SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
The Home Depot, Inc
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[HOME DEPOT APRON GRAPHIC]
PROXY STATEMENT AND NOTICE OF
2002 ANNUAL STOCKHOLDERS MEETING
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
TIME: 10:00 a.m. on Wednesday, May 29, 2002
PLACE: Cobb Galleria Centre
2 Galleria Parkway
Atlanta, Georgia 30339
ITEMS OF BUSINESS: 1) To elect the full board of directors.
2) To ratify the appointment of KPMG LLP as
independent auditors for the Company for the
fiscal year 2002.
3) To amend the Company's Certificate of
Incorporation to eliminate Article Eighth,
which sets forth our "fair price" provision.
4) To re-approve our 1997 Omnibus Stock Incentive
Plan, as amended to add additional performance
objectives.
5) To transact other business properly coming
before the meeting, including the consideration
of stockholder proposals.
WHO CAN VOTE: You can vote if you were a stockholder of record
on April 1, 2002.
ANNUAL REPORT: A copy of our 2001 Annual Report is enclosed.
DATE OF MAILING: This notice and the proxy statement are first being
mailed to stockholders on or about April 22, 2002.
By Order of the Board of Directors
Frank L. Fernandez, Secretary
TO OUR STOCKHOLDERS:
It is my pleasure to invite you to attend our 2002 Annual Meeting of
Stockholders, which will be held this year on Wednesday, May 29, 2002, at the
Cobb Galleria Centre in Atlanta, Georgia. The meeting will start at 10:00 a.m.
local time.
On the ballot at this year's meeting are company proposals (1) for the election
of the full board of directors, (2) to ratify the appointment of KPMG LLP as
independent auditors for the Company for the fiscal year 2002, (3) to amend our
Certificate of Incorporation to eliminate Article Eighth and (4) to re-approve
our 1997 Omnibus Stock Incentive Plan, as amended to add additional performance
objectives. Additionally, you will vote on a stockholder proposal. We also look
forward to answering your questions at the meeting in the manner discussed in
the proxy statement. If you will need special assistance at the meeting because
of a disability, please contact Audrey Davies at 770-433-8211, ext. 17598. We
will provide an interpreter for the hearing impaired.
PLEASE NOTE THAT YOU WILL NEED TO SHOW THAT YOU ARE A STOCKHOLDER OF HOME DEPOT
TO ATTEND THE ANNUAL MEETING. If your shares are registered in your name, your
admission card is attached to your proxy card, and you will need to bring this
card with you to the meeting. If your shares are in the name of your broker or
bank or you received your proxy materials electronically, you will need to bring
evidence of your stock ownership, such as your most recent brokerage account
statement. All stockholders will be required to present valid picture
identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND EITHER AN
ADMISSION CARD OR PROOF THAT YOU OWN HOME DEPOT STOCK, YOU MAY NOT BE ADMITTED
INTO THE MEETING.
If you are unable to attend the meeting, you can listen to it live over the
Internet. You can access the audio by going to our website, www.homedepot.com. A
replay will also be available until June 5, 2002.
We are continuing to offer you the option to receive future proxy materials
electronically through the Internet. You can sign up by following the simple
instructions contained in this mailing. Receiving future annual reports and
proxy statements through the Internet will be simpler for you, will save your
company money and is friendlier to the environment. If you have a computer with
Internet access, we hope you will follow the instructions and sign up.
Whether or not you plan to attend, you can be sure your shares are represented
at the meeting by promptly voting and submitting your proxy by phone, by
Internet or by completing, signing and returning the enclosed proxy card.
Thank you for your support.
Sincerely,
/s/ Bob
Robert L. Nardelli
Chairman, President and Chief Executive Officer
ABOUT THE MEETING
WHAT AM I VOTING ON?
You will be voting on the following:
- To elect the full board of directors;
- To ratify the appointment of KPMG LLP as independent auditors for the
Company for the fiscal year 2002;
- To amend the Company's Certificate of Incorporation to eliminate Article
Eighth, which sets forth our "fair price" provision;
- To re-approve our 1997 Omnibus Stock Incentive Plan, as amended to add
additional performance objectives; and
- To consider stockholder proposals properly coming before the meeting.
WHO IS ENTITLED TO VOTE?
You may vote if you owned stock as of the close of business on April 1, 2002.
Each share of common stock is entitled to one vote. As of April 1, 2002, we had
2,350,050,699 shares of common stock outstanding.
HOW DO I VOTE BEFORE THE MEETING?
You have three voting options:
- Over the Internet, which we encourage if you have Internet access, at the
address shown on your proxy card;
- By telephone through the number shown on your proxy card; or
- By mail by completing, signing and returning the enclosed proxy card.
If you hold your shares in the name of a bank or broker, your ability to vote by
telephone or the Internet depends on their voting processes. Please follow the
directions on your proxy card carefully.
CAN I VOTE AT THE MEETING?
You may vote your shares at the meeting if you attend in person. Even if you
plan to attend the meeting, we encourage you to vote your shares by proxy. You
may vote by proxy through the Internet, by telephone or by mail.
CAN I CHANGE MY MIND AFTER I VOTE?
You may change your vote at any time before the polls close at the meeting. You
may do this by (1) signing another proxy card with a later date and returning it
to us prior to the meeting, (2) voting again by telephone or over the Internet
prior to 10:00 a.m. on May 29, 2002 or (3) voting again at the meeting.
