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Statement 333-12575
Registration Statement 333-12811
$1,000,000,000
(LOGO) The Home Depot
3 1/4% Convertible Subordinated Notes Due 2001
Interest payable April 1 and October 1 Due October 1, 2001
------------------
The Notes are convertible into Common Stock of The Home Depot, Inc. (the
"Company") at any time on or before October 1, 2001, unless previously
redeemed, at a conversion price of $69 1/8 per share, subject to
adjustment in certain events. On September 26, 1996, the
reported last sale price of the Common Stock on the New
York Stock Exchange was $56 5/8 per share.
The Notes are redeemable, in whole or in part, at the option of the Company at
any time on or after October 2, 1999 at the redemption prices set forth herein
plus accrued interest. See "Description of Notes -- Optional Redemption."
The Notes are unsecured general obligations of the Company, are
subordinated in right of payment to all existing and future Senior
Indebtedness (as defined) of the Company and are structurally
subordinated to all liabilities of the Company's subsidiaries. The
Indenture does not restrict the incurrence of Senior
Indebtedness or other indebtedness by the Company or its
subsidiaries. At July 28, 1996, the Company had
approximately $175,491,000 of outstanding Senior
Indebtedness, and its subsidiaries had approximately
$2,300,000,000 of outstanding liabilities.
The Notes have been authorized for listing on the New York Stock Exchange,
subject to official notice of issuance.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Discounts
Price to and Proceeds to
Public(1) Commissions Company(1)(2)
------------ ------------ ------------
<S> <C> <C> <C>
Per Note...................................... 100.0% 1.0% 99.0%
Total(3)...................................... $1,000,000,000 $10,000,000 $990,000,000
</TABLE>
(1) Plus accrued interest, if any, from October 2, 1996.
(2) Before deduction of expenses payable by the Company estimated at $565,000.
(3) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of the initial public offering of the Notes, to purchase up
to an additional $104,000,000 principal amount of Notes solely to cover
over-allotments. If the option is exercised in full, the total price to the
public will be $1,104,000,000, underwriting discounts will be $11,040,000
and proceeds to the Company will be $1,092,960,000.
------------------
The Notes are offered by the Underwriters when, as and if issued by the
Company, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Notes, in book-entry form, will be made through the facilities of The Depository
Trust Company, Cedel Bank, societe anonyme or the Euroclear System on or about
October 2, 1996 against immediately available funds.
CS First Boston Invemed Associates, Inc.
The date of this Prospectus is September 26, 1996
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES OFFERED
HEREBY OR THE COMPANY'S COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE NOTES OFFERED HEREBY OR THE COMPANY'S COMMON STOCK
PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES
EXCHANGE ACT OF 1934.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part)
under the Securities Act of 1933 (the "Securities Act"), with respect to the
Notes offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference to such contract or document. For further information regarding
the Company and the Notes offered hereby, reference is hereby made to the
Registration Statement and the exhibits and schedules thereto which may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. The
Registration Statement, the exhibits and schedules forming a part thereof, and
the reports, proxy statements and other information filed by the Company with
the Commission in accordance with the Exchange Act can be inspected and copied
at the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Seven World Trade Center, 13th Floor, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site at http://www.sec.gov. which contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission. In addition, the Company's Common Stock is listed on the
New York Stock Exchange and similar information concerning the Company can be
inspected and copied at the New York Stock Exchange, 20 Broad Street, New York,
New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus: (a) the
Company's Annual Report on Form 10-K for the year ended January 28, 1996;
(b) the Company's Quarterly Report on Form 10-Q for the quarter ended April 28,
1996; (c) the Company's Quarterly Report on Form 10-Q (as amended) for the
quarter ended July 28, 1996; and (d) the description of the Company's Common
Stock contained in the Registration Statement on Form 8-A, as filed with the
Commission.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any and all of the documents incorporated by reference in this Prospectus
(other than exhibits to such documents unless such exhibits are themselves
specifically incorporated by reference into such documents). Requests should be
directed to Lawrence K. Menter, Senior Corporate Counsel and Assistant
Secretary, The Home Depot, Inc., 2727 Paces Ferry Road, Atlanta, Georgia
30339-4089, telephone (770) 433-8211.
2
<PAGE> 3
THE COMPANY
Home Depot is the leading retailer in the home improvement industry and
ranks among the 10 largest retailers in the United States based on net sales
volume. As of July 28, 1996, the Company operated 456 full-service,
warehouse-style stores in 34 states in the United States (433 stores) and three
provinces in Canada (23 stores) which aggregate approximately 48 million square
feet of selling space. The Company's stores average approximately 105,300 square
feet of indoor selling space, with an additional 20,000 to 28,000 square feet of
outside garden center area. The Company's business strategy is to offer the
broadest assortment of high-quality merchandise at low "Day-In, Day-Out"
warehouse prices through highly-trained and knowledgeable customer service
associates. The Company employs over 93,000 associates.
Since a large proportion of the Company's customers are individual
homeowners, many of whom may have limited experience in do-it-yourself projects,
management considers its associates' knowledge of products and home improvement
techniques and applications to be very important to its marketing approach, as
well as to its ability to maintain customer satisfaction. The Company also
offers installation services for a variety of products, which target the
buy-it-yourself customer who desires to purchase an item but relies upon a
professional for installation services. In addition, Home Depot devotes
significant marketing, advertising and service efforts toward attracting
professional remodelers and commercial customers.
The Company's stores offer approximately 40,000-50,000 SKUs of high-quality
and nationally advertised brand name building materials and home improvement
products catering primarily to the do-it-yourself and professional business
customer. Product groups include building materials, lumber and floor and wall
covering (33.9% of fiscal 1995 sales); plumbing, heating, lighting and
electrical supplies (27.7%); seasonal and specialty items (14.8%); hardware and
tools (13.2%); and paint and other (10.4%). The Company sources its merchandise
from approximately 5,400 vendors worldwide, of which no single vendor accounts
for as much as 5% of purchases.
Home Depot expects to increase its store count on a basis consistent with
its current policy of not exceeding a maximum new store growth rate of
approximately 22% per year. The Company plans to open approximately 90 new
stores and relocate seven existing stores during fiscal 1996 (of which 50 have
been opened and five have been relocated as of September 26, 1996). While it is
anticipated that a large number of such stores will be opened in existing
markets, Home Depot has opened or plans to open stores in a number of new
markets in fiscal 1996, including Little Rock, Louisville, Memphis,
Minneapolis/St. Paul, Pittsburgh, St. Louis, Spokane, Syracuse and Windsor,
Ontario. The Company also plans to open approximately 117 stores, including
relocations, in fiscal 1997. As of July 28, 1996, the Company owned
approximately 73% of its stores (including those owned subject to a ground
lease). The Company prefers to own its stores, as compared to leasing, since it
provides the Company with greater levels of operating and financial flexibility.
For the six months ended July 28, 1996, the Company's sales increased 25%
to approximately $9.7 billion and net earnings increased 26% to approximately
$465.2 million as compared to the comparable period of fiscal 1995. Comparable
store sales for the six months ended July 28, 1996 increased 6%. The Company
intends to continue its long-term strategy, where appropriate, of opening new
stores within a close vicinity of existing stores that are operating at or above
their optimum capacities, thereby intentionally "cannibalizing" certain stores.
While such a strategy may initially have a negative impact on the rate of
comparable store sales growth, management believes the benefits include
increasing customer satisfaction and increasing market share by reducing
shopping delays, increasing utilization by existing customers and attracting new
customers to more convenient locations. Excluding the impact of cannibalized
stores, comparable store sales would have increased 10% for the six months ended
July 28, 1996.
The Company's corporate offices are located at 2727 Paces Ferry Road,
Atlanta, Georgia 30339-4089, telephone number (770) 433-8211.
