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