WHAT IF I RETURN MY PROXY CARD BUT DO NOT PROVIDE VOTING INSTRUCTIONS?
Proxies that are signed and returned but do not contain instructions will be
voted (1) FOR the election of the nominee directors named on pages 4 and 5 of
this proxy statement, (2) FOR the ratification of KPMG as independent auditors
for the Company for the fiscal year 2002, (3) FOR the amendment of the
Certificate of Incorporation to eliminate Article Eighth, (4) FOR the
re-approval of our 1997 Omnibus Stock Option Plan, as amended to add additional
performance objectives, and (5) AGAINST the stockholder proposal.
HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN?
The proxy card you have received includes your dividend reinvestment plan
shares. You may vote your shares through the Internet, by telephone or by mail,
all as described on the enclosed proxy card.
HOW DO I VOTE IF I PARTICIPATE IN THE FUTURE-BUILDER PLAN FOR HOME DEPOT
ASSOCIATES?
Shares credited to your FutureBuilder account are included on your proxy card.
You may vote your shares by Internet, telephone or mail, all as described on the
enclosed proxy card. If you do not vote, the shares credited to your account
will be voted by the trustee in the same proportion that it votes shares in
other accounts for which it did receive timely instructions. If you also own
stock in your own name and not through a broker, your proxy card includes both
those shares and shares credited to your FutureBuilder account.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
It means that you have multiple accounts with brokers and/or our transfer agent.
Please vote all of these shares. We recommend that you contact your broker
and/or our transfer agent to consolidate as many accounts as possible under the
same name and address. Our transfer agent is EquiServe Trust Company, N.A.,
which may be reached at 1-800-577-0177 or at www.equiserve.com.
WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY?
Your shares may be voted if they are held in the name of a brokerage firm, even
if you do not provide the brokerage firm with voting instructions. Brokerage
firms have the authority under the New York Stock Exchange rules to vote shares
for which their customers do not provide voting instructions on certain
"routine" matters.
1
ABOUT THE MEETING
The election of directors, the ratification of KPMG LLP as independent auditors
of the Company for fiscal year 2002 and the re-approval of the 1997 Omnibus
Stock Incentive Plan, as amended to add additional performance objectives, are
considered routine matters for which brokerage firms may vote unvoted shares.
The other proposals to be voted on at our meeting are not considered "routine"
under applicable rules. When a proposal is not a routine matter and the
brokerage firm has not received voting instructions from the beneficial owner of
the shares with respect to that proposal, the brokerage firm cannot vote the
shares on that proposal. This is called a "broker non-vote."
HOW CAN I ATTEND THE MEETING?
The annual meeting is open to all holders of Home Depot common stock. To attend
the meeting, you will need to bring evidence of your stock ownership. If your
shares are registered in your name, your admission card is attached to your
proxy card, and you will need to bring it with you to the meeting. If your
shares are in the name of your broker or bank or you received your proxy
materials electronically, you will need to bring evidence of your stock
ownership, such as your most recent brokerage account statement. All
stockholders will be required to present valid picture identification. IF YOU DO
NOT HAVE VALID PICTURE IDENTIFICATION AND EITHER AN ADMISSION CARD OR PROOF THAT
YOU OWN HOME DEPOT STOCK, YOU MAY NOT BE ADMITTED INTO THE MEETING.
HOW CAN I LISTEN TO THE MEETING OVER THE INTERNET?
You can listen to the meeting live by logging onto our website,
www.homedepot.com. A replay will also be available until June 5, 2002.
MAY STOCKHOLDERS ASK QUESTIONS AT THE MEETING?
Yes. Representatives of the Company will answer stockholders' questions of
general interest at the end of the meeting. In order to give a greater number of
stockholders an opportunity to ask questions, individuals or groups will be
allowed to ask only one question and no repetitive or follow-up questions will
be permitted.
HOW MANY VOTES MUST BE PRESENT TO HOLD THE MEETING?
Your shares are counted as present at the meeting if you attend the meeting and
vote in person or if you properly return a proxy by Internet, telephone or mail.
In order for us to conduct our meeting, a majority of our outstanding shares of
common stock as of April 1, 2002, must be present in person or by proxy at the
meeting. This is referred to as a quorum. Abstentions and broker non-votes will
be counted for purposes of establishing a quorum at the meeting.
HOW MANY VOTES ARE NEEDED TO ELECT DIRECTORS?
The nominees receiving the highest number of "For" votes will be elected as
directors. This number is called a plurality. Shares not voted, whether by
marking "Abstain" on your proxy card or otherwise, will have no impact on the
election of directors. The proxy given will be voted FOR each of the nominees
for director unless a properly executed proxy card is marked "Withhold
Authority" as to a particular nominee or nominees for director.
HOW MANY VOTES ARE NEEDED TO APPROVE THE COMPANY'S PROPOSALS?
Each of the Company's proposals will be considered separately. The ratification
of the appointment of KPMG LLP as independent auditors of the Company for the
fiscal year 2002 must receive the "yes" vote of a majority of the votes cast at
the meeting. The proposal to re-approve our 1997 Omnibus Stock Incentive Plan,
as amended to add additional performance objectives, must receive the "yes" vote
of a majority of the votes cast at the meeting. A properly executed proxy card
marked "Abstain" with respect to these proposals will not be voted.