3
<PAGE> 4
USE OF PROCEEDS
The net proceeds from the sale of the Notes offered hereby are estimated to
be $989,435,000 (assuming the over-allotment option is not exercised). The
proceeds of this offering will be used principally to refinance outstanding
commercial paper and to finance a portion of the Company's capital expenditure
programs, including planned store expansion and renovations, and for general
corporate purposes. On an interim basis, the Company intends to invest a portion
of the proceeds in interest-bearing securities.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of the Company is listed on the New York Stock Exchange
under the symbol "HD". The table below sets forth the high and low sales prices
of the Common Stock on the New York Stock Exchange Composite Tape as reported in
The Wall Street Journal and the quarterly cash dividends declared per share of
Common Stock during the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE CASH
------------------- DIVIDENDS
LOW HIGH DECLARED
------- ------- ---------
<S> <C> <C> <C>
FISCAL YEAR 1994
First Quarter ended May 1, 1994............................. $37.13 $44.63 $ .03
Second Quarter ended July 31, 1994.......................... 39.63 46.38 .04
Third Quarter ended October 30, 1994........................ 39.75 46.25 .04
Fourth Quarter ended January 29, 1995....................... 44.13 48.25 .04
FISCAL YEAR 1995
First Quarter ended April 30, 1995.......................... 40.25 50.00 .04
Second Quarter ended July 30, 1995.......................... 38.63 45.25 .05
Third Quarter ended October 29, 1995........................ 36.63 44.88 .05
Fourth Quarter ended January 28, 1996....................... 37.13 48.00 .05
FISCAL YEAR 1996
First Quarter ended April 28, 1996.......................... 42.50 50.38 .05
Second Quarter ended July 28, 1996.......................... 45.50 57.00 .06
Third Quarter (through September 26, 1996).................. 50.25 58.25 .06
</TABLE>
For a recent sales price of the Common Stock on the New York Stock
Exchange, see the cover page of this Prospectus.
The Company paid its first cash dividend on June 22, 1987 and has paid
dividends in each quarter since then. Future dividend policy will depend on the
Company's earnings, capital requirements, financial condition and other factors
considered relevant by the Board of Directors.
4
<PAGE> 5
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data under the captions "Consolidated
Statement of Earnings Data" and "Consolidated Balance Sheet Data" in the
following table for each of the years in the five-year period ended January 28,
1996 are derived from the Company's consolidated financial statements. Such
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected consolidated financial data in the
following table for each of the six-month periods ended July 30, 1995 and July
28, 1996 have not been audited by independent certified public accountants but
reflect, in the opinion of the Company, all adjustments necessary to present
fairly the results for such period. The information below should be read in
conjunction with the consolidated financial statements, related notes and other
information incorporated by reference herein and with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------------------- ----------------------
FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1992 1993 1994 1995 1996 1995 1996
------------ ------------ ----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SALES PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Net sales........................ $5,136,674 $7,148,436 $ 9,238,763 $12,476,697 $15,470,358 $7,720,684 $9,655,132
Cost of merchandise sold......... 3,692,337 5,179,368 6,685,384 8,991,204 11,184,772 5,600,117 6,998,307
------------ ------------ ----------- ----------- ----------- ---------- ----------
Gross profit............ 1,444,337 1,969,068 2,553,379 3,485,493 4,285,586 2,120,567 2,656,825
------------ ------------ ----------- ----------- ----------- ---------- ----------
Operating expenses:
Selling and store operating.... 928,928 1,245,608 1,624,920 2,216,540 2,783,926 1,365,677 1,720,717
Pre-opening.................... 17,668 26,959 36,816 51,307 52,342 26,020 23,002
General and administrative..... 116,063 147,080 184,954 230,456 269,464 132,559 152,208
------------ ------------ ----------- ----------- ----------- ---------- ----------
Total operating
expenses.............. 1,062,659 1,419,647 1,846,690 2,498,303 3,105,732 1,524,256 1,895,927
------------ ------------ ----------- ----------- ----------- ---------- ----------
Operating income........ 381,678 549,421 706,689 987,190 1,179,854 596,311 760,898
------------ ------------ ----------- ----------- ----------- ---------- ----------
Interest income (expense):
Interest and investment
income....................... 26,790 67,562 60,896 28,510 19,597 8,855 6,959
Interest expense............... (12,348) (41,010) (30,714) (35,949) (4,148) (3,454) (2,734)
------------ ------------ ----------- ----------- ----------- ---------- ----------
Interest, net........... 14,442 26,552 30,182 (7,439) 15,449 5,401 4,225
------------ ------------ ----------- ----------- ----------- ---------- ----------
Earnings before income
taxes................. 396,120 575,973 736,871 979,751 1,195,303 601,712 765,123
Income taxes..................... 146,970 213,110 279,470 375,250 463,780 231,060 299,930
------------ ------------ ----------- ----------- ----------- ---------- ----------
Net earnings............ $ 249,150 $ 362,863 $ 457,401 $ 604,501 $ 731,523 $ 370,652 $ 465,193
=========== =========== ========== ============ ============ ========== ==========
Earnings per common and common
equivalent share(1)............ $ 0.60 $ 0.82 $ 1.01 $ 1.32 $ 1.54 $ 0.78 $ 0.97
=========== =========== ========== ============ ============ ========== ==========
Weighted average number of common
and common equivalent shares
(000s)(1)...................... 415,997 444,989 453,037 475,947 477,977 477,424 481,384
=========== =========== ========== ============ ============ ========== ==========
OTHER OPERATING DATA:
Ratio of earnings to fixed
charges(2)..................... 8.2x 7.7x 9.0x 9.9x 13.8x 14.1x 15.8x
Number of stores................. 174 214 264 340 423 379 456
Square footage at end of period
(000s)......................... 16,480 20,897 26,383 35,133 44,356 39,643 48,033
Weighted average sales per square
foot........................... $ 348 $ 387 $ 398 $ 404 $ 390 $ 414 $ 419
Comparable store sales........... 11% 15% 7% 8% 3% 4% 6%
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 28, 1996
----------------------------------------------------------------- ----------------------
FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(3)
------------ ------------ ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................. $ 623,937 $ 807,028 $ 993,963 $ 918,724 $ 1,255,487 $ 939,964 $1,763,399
Total assets..................... 2,510,292 3,931,790 4,700,889 5,778,041 7,354,033 7,997,552 8,831,552
Long-term debt................... 270,575 843,672 874,048 983,369 720,080 275,389 1,109,389
Stockholders' equity............. 1,691,212 2,304,081 2,814,100 3,442,223 4,987,766 5,468,552 5,468,552
</TABLE>
- ---------------
(1) Adjusted retroactively for three-for-two stock splits effected in the form
of stock dividends in June 1991 and July 1992 and a four-for-three stock
split effected in the form of a stock dividend in April 1993.
(2) For purposes of computing the ratios of earnings to fixed charges, earnings
represent earnings before income taxes, minority interest and fixed charges
(including the effects of capitalized interest). Fixed charges include gross
interest expense and one-third (the portion deemed representative of the
interest factor) of rents.
(3) Adjusted to reflect the sale of the Notes offered hereby and the application
of estimated net proceeds therefrom after the deduction of the estimated
offering expenses and underwriting discounts and commissions (assuming the
over-allotment option is not exercised). See "Use of Proceeds."
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the
Company's performance during the past three fiscal years ended January 28, 1996
and the six months ended July 28, 1996, the following discussion should be read
in conjunction with the consolidated financial statements, related notes and
other information incorporated by reference herein.
Six Months Ended July 28, 1996 Compared to July 30, 1995
For the first six months of fiscal 1996, sales increased 25% to
$9,655,132,000 from sales of $7,720,684,000 for the comparable period in fiscal
1995. The sales increase for such period was primarily attributable to new
stores (456 at the end of the second quarter of fiscal 1996 compared to 379 at
the end of the second quarter of fiscal 1995) and a comparable store-for-store
sales increase of 6% for the first six months of fiscal 1996. For the second
quarter of fiscal 1996, comparable store-for-store sales increased 9% as
compared to the comparable period in fiscal 1995.
For the first six months of fiscal 1996, gross profit as a percent of sales
was 27.5% compared to 27.5% for the comparable period of fiscal 1995.
For the first six months of fiscal 1996, operating expenses as a percent of
sales were down slightly to 19.6% from 19.7% for the same period of fiscal 1995.
Selling and store operating expenses as a percent of sales increased to 17.8%
for the first six months of fiscal 1996, from 17.7% for the first six months of
fiscal 1995. This increase was attributable to, among other things, one-time
expenditures related to the Olympic Games and higher store relocation and
remodeling costs resulting primarily from the adoption in fiscal 1996 of certain
accounting standards which changed the timing of recognition of these expenses.
Additionally, profits increased in the Home Depot Canada partnership resulting
in higher minority interest. Pre-opening expenses as a percent to sales
decreased to 0.2% for the first six months of fiscal 1996 from 0.3% for the
comparable period of fiscal 1995. This decrease was primarily attributable to
the timing of store openings, as many of the Company's fiscal third quarter 1996
store openings are expected to occur in the latter part of the quarter and as a
result have not yet incurred significant pre-opening expenses. General and
administrative expenses as a percent to sales decreased to 1.6% for the first
six months of fiscal 1996 from 1.7% in the first six months of fiscal 1995. This
decrease was attributable to higher sales volumes and continued focus on
controlling costs.
Net interest income for the first six months of fiscal 1996 as a percent to
sales was 0.1% compared to 0.1% for the first six months of fiscal 1995.
The Company's combined Federal and state effective income tax rate
increased to 39.2% for the first six months of fiscal 1996 from 38.4% for the
comparable period of fiscal 1995. In the fourth quarter of fiscal 1995, the
Company adjusted its combined Federal and state effective income tax rate to
38.8% for the fiscal year. The increase in the rate for the first six months of
fiscal 1996 from the adjusted 1995 tax rate was due to a higher effective state
tax rate.
Net earnings as a percent of sales were 4.8% for the first six months of
fiscal 1996, as well as for the comparable period of fiscal 1995.
Earnings per share was $0.97 for the first six months of fiscal 1996,
compared to $0.78 for the first six months of fiscal 1995.
Fiscal Year Ended January 28, 1996 Compared to January 29, 1995
Sales for fiscal year 1995 increased 24% from $12,476,697,000 in fiscal
1994 to $15,470,358,000. This increase was attributable to, among other things,
83 new store openings, five store relocations, a 3% comparable store-for-store
sales increase and full year sales from the 69 new store openings during fiscal
1994.
6
<PAGE> 7
Gross profit as a percent of sales was 27.7% for fiscal 1995 compared to
27.9% for fiscal 1994. This lower gross profit percentage resulted primarily
from maintaining competitive pressure in many markets as well as changes in
merchandise mix.
Operating expenses as a percent of sales increased to 20.1% for fiscal 1995
compared to 20.0% in fiscal 1994. Selling and store operating expenses as a
percent of sales increased to 18.0% in fiscal 1995 compared to 17.8% in fiscal
1994. This increase was attributable to, among other things, higher store
payroll expenses due to higher average hourly wage rates resulting from a
greater percentage of long-term associates versus new hires and higher credit
card costs due to a greater percentage of credit sales. The increase in selling
and store operating expenses as a percent of sales was partially offset by lower
general and administrative expenses as a percent of sales due to continued
emphasis on controlling costs.
Interest and investment income as a percent of sales decreased to 0.1% in
fiscal 1995 compared to 0.2% during fiscal 1994. This decrease was attributable
to a lower investment base due to the utilization of funds for capital
expansion, partially offset by higher yields. Interest expense as a percent of
sales decreased to 0.0% for fiscal 1995 compared to 0.3% for fiscal 1994. This
decrease was attributable to the conversion to common stock of the 4 1/2%
Convertible Subordinated Notes on March 31, 1995 and higher capitalized
interest.
The Company's combined Federal and state effective income tax rate was
38.8% for fiscal 1995 compared to 38.3% for fiscal 1994. This increase was
attributable to lower tax-advantaged investments, a higher effective state
income tax rate and the expiration of targeted jobs tax credits.
Net earnings as a percent of sales was 4.7% for fiscal 1995 compared to
4.8% for fiscal 1994, reflecting lower gross profits, higher operating expenses
and a higher effective income tax rate, partially offset by lower interest
expense, as described above. Earnings per share was $1.54 for fiscal 1995
compared to $1.32 for fiscal 1994.
Fiscal Year Ended January 29, 1995 Compared to January 30, 1994
Sales for fiscal year 1994 increased 35.0% from $9,238,763,000 in fiscal
1993 to $12,476,697,000. This increase was attributable to, among other things,
69 new store openings, nine store relocations, the acquisition of a 75%
partnership interest in seven Canadian stores then known as Aikenhead's Home
Improvement Warehouse, an 8% comparable store-for-store sales increase and full
year sales from the 50 new store openings during fiscal 1993.
Gross profit as a percent of sales was 27.9% for fiscal 1994 compared to
27.7% for fiscal 1993. This higher gross profit percentage resulted primarily
from changes in merchandise mix including more decor products and upgraded
seasonal merchandise at higher margins, as well as decreased sales penetrations
in lumber which carries lower margins.
Operating expenses as a percent of sales were 20.0% for both fiscal 1994
and fiscal 1993. Selling and store operating expenses as a percent of sales
increased to 17.8% in fiscal 1994 compared to 17.6% in fiscal 1993. This
increase was attributable to, among other things, additional costs associated
with nine store relocations during fiscal 1994 compared to six store relocations
during fiscal 1993. The increase in selling and store operating expenses as a
percent of sales was offset by lower general and administrative expenses as a
percent of sales due to cost control measures and economies from higher sales
volumes.
Interest and investment income as a percent of sales decreased to 0.2% in
fiscal 1994 compared to 0.6% during fiscal 1993. This decrease was attributable
to a reduction of investment principal due to utilization of funds for capital
expansion, as well as lower yields due to shorter maturities on the investment
portfolio. Interest expense as a percent of sales was 0.3% for both fiscal 1994
and fiscal 1993. Higher interest expense from additional capital leases was
partially offset by higher capitalized interest resulting from constructing more
owned stores than in the previous year.
The Company's combined Federal and state effective income tax rate was
38.3% for fiscal 1994 compared to 38.2% in fiscal 1993, before cumulative effect
of change in accounting principle. This increase was attributable to lower
tax-advantaged investments. The Company implemented SFAS 109 "Accounting for
7
<PAGE> 8
Income Taxes" during fiscal 1993 which reduced the combined Federal and state
effective income tax rate to 37.9% in fiscal 1993.
Net earnings as a percent of sales was 4.8% for fiscal 1994 compared to
5.0% for fiscal 1993, reflecting lower interest income and a higher effective
income tax rate, partially offset by higher gross profits, as described above.
Earnings per share was $1.32 for fiscal 1994 compared to $1.01 during fiscal
1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from store operations provides the Company with a
significant source of liquidity. Additionally, a significant portion of the
Company's inventory is financed under vendor credit terms.
During the first six months of fiscal 1996, the Company opened 33 stores
and relocated five stores. The Company currently plans to open approximately 57
new stores and relocate two stores during the last six months of fiscal 1996 and
open approximately 117 new stores, including relocations, during fiscal 1997. Of
the planned 90 new stores and 7 relocations in fiscal 1996, it is expected that
74 will be owned and 23 will be leased.
In June 1996, the Company entered into a $300,000,000 operating lease
agreement for the purpose of financing construction costs of certain new stores.
Under the agreement, the lessor will purchase the properties, pay for the
construction costs and subsequently lease the facilities to the Company. The
lease provides for substantial residual value guarantees and includes purchase
options at original cost on each property. This agreement will primarily cover
new stores planned to open in 1996 and 1997. In addition to this lease
agreement, some planned locations for the remainder of fiscal 1996 and 1997 will
be leased directly, and it is expected that many may be obtained through the
purchase of pre-existing leasehold interests, acquisition of land parcels and
the construction or purchase of buildings during fiscal 1996. While the cost of
new stores to be constructed and owned by the Company varies widely, principally
due to land costs, new store costs (including land, building and fixtures) are
currently estimated to average approximately $13,800,000 per location. The
Company may purchase leasehold interests at varying amounts depending upon the
value of such properties. The cost to remodel (including leasehold interests)
and fixture stores to be leased is expected to average approximately $2,300,000
per store. In addition, each new store will require approximately $2,800,000 to
finance inventories, net of vendor financing.