The amendment of our Certificate of Incorporation to eliminate Article EIGHTH
must receive the "yes" vote of a majority of the outstanding shares. A properly
executed proxy card marked "Abstain" with respect to this proposal will not be
voted. Accordingly, abstentions will have the effect of a vote "Against" this
proposal. Broker non-votes will not be voted with respect to this proposal.
HOW MANY VOTES ARE NEEDED TO APPROVE THIS YEAR'S STOCKHOLDER PROPOSAL?
The stockholder proposal must receive the "For" vote of a majority of the votes
cast at the meeting in order to be approved. A properly executed proxy card
marked "Abstain" with respect to this proposal will not be voted. Broker
non-votes will not be voted with respect to any stockholder proposals presented
at the meeting.
2
BOARD OF DIRECTORS INFORMATION
WHAT IS THE MAKEUP OF THE BOARD OF DIRECTORS AND HOW OFTEN ARE MEMBERS ELECTED?
Our Board of Directors currently has 13 members. Each director stands for
election every year.
ARE ANY DIRECTORS NOT STANDING FOR RE-ELECTION?
Yes. Bernard Marcus is retiring from the Board effective as of the Annual
Meeting because he has reached our mandatory retirement age of 72. Under the
terms of our Certificate of Incorporation and By-laws, the Board has reduced the
size of the Board to twelve members effective as of the Annual Meeting. In the
future, the Board may increase the size of the Board and appoint new directors.
WHAT IF A NOMINEE IS UNWILLING OR UNABLE TO SERVE?
That is not expected to occur. If it does, proxies will be voted for a
substitute nominated by the Board of Directors.
HOW ARE DIRECTORS COMPENSATED?
Each director who is not an employee of The Home Depot receives $60,000 each
year, $30,000 of which is in the form of restricted shares of our common stock.
Directors may elect to receive all or any portion of their cash compensation in
deferred stock units. Additionally, these directors receive options to purchase
5,000 shares of common stock upon election or appointment to the Board and 3,750
additional options each year. These directors also receive $1,000 for each
meeting they attend other than by telephone and are reimbursed for reasonable
expenses in attending meetings and conducting store visits. Due to their large
holdings of Home Depot common stock, Messrs. Cox, Hart and Langone waived
receipt of the portion of their retainers for fiscal 2001 that was payable in
restricted shares. Directors who are also employees of The Home Depot are not
separately compensated for their services as directors.
As part of the Company's overall support of charitable organizations, and in
order to preserve its ability to attract directors with outstanding experience
and ability, the Company maintains a program that permits each director to
recommend charitable organizations to receive up to $1 million from the Company
upon the director's retirement upon reaching the Board's mandatory retirement
age or upon death. Additionally, through the program the Company will match up
to $50,000 of charitable donations made by each director during each calendar
year. The directors will not receive any financial benefit from this program
because the charitable deductions accrue solely to the Company. Donations are
not made to any charity from which the director or a party related to the
director directly or indirectly receives compensation. The overall program is
not expected to result in a material cost to the Company.
WHAT DOES THE LEAD DIRECTOR DO?
The Lead Director helps the Chairman of the Board develop the agenda for Board
meetings and reviews the Board's governance procedures and policies. The Lead
Director is also the Chairman of the Nominating and Corporate Governance
Committee and chairs any meetings of outside directors. The Lead Director is
elected by the Board of Directors for a three-year term. Kenneth G. Langone was
elected as the first Lead Director in 1998, and he was re-elected in 2001. His
current term expires in 2004.
HOW OFTEN DID THE BOARD MEET IN FISCAL 2001?
The Board of Directors met six times during fiscal 2001. During fiscal 2001,
each director attended at least 75% of the meetings of the board and of the
committees of which he or she was a member.
3
ELECTION OF DIRECTORS AND DIRECTOR BIOGRAPHIES
(ITEM 1 ON THE PROXY CARD)
WHO ARE THIS YEAR'S NOMINEES?
The directors standing for election this year to hold office until the 2003
annual meeting of stockholders and until his or her successor is elected are:
GREGORY D. BRENNEMAN, 40, Director since 2000
- Chairman and Chief Executive Officer of Turnworks, Inc., a private equity
firm, since 2001
- President of Continental Airlines, Inc. from 1996 to 2001 and member of
the Board and Chief Operating Officer of Continental Airlines from 1995
to 2001
- Member of the Board of:
- Automatic Data Processing, Inc.
- J. Crew Group, Inc.
RICHARD H. BROWN, 54, Director since 2000
- Chairman and Chief Executive Officer of Electronic Data Systems
Corporation since 1999
- Chief Executive Officer of Cable & Wireless plc from 1996 to 1998
- President and Chief Executive Officer of H&R Block, Inc. from 1995 to 1996
- Member of the Board of:
- Vivendi Universal SA
- E.I. duPont de Nemours and Company
- Member of:
- The Business Council
- The Business Roundtable
- The U.S. - France Business Council
- The U.S. - Japan Business Council
- Member of the Board of Trustees of Southern Methodist University
JOHN L. CLENDENIN, 67, Director since 1996
- Retired as Chairman in 1997 and as President and Chief Executive Officer
in 1996 of BellSouth Corporation
- Member of the Board of:
- Acuity Brands, Inc.