As of July 28, 1996, the Company had $33,457,000 in cash and short-term
investments, and $13,831,000 in long-term investments. Management believes that
its current cash position, the proceeds from short-term and long-term
investments, internally generated funds, funds available from the $300,000,000
operating lease agreement, its $800,000,000 commercial paper program
($166,000,000 outstanding as of July 28, 1996), the proceeds from this offering
and/or the ability to obtain alternate sources of financing should enable the
Company to complete its capital expenditure programs, including store expansion
and renovation, through the next several fiscal years.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) was issued. SFAS 123
encourages companies to adopt a fair value based method of accounting for
stock-based compensation plans in place of the intrinsic value based method
provided for by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25). Companies which continue to apply the
provisions of APB 25 must make pro forma disclosures in the notes to their
financial statements of net income and earnings per share as if the fair value
based method of accounting defined in SFAS 123 has been applied. The Company
plans to adopt SFAS 123 in fiscal year 1996 on a pro forma disclosure basis.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe inflation has had a material
effect on sales or results of operations.
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DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, to be dated as of October 1,
1996 ( the "Indenture"), between the Company and The First National Bank of
Chicago, as Trustee (the "Trustee"). A copy of the Indenture substantially in
the form in which it is to be executed is included as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
statements are subject to the detailed provisions of the Indenture, including
the definitions therein of certain terms used herein without definition.
Wherever particular provisions of the Indenture are referred to below, such
provisions are incorporated by reference as a part of the statement made, and
the statement is qualified in its entirety by such reference. The section
references appearing below are to sections in the Indenture.
GENERAL
The Notes will be unsecured subordinated obligations of the Company, will
mature on October 1, 2001, and will be $1,000,000,000 aggregate principal
amount, plus such additional amount not in excess of $104,000,000 as may be
purchased by the Underwriters upon exercise of their over-allotment option. The
Notes will bear interest at the rate per annum stated on the cover page hereof
from October 2, 1996 or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semi-annually on April 1 and
October 1 in each year, commencing April 1, 1997 to the person in whose name
such Note (or any predecessor Note) is registered at the close of business on
the March 15 or September 15 preceding such Interest Payment Date (Sections 301
and 307).
Principal of, and premium, if any, and interest on the Notes will be
payable, Notes may be presented for conversion and transfers of the Notes will
be registrable at the office or agency of the Company in the Borough of
Manhattan, The City of New York, and transfers of the Notes will also be
registrable at such other office or agency of the Company as may be maintained
for such purpose. In addition, payment of interest may be made, at the option of
the Company, by check mailed to the address of the person entitled thereto as
shown on the Security Register (Sections 301, 305, 1002 and 1202). The Notes are
to be registered Notes, without coupons, in denominations of $1,000 or any
integral multiple thereof (Section 302). No service charge will be made for any
conversion or registration of transfer or exchange of Notes, except for any tax
or other governmental charge that may be imposed in connection therewith
(Section 305).
FORM OF NOTES
The Notes will be represented by one or more global securities (a "Global
Security") registered in the name of The Depository Trust Company ("DTC").
Except as set forth below, a Global Security may be transferred in whole and not
in part, only to DTC or another nominee of DTC or to a successor of DTC or its
nominee.
Upon the issuance of a Global Security, DTC will credit, on its book-entry
registration and transfer system, the respective principal amounts of the Notes
represented by such Global Security to the accounts of institutions that have
accounts with DTC or its nominee ("Participants"). The accounts to be credited
will be designated by the Underwriters, dealers or agents. Ownership of
beneficial interests in a Global Security will be limited to Participants or
persons that may hold interests through Participants. Ownership of interests in
such Global Security will be shown on, and the transfer of those ownership
interests will be effected only through, records maintained by DTC (with respect
to Participants' interests) and such Participants (with respect to the owners of
beneficial interests in such Global Security). The laws of some jurisdictions
may require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
transfer or pledge beneficial interests in a Global Security.
So long as DTC, or its nominee, is the registered holder and owner of such
Global Security, DTC or such nominee, as the case may be, will be considered the
sole owner and holder of the related Notes for all purposes of such Notes and
for all purposes under the Indenture. Except as set forth below, owners of
beneficial interests in a Global Security will not be entitled to have the Notes
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Notes in definitive form
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and will not be considered to be the owners or holders of any Notes under the
Indenture or such Global Security.
Accordingly, each person owning a beneficial interest in a Global Security
must rely on the procedures of DTC and, if such person is not a Participant, on
the procedures of the Participant through which such person owns its interest,
to exercise all rights of a holder of Notes or such Global Security. The Company
understands that under existing industry practice, in the event the Company
requests any action of holders of Notes or an owner of a beneficial interest in
a Global Security desires to take any action that DTC, as the holder of such
Global Security, is entitled to take, DTC would authorize the Participants to
take such action, and that the Participants would authorize beneficial owners
owning through such Participants to take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
Payment of principal and interest on Notes represented by a Global Security
will be made to DTC or its nominee, as the case may be, as the registered owner
and holder of such Global Security.
The Company expects that DTC, upon receipt of any payment of principal or
interest, will immediately credit the accounts of the Participants with such
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Security as shown in the records of
DTC. Payments by Participants to owners of beneficial interests in a Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name", and will be the
responsibility of such Participants. The Company and the Trustee will not have
any responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in a Global Security
for any Notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests or for any other aspect of the
relationship between DTC and its Participants or the relationship between such
Participants and the owners of beneficial interests in such Global Security
owned through such Participants.
Unless and until it is exchanged in whole or in part for Notes in
definitive form, a Global Security may not be transferred except as a whole by
DTC to a nominee of DTC, by a nominee of DTC to DTC or another nominee of DTC,
or to a successor of DTC or its nominee.
Notes represented by a Global Security will be exchangeable for Notes in
definitive form of like tenor as such Global Security in denominations of $1,000
and in any greater amount that is an integral multiple thereof if (i) DTC
notifies the Company that it is unwilling or unable to continue as depository
for such Global Security or DTC ceases to be a clearing agency registered under
the Exchange Act, (ii) the Company executes and delivers to the Trustee a
Company Order that such Global Security shall be so transferable, registrable
and exchangeable and such transfers shall be registrable or (iii) there shall
have occurred and be continuing an Event of Default with respect to the Notes.
Any Global Security that is exchangeable pursuant to the preceding sentence is
exchangeable for Notes issuable in authorized denominations and registered in
such names as DTC shall direct and an owner of a beneficial interest in a Global
Security will be entitled to physical delivery of such Security in definitive
form. Subject to the foregoing, a Global Security is not exchangeable except for
a Global Security or Global Securities of the same aggregate denominations to be
registered in the name of DTC or its nominee.
Holders may hold their Notes in Europe through Cedel Bank, societe anonyme
("CEDEL") or the Euroclear System ("Euroclear") if they are participants of such
systems, or indirectly through organizations that are participants in such
systems. CEDEL and Euroclear will hold omnibus positions on behalf of the CEDEL
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositories, which in turn will hold such positions in customers'
securities accounts in such depositories' names on the books of DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures. Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or indirectly through
CEDEL Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant
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European international clearing system by its depository; however, such
cross-market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to its
depository to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions directly to
the depositories.
CONVERSION RIGHTS
The Notes will be convertible into Common Stock of the Company at any time
prior to redemption or maturity, initially at the conversion price stated on the
cover page hereof. The right to convert Notes called for redemption will
terminate at the close of business on the business day next preceding the
Redemption Date and will be lost if not exercised prior to that time. For
information as to notices of redemption, see "Optional Redemption".
If the Company, by dividend or otherwise, declares or makes a distribution
on its Common Stock referred to in clause (iv) or (v) below, the Holder of each
Note, upon the conversion thereof subsequent to the close of business on the
date fixed for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the conversion price adjustment
in respect of such distribution pursuant to clause (iv) or (v) below, will be
entitled to receive for each share of Common Stock into which such Note is
converted the portion of the evidences of indebtedness, shares of capital stock,
cash and other assets so distributed applicable to one share of Common Stock;
provided, however, that the Company may, with respect to all Holders so
converting, in lieu of distributing any portion of such distribution not
consisting of cash or securities of the Company, pay such Holder cash equal to
the fair market value thereof (Section 1201).
The conversion price will be subject to adjustment in certain events
including: (i) dividends (and other distributions) payable in Common Stock on
any class of capital stock of the Company; (ii) the issuance to all holders of
Common Stock of rights or warrants entitling them to subscribe for or purchase
Common Stock at less than the current market price (as defined in the
Indenture); (iii) subdivisions, combinations and reclassifications of Common
Stock; (iv) distributions to all holders of Common Stock of evidences of
indebtedness of the Company, shares of capital stock, cash or assets (including
securities, but excluding those dividends, rights, warrants and distributions
referred to above and dividends and distributions paid exclusively in cash); (v)
distributions consisting exclusively of cash (excluding any cash distributions
referred to in (iv) above) to all holders of Common Stock in an aggregate amount
that, together with (A) other all-cash distributions made within the preceding
12 months and (B) any cash and the fair market value of other consideration
payable in respect of any tender offer by the Company or a Subsidiary for the
Company's Common Stock concluded within the preceding 12 months, exceeds 12.5%
of the Company's market capitalization (being the product of the current market
price (as defined in the Indenture) of the Common Stock times the number of
shares of Common Stock then outstanding) on the date of such distribution; and
(vi) the successful completion of a tender offer made by the Company or any
Subsidiary for the Company's Common Stock which involves an aggregate
consideration that, together with (X) any cash and other consideration payable
in respect of any tender offer by the Company or a Subsidiary for the Company's
Common Stock expiring within the 12 months preceding the expiration of such
tender offer and (Y) the aggregate amount of any all-cash distributions to all
holders of the Company's Common Stock within the 12 months preceding the
expiration of such tender offer, exceeds 12.5% of the Company's market
capitalization on the expiration of such tender offer. No adjustment of the
conversion price will be required to be made until cumulative adjustments amount
to 1% or more of the conversion price as last adjusted (Section 1204).
In addition to the foregoing adjustments, the Company will be permitted to
make such reductions in the conversion price as it considers to be advisable in
order that any event treated for Federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the Common Stock
(Section 1204). In the case of certain consolidations or mergers to which the
Company is a party or the transfer of
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substantially all of the assets of the Company, each Note then outstanding
would, without the consent of any Holders of Notes, become convertible only into
the kind and amount of securities, cash and other property receivable upon the
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Note might have been converted immediately prior to
such consolidation, merger, sale or transfer (assuming such holder of Common
Stock failed to exercise any rights of election and received per share the kind
and amount received per share by a plurality of non-electing shares) (Section
1211).
Fractional shares of Common Stock are not to be issued upon conversion,
but, in lieu thereof, the Company will pay a cash adjustment based upon market
price (Section 1203). Notes surrendered for conversion during the period from
the close of business on any Regular Record Date next preceding any Interest
Payment Date to the opening of business on any Interest Payment Date (except
Notes whose maturity is prior to such Interest Payment Date and Notes called for
redemption on a redemption date within such period) must be accompanied by
payment of an amount equal to the interest thereon which the registered Holder
is to receive. Except where Notes surrendered for conversion must be accompanied
by payment as described above, no interest on converted Notes will be payable by
the Company on any Interest Payment Date subsequent to the date of conversion.
No other payment or adjustment for interest or dividends is to be made upon
conversion (Sections 307 and 1202).
CERTAIN RIGHTS TO REQUIRE PURCHASE OF NOTES BY THE COMPANY
In the event any Repurchase Event (as defined below) occurs, each Holder of
Notes will have the right, at the Holder's option, to require the Company to
purchase all or any part of the Holder's Notes on the date (the "Repurchase
Date") that is 75 days after the date the Company gives notice of the Repurchase
Event as described below at a price (the "Repurchase Price") equal to 100% of
the principal amount thereof, together with accrued and unpaid interest to the
Repurchase Date (Section 1401). Prior to the Repurchase Date, the Company shall
deposit with a Paying Agent an amount of money sufficient to pay the Repurchase
Price of the Notes which are to be repaid on the Repurchase Date (Section 1403).
The Company may not purchase any Notes pursuant to the preceding paragraph
at any time when the subordination provisions of the Indenture would prohibit
the Company from making payments of principal in respect of the Notes. Failure
by the Company to repurchase the Notes when required under the preceding
paragraph will result in an Event of Default under the Indenture whether or not
such repurchase is permitted by the subordination provisions of the Indenture
(Section 501).
On or before the 15th day after the occurrence of a Repurchase Event, the
Company is obligated to mail to all Holders of record of the Notes a notice of
the occurrence of such Repurchase Event, the date by which the repurchase right
must be exercised, the Repurchase Price for Notes and the procedures which the
Holder must follow to exercise this right. To exercise the repurchase right, the
Holder of a Note must deliver, on or before the close of business on the
business day next preceding the Repurchase Date, written notice to the Company
(or an agent designated by the Company for such purpose) of the Holder's
exercise of such right, together with the certificates evidencing the Note or
Notes with respect to which the right is being exercised, duly endorsed for
transfer (Section 1402).
As used in the Indenture, (a) "Acquiring Person" means any person or group
as defined in Section 13(d)(3) of the Exchange Act and the rules and regulations
promulgated thereunder as in effect on the date of the Indenture) which,
together with all affiliates and associates (as defined in Rule 12b-2 under the
Exchange Act) becomes the owner or beneficial owner of shares of the Company
having more than 50% of the total number of votes that may be cast for the
election of directors of the Company; and (b) "Change in Control" means any
event by which an Acquiring Person has become such (other than by way of certain
mergers or consolidations effected in accordance with Section 801 of the
Indenture if within 7 days after the occurrence of such merger or consolidation,
no Person which may have become an Acquiring Person continues to be an Acquiring
Person). For purposes of the Indenture, a "Repurchase Event" shall have occurred
if (i) a Change in Control occurs on or prior to the maturity date and (ii) on
any date during the period commencing 90 days prior to the public disclosure of
an intent to effect such Change in Control and ending 90 days after the
occurrence of such Change in Control, the rating of the Notes is withdrawn or
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downgraded to lower than BBB- by Standard & Poor's Corporation ("S&P") or
withdrawn or downgraded to lower than Baa3 by Moody's Investors Service, Inc.
("Moody's"), and if such withdrawal or downgrading occurs prior to such public
disclosure, the rating remains withdrawn by S&P or Moody's, respectively, on the
date of such public disclosure or the rating assigned to the Notes by S&P or
Moody's on the date of such public disclosure remains lower than BBB- or lower
than Baa3, respectively (Section 1406).
The right of holders of the Notes to require the Company to repurchase the
Notes would not be triggered by certain corporate restructurings and similar
technical changes in corporate form, i.e., in the event of a merger or
consolidation of the Company where the Person formed by such consolidation or
into which the Company is merged expressly and directly assumes the obligations
of the Company in compliance with Section 801 of the Indenture, if within 7 days
after the occurrence of such merger or consolidation no person or entity which
may have temporarily acquired shares of the Company having more than 50% of the
total number of votes that may be cast for the election of directors of the
Company continues to hold such voting control. Similarly, the Holders' right to
require repurchase of the Notes would not be triggered in the event of a Change
in Control alone but only in the event a Change in Control occurs and the rating
of the Notes is lower than BBB- or Baa3 during the period specified in clause
(ii) of the definition of Repurchase Event as described above. If the rating of
the Notes before the public disclosure of an intent to effect a Change in
Control has been withdrawn or is below BBB- or Baa3 (whether or not such public
disclosure results in a further downgrade or withdrawal of the rating of the
Notes) then a Repurchase Event would occur absent the Notes being rated at least
BBB- or Baa3 on the date of such public announcement of a Change in Control and
for the period ending 90 days after the occurrence of such Change in Control.