- Coca-Cola Enterprises Inc.
- Equifax Inc.
- The Kroger Co.
- Powerwave Technologies, Inc.
- Past Chairman/President of:
- The Committee for Economic Development
- Junior Achievement
- The Boy Scouts of America
- U.S. Chamber of Commerce
BERRY R. COX, 48, Director since 1978
- Chairman of Berry R. Cox, Inc., a privately held investment management
company
- Principally engaged in investments in public and private securities,
real estate development and oil and gas exploration for over 20 years
WILLIAM S. DAVILA, 70, Director since 1999
- President Emeritus of The Vons Companies, Inc. from 1993 through 1999
- Member of the Board of:
- Hormel Foods Corporation
- Pacific Gas and Electric Company
- Methodist Hospital, Arcadia, California
CLAUDIO X. GONZALEZ, 67, Director since 2001
- Chairman and Chief Executive Officer of Kimberly-Clark de Mexico,
S.A. de C.V. since 1973
- Member of the Board of:
- America Movil
- General Electric Company
- Kellogg Company
- Kimberly-Clark Corporation
- The Mexico Fund, Inc.
- Grupo Carso
- Grupo Industrial ALFA
- Grupo Modelo
- Grupo Televisa
- Investment Co. of America
- Chairman of Consejo Coordinador Empresarial
RICHARD A. GRASSO, 55, Director since 2002
- Chairman and Chief Executive Officer of The New York Stock Exchange
since 1995
- Member of the Board of:
- Computer Associates International, Inc.
- The Centurion Foundation
- Lower Manhattan Development Corp.
- New York City Police Foundation
- New York City Public Private Initiatives Inc.
- New York University
- Member of the Advisory Board of the Yale School of Management
- Trustee of the Stony Brook Foundation
- Member of the International Capital Markets Advisory Committee of the
Federal Reserve Bank of New York
- Chairman of the Economic Club of New York
- Vice Chairman of the National Italian American Foundation
4
ELECTION OF DIRECTORS AND DIRECTOR BIOGRAPHIES
(ITEM 1 ON THE PROXY CARD)
MILLEDGE A. HART, III, 68, Director since 1978
- Member of the Board since 1985 and Chairman since 1997 of DocuCorp
International, Inc.
- Chairman of the Board of:
- Hart Group, Inc., a private management service and investment company,
since 1988
- Rmax, Inc., an insulation manufacturing company, since 1978
- Member of the Board of Trustees and Chairman of the Investment Committee
of Southern Methodist University
- Member of the Board of Patton Medical Corporation
BONNIE G. HILL, 60, Director since 1999
- President of B. Hill Enterprises, LLC, a consulting firm specializing in
corporate governance and board organizational and public policy issues,
since 2001
- President and Chief Executive Officer of The Times Mirror Foundation
from 1997 to 2001
- Senior Vice President, Communications and Public Affairs of the Los
Angeles Times from 1998 to 2001
- Vice President of The Times Mirror Company, a newspaper and publishing
company, from 1997 to 2000
- Dean of McIntire School of Commerce at the University of Virginia from
1993 to 1996
- Member of the Board of:
- AK Steel Holding Corporation
- Albertson's Inc.
- ChoicePoint Inc.
- Hershey Foods Corporation
- The National Grid Group plc
- Goodwill Industries of Southern California
- Police Assessment Resource Center
- United Way of Greater Los Angeles
- Member of the National Advisory Panel of the Institute for Research on
Women and Gender at Stanford University
KENNETH G. LANGONE, 66, Director since 1978
- Co-founder of The Home Depot
- Lead Director of The Home Depot since 1998
- Chairman of the Board, Chief Executive Officer and President of Invemed
Associates, Inc., an investment banking and brokerage firm, for more
than five years
- Member of the Board of:
- ChoicePoint Inc.
- General Electric Company
- Tricon Global Restaurants, Inc.
- Unifi, Inc.
- Damon Runyon Cancer Research Foundation
- The Children's Oncology Society of New York (The
Ronald McDonald House of New York)
- New York Philharmonic
- The New York Stock Exchange, Inc.
- Robin Hood Foundation
- Trustee of New York University
- Trustee of New York University Leonard Stern School
of Business
- Chairman of New York University School of Medicine
ROBERT L. NARDELLI, 53, Director since 2000
- Chairman of The Home Depot since January 2002
- President and Chief Executive Officer of The Home Depot since December 2000
- President and Chief Executive Officer of GE Power Systems from 1995 through
December 2000
- Member of the Board of The Coca-Cola Company
ROGER S. PENSKE, 65, Director since 2001
- Founder and Chairman of Penske Corporation since 1969
- Chairman of Penske Truck Leasing Corporation since 1982
- Chairman of United Auto Group, Inc. since 1999
- Vice Chairman and Member of the Board of International Speedway Corporation
- Member of the Board of:
- Delphi Corporation
- General Electric Company
- Detroit Renaissance
- Member of The Business Council
WE RECOMMEND THAT YOU VOTE FOR THE ELECTION OF THESE DIRECTORS
5
BOARD OF DIRECTORS COMMITTEES
WHAT ARE THE COMMITTEES OF THE BOARD?
Our Board of Directors has the following committees:
Number of Meetings
Name of Committee and Members Functions of the Committee in Fiscal 2001
EXECUTIVE: - Exercises the authority of the full 4
Bernard Marcus, Chair (1) Board on specified matters between
John L. Clendenin Board meetings
Berry R. Cox
Milledge A. Hart, III
Kenneth G. Langone
Robert L. Nardelli
AUDIT: - Oversees auditing procedures 5
Berry R. Cox, Chair - Receives and accepts the report of
Richard H. Brown independent auditors
William S. Davila - Oversees internal systems of accounting
Claudio X. Gonzalez and management control
Milledge A. Hart, III - Makes recommendations regarding the
selection of independent auditors
COMPENSATION: (2) - Reviews and recommends compensation 5
John L. Clendenin, Chair of directors and executive officers
Gregory D. Brenneman - Administers stock incentive plans
Berry R. Cox - Makes grants of stock awards
William S. Davila pursuant to stock incentive plans
Roger S. Penske
NOMINATING AND
CORPORATE GOVERNANCE: - Makes recommendations for nominees 4
Kenneth G. Langone, Chair for director (3)
John L. Clendenin - Reviews and monitors activities of
Milledge A. Hart, III Board members
Bonnie G. Hill - Oversees corporate compliance program
Roger S. Penske - Develops, sets and maintains corporate
governance standards
HUMAN RESOURCES: - Reviews and recommends policies, 4
Bonnie G. Hill, Chair practices and procedures concerning
Gregory D. Brenneman human resource-related matters
Claudio X. Gonzalez
Richard A. Grasso
Kenneth G. Langone
(1) Not standing for re-election.
(2) During fiscal 2001, the Compensation Committee assumed the responsibilities
of the Stock Option Committee.
(3) The Nominating and Corporate Governance Committee will consider nominees
recommended by the Company's stockholders. Any recommendations should be
submitted to the Corporate Secretary, The Home Depot, Inc., 2455 Paces
Ferry Road, Atlanta, Georgia 30339.
6
PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG
(ITEM 2 ON THE PROXY CARD)
WHAT AM I VOTING ON?
A proposal to ratify the appointment of KPMG LLP as independent auditors for the
Company for fiscal year 2002. Based upon the recommendation of the Audit
Committee, the Board of Directors has appointed KPMG to serve as independent
auditors. Although the Company's governing documents do not require the
submission of the selection of independent auditors to the stockholders for
approval, the Board of Directors considers it desirable that its appointment of
KPMG be ratified by the stockholders.
WHAT SERVICES DO THE INDEPENDENT AUDITORS PROVIDE?
Audit services of KPMG for fiscal 2001 included the examination of the
consolidated financial statements of the Company and services related to
periodic filings made with the Securities and Exchange Commission. Additionally,
KPMG provided certain services relating to the consolidated quarterly reports
and annual and other periodic reports at international locations and tax and
other services as described on page 24 of this proxy statement.
WILL A REPRESENTATIVE OF KPMG BE PRESENT AT THE MEETING?
One or more representatives of KPMG will be present at the meeting. The
representatives will have an opportunity to make a statement if they desire and
will be available to respond to appropriate questions from stockholders.
WHAT VOTE IS REQUIRED TO APPROVE THIS PROPOSAL?
Approval of this proposal requires the affirmative vote of a majority of the
votes cast at the meeting. If the appointment of KPMG is not ratified, the Audit
Committee and the Board of Directors will reconsider the appointment.
WE RECOMMEND THAT YOU VOTE FOR ADOPTION OF THIS PROPOSAL
7
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION TO ELIMINATE ARTICLE EIGHTH
(ITEM 3 ON THE PROXY CARD)
WHAT AM I VOTING ON?
A proposal to amend our Certificate of Incorporation to eliminate ARTICLE
EIGHTH, which is a "fair price" provision. This provision requires that certain
significant changes involving the Company, such as a merger or changes to
stockholders' voting rights, must be approved by the holders of at least 80% of
our outstanding shares of common stock. This is sometimes called a
"super-majority" vote requirement. ARTICLE EIGHTH is the only provision of our
governing documents requiring a super-majority vote.
WHAT IS A FAIR PRICE PROVISION?
Fair price provisions are designed to protect stockholders in the event of
certain types of unsolicited attempts to acquire control of a company, such as
certain tender offers. In the case of a tender offer, the bidder may launch an
offer to acquire a majority of the shares of a company and, if successful, then
propose another transaction to acquire the remainder of the company's
outstanding shares. Under our fair price provision, the transaction to acquire
the remaining shares must be approved by at least 80% of our outstanding shares
unless the bidder pays the remaining stockholders a fair price compared to the
price paid to acquire its other shares, as specified in detail in our
Certificate of Incorporation, and complies with other requirements in our
Certificate of Incorporation.
WHY IS THE COMPANY RECOMMENDING THAT THE FAIR PRICE PROVISION BE ELIMINATED?
While fair price provisions can provide important protections for stockholders,
the super-majority vote requirement can make it more difficult to acquire a
company and may discourage transactions that stockholders may view as
beneficial. After careful consideration, the Company has concluded that it is in
the best interests of our stockholders to remove the provision from our
Certificate of Incorporation. In reaching this conclusion, the Company
considered the fact that at our last two Annual Meetings holders of a majority
of our outstanding shares approved a proposal recommending that the Board of
Directors act to eliminate all provisions of our governing documents requiring a
super-majority vote of stockholders.