The Indenture does not limit the incurrence of additional indebtedness by
the Company. Consequently, the rating of the Notes may be withdrawn or
downgraded at any time as a result of the incurrence of additional indebtedness
(or for any other reason) and, except in the case of a Change in Control, no
right to require repurchase would arise as a result thereof.
Although certain of the agreements under which the Senior Indebtedness of
the Company is or may be outstanding contain limitations on the incurrence of
indebtedness by the Company, such agreements may be amended or modified as
provided therein, may provide only incidental protection to holders of Notes in
the event of a Change in Control, and are not intended for the benefit of the
holders of the Notes.
The effect of these provisions granting the Holders the right to require
the Company to purchase the Notes upon the occurrence of a Repurchase Event may
make it more difficult for any person or group to acquire control of the Company
or to effect a business combination with the Company. For a summary of certain
supermajority voting provisions of the Company's Certificate of Incorporation,
see "Description of Common Stock -- Voting Rights".
In the event a Repurchase Event occurs and the Holders exercise their
rights to require the Company to repurchase Notes, the Company intends to comply
with applicable tender offer rules under the Exchange Act, including Rules 13e-4
and 14e-1, as then in effect, with respect to any such purchase.
SUBORDINATION OF NOTES
Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization, the payment of the principal of,
premium, if any, and interest on the Notes is to be subordinated to the extent
provided in the Indenture in right of payment to the prior payment in full of
all Senior Indebtedness of the Company (Sections 1301 and 1302), but the
obligation of the Company to make payments of principal of, premium, if any, and
interest on the Notes will not otherwise be affected (Section 1304). No payment
of principal of, premium, if any, or interest may be made on the Notes and no
repurchase of the Notes may be made as described under "Certain Rights to
Require Repurchase of Notes by the Company" at any time when there is a default
in the payment of principal of, premium, if any, interest or sinking fund on any
Senior Indebtedness of the Company (Section 1303). The Holders of the Notes will
be subrogated to the rights of the holders of the Senior Indebtedness of the
Company to the extent of payments made on Senior Indebtedness of the Company
upon any distribution of assets in any such proceedings out of the distributive
share of the Notes (Section 1302).
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By reason of such subordination, in the event of insolvency, creditors of
the Company who are such creditors other than by virtue of being holders of
Senior Indebtedness of the Company, or holders of the Notes may recover less,
ratably, than holders of Senior Indebtedness of the Company and may thus recover
more, ratably, than the Holders of the Notes.
Senior Indebtedness of the Company is defined in the Indenture as the
principal of, premium, if any, and unpaid interest on (a) indebtedness of the
Company (including indebtedness of others guaranteed by the Company), other than
the Notes, whether outstanding on the date of execution of the Indenture or
thereafter created, incurred, assumed or guaranteed, (i) for money owing to
banks, (ii) for money borrowed from other than banks or (iii) arising under a
lease of property, equipment or other assets, which indebtedness, pursuant to
generally accepted accounting principles then in effect, is classified upon the
balance sheet of the Company as a liability of the Company, unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such indebtedness is not superior in right of
payment to the Notes, and (b) renewals, extensions, modifications and refundings
of any such indebtedness (Section 101).
At July 28, 1996, Senior Indebtedness of the Company aggregated
approximately $175,491,000. The Company expects from time to time to incur
additional indebtedness constituting Senior Indebtedness of the Company. The
Indenture does not prohibit or limit the incurrence of additional Senior
Indebtedness of the Company.
OPTIONAL REDEMPTION
The Notes are not subject to the provisions of any sinking fund.
The Notes are not redeemable by the Company prior to October 2, 1999.
Thereafter, the Notes will be redeemable upon at least 30 days' notice at the
option of the Company, in whole or from time to time in part at any time, at the
following redemption prices (expressed as a percentage of the principal amount)
set forth below, in each case together with accrued interest: if redeemed during
the period commencing on October 2, 1999 and ending on (and including) October
1, 2000, 100.813%; and thereafter at 100% of the principal amount. (Sections
203, 1101, 1105 and 1107).
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee, with the consent of the Holders of not less than a majority in
principal amount of the Notes at the time outstanding; provided, however, that
no such modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby, (a) change the stated maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, or any premium or interest payable on, any Note, (c) change
the place or currency of payment of principal of, any premium or interest on,
any Note, (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any Note, (e) adversely affect the right to
convert Notes, (f) modify the subordination provisions in a manner adverse to
the Holders of the Notes, (g) reduce the above-stated percentage of outstanding
Notes necessary to modify or amend the Indenture, (h) adversely affect the right
to require the Company to repurchase the Notes upon the occurrence of a
Repurchase Event or (i) reduce the percentage of aggregate principal amount of
outstanding Notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults. (Section 902).
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive any past default under the Indenture, except a default in the
payment of principal, premium, if any, or interest (Section 513).
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (i) failure to
pay principal of, or premium, if any, on any Note when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (ii)
failure to pay any interest on any Note when due and continuance of such default
for 30 days,
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whether or not such payment is prohibited by the subordination provisions of the
Indenture; (iii) failure to pay the Repurchase Price in respect of any Note on
the Repurchase Date in the event of a Repurchase Event, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (iv)
failure to perform any other covenant of the Company in the Indenture, continued
for 60 days after written notice as provided in the Indenture; (v) default on
any indebtedness of the Company in excess of $50,000,000 representing
indebtedness for borrowed money or any Senior Indebtedness of the Company, as
defined in the Indenture, resulting in such indebtedness being declared due and
payable or becoming due and payable and the Holders thereof taking action to
collect such indebtedness; and (vi) certain events in bankruptcy, insolvency or
reorganization of the Company (Section 501).
If an Event of Default shall occur and be continuing, either the Trustee or
the Holders of at least 25% in principal amount of the Outstanding Notes may
accelerate the maturity of all Notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the Holders
of a majority in aggregate principal amount of Outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal, have been cured or
waived as provided in the Indenture (Section 502). For information as to waiver
of defaults see "Modification and Waiver".
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered to the Trustee reasonable indemnity (Section 603). Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in principal amount of the Outstanding Notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee (Section 512).
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in principal amount of the
Outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee, and the
Trustee shall not have received from the Holders of a majority in principal
amount of the Outstanding Notes a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days (Section 507).
However, such limitations do not apply to a suit instituted by a Holder of a
Note for the enforcement or payment of the principal of, or any premium or
interest on, such Note on or after the respective due dates expressed in such
Note or of the right to convert such Note in accordance with the Indenture
(Section 508).
The Company will be required to furnish to the Trustee annually a statement
as to its performance of certain of its obligations under the Indenture and as
to any default in such performance (Section 1004).
CONCERNING THE TRUSTEE
The Trustee and its affiliates have in the past and may in the future
perform commercial banking services for the Company. The Trustee will also act
under the Indenture in connection with the Notes as registrar, paying agent and
authenticating agent.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 1,000,000,000
shares of Common Stock, par value $.05 per share, of which, at August 15, 1996,
479,116,180 shares were outstanding. The number of record holders of the
Company's Common Stock was approximately 68,000 as of August 15, 1996.
VOTING RIGHTS
Each holder of shares of Common Stock is entitled to one vote per share in
all matters to be voted on by stockholders. There are no cumulative voting
rights, which means that the holders of shares entitled to
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<PAGE> 16
exercise more than 50% of the voting rights in the election of directors can
elect 100% of the directors if they choose. At each annual meeting of
stockholders, approximately one-third of the Board of Directors is elected.
All questions which must be voted on by the Company's stockholders are
determined by a majority of the votes cast at a stockholder meeting, except as
otherwise required by the laws of Delaware or the Company's Certificate of
Incorporation. The Company's Certificate of Incorporation provides that the
affirmative vote of 80% of the outstanding shares of its Common Stock is
required to amend the article which determines, among other things, the powers
and qualifications of the Board of Directors, unless such amendment is
unanimously recommended to the stockholders by the Board of Directors. Also, the
Company's Certificate of Incorporation provides that the affirmative vote of 80%
of the outstanding shares of its Common Stock is required for any of the
following transactions if proposed by a stockholder owning 20% or more of the
outstanding shares of Common Stock: (i) a "business combination" (as defined in
the Company's Certificate of Incorporation), including certain mergers,
acquisitions and asset sales; (ii) a proposed dissolution of the Company; or
(iii) a proposed amendment to the Certificate of Incorporation amending the
right of stockholders to vote in elections of directors or to authorize the
Company to issue shares, other than Common Stock, which could be entitled to
vote for the election of directors. This voting requirement may be reduced to
the statutory majority vote if the business combination or other transaction
meets certain specified requirements affecting the consideration received by the
Company's stockholders and the acquiror takes steps to ensure proportional Board
representation, does not acquire additional shares of the Company's securities
and does not receive the benefit of any financial assistance from the Company.
The Board of Directors may approve a business combination before an acquiror
becomes the beneficial owner of 5% of the Company's outstanding Common Stock and
may approve a business combination or other transaction prior to stockholder
adoption or authorization by a two-thirds vote of the disinterested directors.
The effect of this provision of the Company's Certificate of Incorporation is to
make it improbable that a business combination with the Company or other
transaction as described above could be accomplished without meeting the
requirements necessary to reduce the level of stockholder approval to a majority
vote.
The Company's Certificate of Incorporation provides for a classified board
of directors with terms of three years in length, the terms of office of
approximately one-third of the directors expiring each year. The Certificate of
Incorporation also provides that stockholders may not take any action, including
action by written consent as currently permitted by Delaware law, except at
annual or special meetings of stockholders called by the Chairman of the Board
of Directors, the President or a majority of the Board of Directors or as
otherwise required by law. These provisions may have the effect of making it
more difficult to change the composition of the Board of Directors or to effect
a business combination with the Company.
DIVIDEND RIGHTS
The holders of Common Stock are entitled to dividends and other
distributions as and when declared by the Board of Directors out of assets
legally available therefor.
OTHER RIGHTS
Upon the liquidation, dissolution or winding up of the Company, the holder
of each share of Common Stock would be entitled to share equally in the
distribution of all of the Company's assets. The holders of Common Stock have no
preemptive rights to purchase shares of stock of the Company, nor are they
entitled to the benefits of any sinking fund provision. Shares of Common Stock
of the Company are not subject to any redemption provisions, nor are they
convertible into any other security or other property of the Company. All
outstanding shares of Common Stock are, and the shares of Common Stock issuable
upon conversion of the Notes will be, fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is The
First National Bank of Boston.
16
<PAGE> 17
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated September 26, 1996 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters"), for whom CS First Boston
Corporation is acting as representative (the "Representative"), have severally
but not jointly agreed to purchase from the Company the following respective
principal amounts of the Notes:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
--------------------------------------------------------------------- -----------------
<S> <C>
CS First Boston Corporation.......................................... $ 500,000,000
Invemed Associates, Inc.............................................. 500,000,000
-----------------
Total...................................................... $ 1,000,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the Notes, if any are purchased.
The Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitment of the
non-defaulting Underwriter may be increased or the Underwriting Agreement may be
terminated.
The Company has granted the Underwriters an option, expiring at the close
of business on the 30th day after the date of the initial public offering of the
Notes, to purchase up to an additional $104,000,000 principal amount of Notes
endorsed thereon (the "Option Notes") at the initial public offering price less
the underwriting discount, all as set forth on the cover page of this
Prospectus. The Underwriters may exercise such option to cover over-allotments
in the sale of the Notes. To the extent that this option to purchase is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of the principal
amount of Option Notes being sold to the Underwriters as the principal amount
set forth next to such Underwriter's name in the preceding table bears to the
total principal amount of Notes in such table.
The Company has been advised by the Representative that the Underwriters
propose to offer the Notes to the public initially at the public offering prices
set forth on the cover page of this Prospectus and to certain dealers at such
prices less a concession of 0.6% of the principal amount per Note. After the
initial public offering, the public offering price and concession may be changed
by the Representative.
Each Underwriter has represented and agreed that (i) it has not offered or
sold and prior to the date six months after the date of issue of the Notes will
not offer or sell Notes to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public within the meaning of the Public Offers of Securities
Regulations 1995, (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the Notes in, from or otherwise involving the United Kingdom
and (iii) it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection with the
issue of the Notes if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The Notes have been authorized for listing on the New York Stock Exchange,
subject to official notice of issuance. The Representative has advised the
Company that each of the Underwriters currently intends to act as a market maker
for the Notes. However, the Underwriters are not obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Notes.
17
<PAGE> 18
The Company has agreed that, for a period of 90 days after the date of this
Prospectus, it will not, and it will use its reasonable efforts to cause its
directors and executive officers for such period not to, without the prior
written consent of the Representative, offer to sell, sell, contract to sell, or
otherwise dispose of any Common Stock or any security convertible into or
exchangeable for Common Stock other than to the Underwriters pursuant to the
Underwriting Agreement and other than upon conversion of convertible securities
outstanding on the date hereof or pursuant to employee benefit plans (including
stock option plans), dividend reinvestment plans, stock purchase plans or
similar plans in effect on the date hereof.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.
The Underwriters and their respective affiliates have provided investment
banking, commercial banking, brokerage and financial advisory services to the
Company from time to time. The Underwriters and their respective affiliates
received customary fees and underwriting commissions in connection with
providing such services.
Kenneth G. Langone, a director of the Company, is Chairman of the Board and
President of Invemed Associates, Inc.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Company and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such Notes without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions".
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
18
<PAGE> 19
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Company. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain anticipated United States federal
income tax consequences of the purchase, ownership and disposition of the Notes
(or Common Stock of the Company acquired upon conversion of a Note) as of the
date hereof. It deals only with Notes and Common Stock held as capital assets by
initial holders, and does not deal with special situations including those that
may apply to a particular holder such as exempt organizations, dealers in
securities, financial institutions, insurance companies and holders whose
"functional currency" is not the United States dollar. The federal income tax
considerations set forth below are based upon the Internal Revenue Code of 1986,
as amended (the "Code") and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified (possibly retroactively) so as to result in federal income tax
consequences different from those discussed below. As used herein, the term
"United States Holder" means a beneficial owner of a Note (or Common Stock of
the Company acquired upon conversion of a Note) that is for United States
federal income tax purposes (i) a citizen or resident of the United States, (ii)
a corporation created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) a person or entity otherwise
subject to United States federal income taxation on its worldwide income. As
used herein, the term "Non-United States Holder" means a beneficial holder of a
Note (or Common Stock of the Company acquired upon conversion of a Note) that is
not a United States Holder and is not a former U.S. citizen or former long-term
resident of the United States. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR
TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF PURCHASING, HOLDING
AND DISPOSING OF THE NOTES OR COMMON STOCK OF THE COMPANY, INCLUDING THE TAX
CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN LAWS.
UNITED STATES HOLDERS
Payment of interest on a Note will generally be taxable to a United States
Holder as ordinary interest income at the time such payments are accrued or
received (in accordance with the United States Holder's regular method of
accounting). Because the Notes will be issued at par, the Notes should not be
subject to the original issue discount rules of the Internal Revenue Code of
1986. If the Notes were issued for less than their principal amount, the Notes
could be subject to such original issue discount rules, in which case holders of
the Notes could be required to report interest income in respect of the Notes
prior to their receipt of cash.
A United States Holder will not recognize gain or loss upon conversion of
the Notes solely into Common Stock of the Company (except with respect to cash
received in lieu of fractional shares). The United States Holder's basis in the
Common Stock received on conversion will be the same as the United States
Holder's adjusted tax basis in the Notes at the time of conversion (including
any gain recognized with respect to cash received in lieu of fractional shares),
and the holding period for the Common Stock received on conversion will include
the holding period of the Notes that were converted.