WHAT CHANGES WOULD BE MADE IN OUR CERTIFICATE OF INCORPORATION?
The proposed amendment would result in the deletion of ARTICLE EIGHTH of our
Certificate of Incorporation, which sets forth the fair price provision
requiring a super-majority vote.
WHAT VOTE IS REQUIRED TO APPROVE THE AMENDMENT?
The Board of Directors has unanimously authorized this amendment and voted to
recommend it to the Company's stockholders. As a result, approval of the
amendment requires the affirmative vote of holders of a majority of our shares
outstanding and entitled to vote at the Annual Meeting.
WHEN WOULD THE AMENDMENT BECOME EFFECTIVE?
If approved by the stockholders, the amendment will become effective upon filing
an appropriate certificate with the Delaware Secretary of State.
WE RECOMMEND THAT YOU VOTE FOR ADOPTION OF THIS PROPOSAL
8
PROPOSAL TO RE-APPROVE THE 1997 OMNIBUS STOCK INCENTIVE PLAN, AS AMENDED
(ITEM 4 ON THE PROXY CARD)
WHAT AM I VOTING ON?
Stockholders approved the 1997 Omnibus Stock Incentive Plan in 1997. This
proposal is to obtain re-approval of the plan to meet the requirements for tax
deductibility under Section 162(m) of the Internal Revenue Code. This code
section requires that stockholders re-approve the plan every five years to
qualify certain awards for exemption from Section 162(m). Additionally, this
proposal is to approve the amendment of the plan to add additional performance
objectives. The Compensation Committee of the Board of Directors and the full
Board have approved this proposal.
WHAT IS THE SECTION 162(M) EXEMPTION?
Section 162(m) prevents a publicly held corporation from claiming tax deductions
for compensation in excess of $1,000,000 paid to certain of its senior
executives. Compensation is exempt from this limitation if it is "qualified
performance-based compensation." Stock options and stock appreciation rights are
two examples of performance-based compensation. Other types of awards, such as
restricted stock, deferred shares and performance shares, that are granted
pursuant to pre-established objective performance formulas, may also qualify as
performance-based compensation, so long as certain requirements are met,
including the prior approval by stockholders of the performance formulas or
measures. Although the plan sets forth a list of objective performance measures
on which such awards may be based, the Compensation Committee has discretion to
establish targets or numerical goals based on these measures. Because this
discretion exists, Section 162(m) requires that the material terms of the plan
related to performance-based awards be approved by stockholders at least once
every five years. The last time these terms were approved by our stockholders
was 1997, when the plan was implemented. In order to maintain our exemption from
Section 162(m), the material terms of the plan must be re-approved now by
stockholders.
WHAT ARE THE PERFORMANCE OBJECTIVES? WHAT ARE THE ADDITIONAL PERFORMANCE
OBJECTIVES BEING PROPOSED?
The plan provides that grants of performance shares, performance units or, when
determined by the Compensation Committee, deferred shares or restricted stock
may be made based upon "performance objectives." Performance objectives
applicable to awards that are intended to be exempt from the limitations of
Section 162(m) are currently limited to specified levels of, or increases in,
the Company's or a 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 Company's stock.
We are proposing the addition to the plan of the following performance
objectives: share price (including, but not limited to, growth measures and
total shareholder return), net operating profit, cash flow (including, but not
limited to, operating cash flow and free cash flow), cash flow return on
investment (which equals net cash flow divided by total capital), internal rate
of return, increase in net present value and expense targets. If the change is
approved by our stockholders, the plan would be amended to add these measures as
additional performance objectives.
WHO IS ELIGIBLE TO RECEIVE PERFORMANCE-BASED AWARDS?
Employees of the Company and its subsidiaries and members of the Board who are
not employees may be selected by the Compensation Committee to receive benefits
under the plan. The benefits or amounts that may be received by or allocated to
participants in the plan as amended by this proposal will be determined in the
discretion of the Compensation Committee and are not presently determinable.
WHAT KIND OF PERFORMANCE-BASED AWARDS MAY BE GRANTED?
Performance-based awards may be granted in the form of
- restricted shares;
- deferred shares;
- performance shares; or
- performance units.
Upon the achievement of the specified performance objectives or a predetermined
minimum level of acceptable achievement, the restrictions will terminate or the
shares or units will be earned, in whole or in part.
HOW ARE THE PERFORMANCE OBJECTIVES FOR AN AWARD DETERMINED?
The Compensation Committee decides what performance objectives will be used for
a specific award. Performance objectives may be described in terms of either
Company-wide objectives or objectives that are related to the performance of
the individual participant or subsidiary, division, department or function
within the Company or a subsidiary in which the participant is employed. Except
in
9
PROPOSAL TO RE-APPROVE THE 1997 OMNIBUS STOCK INCENTIVE PLAN, AS AMENDED
(ITEM 4 ON THE PROXY CARD)
the case of an award intended to qualify under Section 162(m), if the committee
determines that a change in the business, operation, 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 the performance objectives, or the related
minimum acceptable level of achievement, in whole or in part, as the committee
deems equitable or appropriate.