A United States Holder will recognize gain or loss upon the sale,
redemption or other taxable disposition of the Notes in an amount equal to the
difference between the United States Holder's adjusted tax basis in the Note and
the amount received therefor (other than amounts attributable to accrued and
unpaid interest on the Notes which will be treated as interest for federal
income tax purposes). Such gain or loss generally will be long-term capital gain
or loss if the Notes were held for more than one year.
19
<PAGE> 20
The conversion price of the Notes is subject to adjustment under certain
circumstances. Under Section 305 of the Code and the Treasury Regulations issued
thereunder, adjustments or the failure to make such adjustments to the
conversion price of the Notes may result in a taxable constructive distribution
to the United States Holders of Notes, resulting in ordinary income (subject to
a possible dividends received deduction in the case of corporate holders) to the
extent of the Company's current and/or accumulated earnings and profits if, and
to the extent that, certain adjustments in the conversion price that may occur
in limited circumstances (particularly an adjustment to reflect a taxable
dividend to holders of Common Stock of the Company) increase the proportionate
interest in the earnings and profits or assets of the Company of a United States
Holder of a Note convertible into fully diluted Common Stock, whether or not the
United States Holder ever converts the Notes. Generally, a United States
Holder's tax basis in a Note will be increased by the amount of any such
constructive dividend.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, assuming
certain certification requirements are met (which include identification of the
beneficial owner of a Note), and subject to the discussion of backup withholding
below:
(a) Payments of interest on a Note to any Non-United States Holder will
generally not be subject to United States federal income or withholding tax,
provided that (1) the holder is not (i) a direct or indirect owner of 10% or
more of the total voting power of all voting stock of the Company, (ii) a
controlled foreign corporation related to the Company directly or indirectly by
stock ownership, (iii) a bank receiving interest pursuant to a loan agreement
entered into in the ordinary course of its trade or business or (iv) a foreign
tax-Exempt organization or a foreign private foundation for United States
federal income tax purposes, (2) such interest payments are not effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder ("Effectively Connected") and (3) the holder of the
Notes certifies, under penalties of perjury, as to its status as a Non-United
States Holder and provides its name and address.
(b) A Non-United States Holder will generally not be subject to United
States federal income tax on gain recognized on a sale, redemption or other
disposition of a Note or Common Stock (including the receipt of cash in lieu of
fractional shares upon conversion of a Note into Common Stock) unless (1) the
gain is Effectively Connected, (2) in the case of a Non-United States Holder who
is a nonresident alien individual and holds the Notes or Common Stock as a
capital asset, such holder is present in the United States for 183 days or more
in the taxable year of disposition and certain other requirements are met, or
(3) (i) the Company was, is or becomes a "United States real property holding
corporation" for United States federal income tax purposes, (ii) either the
holder beneficially owns 5% or more of the Common Stock of the Company or the
Common Stock is no longer regularly traded on an established securities market
and (iii) certain other requirements are met. There can be no assurance either
(1) that the Company has not been and will not be a United States real property
holding corporation or (2) that the Common Stock will continue to be regularly
traded on an established securities market.
(c) If interest on a Note is exempt from withholding of United States
federal income tax under the rules described in clause (a) above, the Notes will
not generally be included in the estate of a deceased Non-United States Holder
for United States federal estate tax purposes.
(d) A Non-United States Holder will generally not be subject to United
States federal income tax on the conversion of a Note solely into Common Stock
of the Company (except as described in clause (b) above with respect to the
receipt of cash in lieu of fractional shares by certain holders upon conversion
of a Note).
(e) Dividends paid on Common Stock of the Company to a Non-United States
Holder will generally be subject to withholding of United States federal income
tax at the rate of 30% (or a lower rate prescribed by an applicable treaty)
unless such dividends are Effectively Connected and such Holder files IRS Form
4224 (or its successor form) with the payor.
(f) Common Stock of the Company owned by an individual who is neither a
citizen nor a resident (as defined for United States federal estate tax
purposes) of the United States at the date of death will generally
20
<PAGE> 21
be included in such individual's estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
Income (including interest on a Note and dividends on Common Stock of the
Company as the case may be) and capital gain on the sale or other taxable
disposition of a Note or Common Stock that is Effectively Connected generally
will not be subject to withholding, but may be subject to United States federal
income tax at rates applicable to United States citizens, resident aliens and
United States corporations (and, in the case of corporate holders, such income
and gain may also be subject to the United States branch profits tax which is
generally imposed on a foreign corporation on the repatriation from the United
States of earnings and profits that are Effectively Connected).
An applicable income tax treaty may, however, change these rules. A
Non-United States Holder may be required to satisfy certain certification and
other requirements in order to claim treaty benefits or otherwise obtain any
reduction of or exemption from United States federal income or withholding tax
under the foregoing rules.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The Company or its designated paying agent (the "payor") will, where
required, report to holders of Notes or Common Stock and the Internal Revenue
Service the amount of any interest paid on the Notes (or dividends paid with
respect to the Common Stock or other reportable payments) in each calendar year
and the amount of tax, if any, withheld with respect to such payments. The
information may also be made available to the tax authorities of the country in
which a Non-United States Holder resides under the provisions of an applicable
tax treaty.
Under current United States federal income tax law, a 31% backup
withholding tax is required with respect to certain interest, dividends and
principal payments made to, and to the proceeds of sales before maturity by,
certain United States Holders if such persons fail to furnish their taxpayer
identification numbers and other information.
Interest payments on a Note to a Non-United States Holder will not be
subject to backup withholding tax if either the requisite certification, as
described above, has been received or an exemption has otherwise been
established, provided that the payor does not have actual knowledge that the
holder is a United States Holder or that the conditions of any other exemption
are not in fact satisfied.
Payment by or through a United States office of a broker of the proceeds on
disposition of a Note or Common Stock will be subject to both backup withholding
tax and information reporting requirements, unless the Non-United States Holder
certifies under penalties of perjury as to its status as a Non-United States
Holder or otherwise establishes an exemption. Information reporting requirements
(but not backup withholding tax) will also apply to a payment of the proceeds on
disposition of a Note or Common Stock by or through a foreign office of a United
States broker, or foreign brokers with certain relationships to the United
States, unless the broker has documentary evidence in its records that the
holder is a Non-United States Holder and certain other conditions are met or the
holder otherwise establishes an exemption.
Backup withholding tax will generally not apply to dividends paid on Common
Stock of the Company to a Non-United States Holder at an address outside the
United States, unless the payor has knowledge that the holder is a United States
Holder. Dividends paid to a Non-United States Holder at an address within the
United States may be subject to backup withholding tax if the Non-United States
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and other information to the payor.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the holder's
United States federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
These backup withholding and information reporting rules are under review
by the United States Treasury, and their application to the Notes and the Common
Stock could be changed in the future.
21
<PAGE> 22
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR TAX
CONSEQUENCES TO IT OF PURCHASING, HOLDING, AND DISPOSING OF THE NOTES AND THE
COMMON STOCK OF THE COMPANY, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE
LAWS.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company by King &
Spalding, Atlanta, Georgia, and for the Underwriters by Weil, Gotshal & Manges
LLP, New York, New York, a limited liability partnership including professional
corporations. From time to time, Weil, Gotshal & Manges LLP has provided and may
in the future provide legal services to the Company.
EXPERTS
The consolidated financial statements of the Company as of January 29, 1995
and January 28, 1996 and for each of the years in the three-year period ended
January 28, 1996 have been incorporated by reference herein in reliance on the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
22
<PAGE> 23
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Use of Proceeds....................... 4
Price Range of Common Stock and
Dividends........................... 4
Selected Consolidated Financial
Data................................ 5
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 6
Description of Notes.................. 9
Description of Common Stock........... 15
Underwriting.......................... 17
Notice to Canadian Residents.......... 18
Certain Federal Income Tax
Considerations...................... 19
Validity of Notes..................... 22
Experts............................... 22
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
(LOGO)The Home Depot
$1,000,000,000
3 1/4% Convertible
Subordinated Notes
Due 2001
PROSPECTUS
CS First Boston
Invemed Associates, Inc.
- ------------------------------------------------------