WHAT IS THE MAXIMUM AMOUNT PAYABLE UPON ATTAINMENT OF THE SPECIFIED
PERFORMANCE-BASED OBJECTIVES?
No individual may receive stock options or stock appreciation rights
representing more than 1,000,000 shares of common stock in any one year. In
addition, the maximum number of performance units that may be granted to an
individual in any one year is 5,000,000. No more than 5% of the shares
authorized for issuance under the plan may be made subject to grants of
restricted stock with performance-based vesting restrictions of less than three
years or time-based vesting of less than one year, or performance shares that
are not issued in lieu of a salary or cash bonus.
WHAT IF THIS PROPOSAL IS NOT APPROVED?
If this proposal is not approved, awards granted under the plan (other than
options and stock appreciation rights) will not qualify for the
performance-based exemption from Section 162(m), and therefore may not be tax
deductible by the Company going forward (unless later approved). Any awards made
to individuals prior to the date of the annual meeting of stockholders based on
the performance objectives that are being proposed to be added to the plan will
be contingent upon stockholder approval of the amendment of the plan. This
proposal must be approved by a majority of the votes cast at the meeting.
HOW MANY SHARES ARE AVAILABLE FOR ISSUANCE PURSUANT TO THE PLAN?
As of February 3, 2002, there were 121 million shares authorized for issuance
under the plan and 69 million shares subject to outstanding awards. The number
of shares available increases each year in an amount equal to 0.5% of the total
number of issued shares (including treasury shares) as of the first day of each
fiscal year. Shares issued under the plan may be shares of original issuance,
shares held in Treasury or shares that have been reacquired by the Company. The
Compensation Committee can make adjustments in the number of shares as it, in
its sole discretion, may in good faith determine to be appropriate in order to
reflect certain transactions or events described in the plan. The fair market
value of the stock on April 1, 2002 was $48.22.
WHAT OTHER KINDS OF GRANTS CAN BE MADE UNDER THE PLAN?
In addition to the performance-based awards, the Compensation Committee may also
award grants of stock options and stock appreciation rights. Subject to the
terms of the plan, the committee has the discretion to determine the terms of
each award.
UPON WHAT TERMS MAY OPTIONS AND STOCK APPRECIATION RIGHTS BE AWARDED?
The Compensation Committee may grant stock options that entitle the optionee to
purchase shares at a price equal to or greater than the fair market value on the
date of grant. The option may specify that the option price is payable (i) in
cash, (ii) by the transfer to the Company of unrestricted shares, (iii) with any
other legal consideration the committee may deem appropriate or (iv) any
combination of these. No stock option may be exercised more than ten years from
the date of grant. Each grant may specify a period of continuous employment with
the Company or any subsidiary (or in the case of a non-employee director,
service on the Board) that is necessary before the stock option or any portion
thereof will become exercisable and may provide for the earlier exercise of the
option in the event of a change in control of the Company or similar event. The
committee may also grant stock appreciation rights to participants. The grant
may specify that the amount payable upon exercise of the stock appreciation
right may be paid by the Company (i) in cash, (ii) in shares of the Company or
(iii) any combination of these. Any grant may specify a waiting period or
periods before the stock appreciation rights may become exercisable and
permissible dates or periods on or during which the stock appreciation rights
shall be exercisable, and may specify that the stock appreciation rights may be
exercised only in the event of a change of control of the Company or similar
event. The committee may grant "tandem" stock appreciation awards in connection
with an option or "free-standing" stock appreciation awards unrelated to an
option. No freestanding stock appreciation right may be exercised more than ten
years from the grant date and each grant of a freestanding stock appreciation
right must specify the period of continuous employment of the participant by the
Company or any subsidiary that is necessary before the freestanding stock
appreciation right or installments thereof may be exercisable.
10
PROPOSAL TO RE-APPROVE THE 1997 OMNIBUS STOCK INCENTIVE PLAN, AS AMENDED
(ITEM 4 ON THE PROXY CARD)
UPON WHAT TERMS MAY RESTRICTED SHARES BE AWARDED?
The Compensation Committee may authorize grants to participants of restricted
shares. An award of restricted shares involves the immediate transfer by the
Company to a participant of ownership of a specific number of shares in return
for the performance of services. The participant is entitled immediately to
voting, dividend and other ownership rights in such shares, subject to the
discretion of the committee. The transfer may be made without additional
consideration from the participant. As discussed above, the committee may
specify performance objectives that must be achieved for the restrictions to
lapse. Restricted shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Internal Revenue 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
of control of the Company or similar event.
UPON WHAT TERMS MAY DEFERRED SHARES BE GRANTED?
The Compensation Committee may authorize grants to participants of deferred
shares. An award of deferred shares granted under the plan represents the right
to receive a specific number of shares at the end of a specified deferral
period. Any grant of deferred shares may be further conditioned upon the
attainment of performance objectives (as described above). The grant may provide
for the early termination of the deferral period in the event of a change in
control of the Company or similar event. During the deferral period, the
participant is not entitled to vote or receive dividends on the shares subject
to the award, but the committee may provide for the payment of dividend
equivalents on a current or deferred basis. The grant of deferred shares may be
made without any consideration from the participant other than the performance
of future services.
UPON WHAT TERMS MAY PERFORMANCE SHARES BE GRANTED?
A performance share is the equivalent of one share, and a performance unit is
the equivalent of $1.00. Each grant will specify one or more performance
objectives to be met within a specified period (the "performance period"), which
may be subject to earlier termination in the event of a change in control of the
Company or a similar event. If by the end of the performance period the
participant has achieved the specified performance objectives, the participant
will be deemed to have fully earned the performance shares or performance units.
If the participant has not achieved the level of acceptable achievement, the
participant may be deemed to have partly earned the performance shares or
performance units in accordance with a predetermined formula. To the extent
earned, the performance shares or performance units will be paid to the
participant at the time and in the manner determined by the committee in cash,
shares or any combination thereof.
ARE AWARDS MADE UNDER THE PLAN TRANSFERABLE?
Except as provided below, no award under the plan may be transferred by a
participant other than by will or the laws of descent and distribution, and
stock options and stock appreciation rights may be exercised during the
participant's lifetime only by the participant or, in the event of the
participant's legal incapacity, the guardian or legal representative acting on
behalf of the participant. The committee may expressly provide in an award
agreement (other than an incentive stock option) that the participant may
transfer the option to a spouse or lineal descendant, a trust for the exclusive
benefit of such family members, a partnership or other entity in which all the
beneficial owners are such family members, or any other entity affiliated with
the participant that the committee may approve.
WHEN DOES THE PLAN TERMINATE?
The plan will terminate on February 27, 2007, and no award will be granted under
the plan after that date.
HOW CAN THE PLAN BE AMENDED?
The plan may be amended from time to time by the Board of Directors, but without
further approval by the stockholders of the Company, no such amendment may
increase the limitations set forth in the plan on the number of performance
units, or shares underlying awards, that may be granted or issued in the
aggregate, or to individual participants during any given time period, under the
plan.
WHAT ARE THE TAX CONSEQUENCES OF THE PLAN?
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the plan. This summary is not
intended to be exhaustive and does not describe state or local tax consequences.
11
PROPOSAL TO RE-APPROVE THE 1997 OMNIBUS STOCK INCENTIVE PLAN, AS AMENDED
(ITEM 4 ON THE PROXY CARD)
In general, an optionee will not recognize income at the time a nonqualified
stock option is granted. At the time of exercise, the optionee will recognize
ordinary income in an amount equal to the difference between the option price
paid for the shares and the fair market value of the shares on the date of
exercise. At the time of sale of shares acquired pursuant to the exercise of a
nonqualified stock option, any appreciation (or depreciation) in the value of
the shares after the date of exercise generally will be treated as capital gain
(or loss).
An optionee generally will not recognize income upon the grant or exercise of an
incentive stock option. If shares issued to an optionee upon the exercise of an
incentive stock option are not disposed of in a disqualifying disposition within
two years after the date of grant or within one year after the transfer of the
shares to the optionee, then upon the sale of the shares any amount realized in
excess of the option price generally will be taxed to the optionee as long-term
capital gain and any loss sustained will be a long-term capital loss. If shares
acquired upon the exercise of an incentive stock option are disposed of prior to
the expiration of either holding period described above, the optionee generally
will recognize ordinary income in the year of disposition in an amount equal to
any excess of the fair market value of the shares at the time of exercise (or,
if less, the amount realized on the disposition of the shares) over the option
price paid for the shares. Any further gain (or loss) realized by the optionee
generally will be taxed as short-term or long-term capital gain (or loss)
depending on the holding period.
Subject to certain exceptions for death or disability, if an optionee exercises
an incentive stock option more than three months after termination of
employment, the exercise of the option will be taxed as the exercise of a
nonqualified stock option. In addition, if an optionee is subject to federal
"alternative minimum tax," the exercise of an incentive stock option will be
treated essentially the same as a nonqualified stock option for purposes of the
alternative minimum tax.
A recipient of restricted shares generally will be subject to tax at ordinary
income rates on the fair market value of the restricted shares (reduced by any
amount paid by the recipient) at such time as the shares are no longer subject
to a risk of forfeiture or restrictions on transfer for purposes of Section 83
of the Code. However, a recipient who so elects under Section 83(b) of the Code
within 30 days of the date of transfer of the restricted shares will recognize
ordinary income on the date of transfer of the shares equal to the excess of the
fair market value of the restricted shares (determined without regard to the
risk of forfeiture or restrictions on transfer) over any purchase price paid for
the shares. If a Section 83(b) election has not been made, any dividends
received with respect to restricted shares that are subject at that time to a
risk of forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient.
A recipient of deferred shares generally will not recognize income until shares
are transferred to the recipient at the end of the deferral period and are no
longer subject to a substantial risk of forfeiture or restrictions on transfer
for purposes of Section 83 of the Code. At that time, the participant will
recognize ordinary income equal to the fair market value of the shares, reduced
by any amount paid by the recipient.
A participant generally will not recognize income upon the grant of performance
shares or performance units. Upon payment, in respect of performance shares or
performance units, the participant generally will recognize as ordinary income
an amount equal to the amount of cash received and the fair market value of any
unrestricted shares received.
To the extent that a participant recognizes ordinary income in the circumstances
described above, the Company or subsidiary for which the participant performs
services will be entitled to a corresponding deduction, provided that, among
other things, the income meets the test of reasonableness, is an ordinary and
necessary business expense, is not an "excess parachute payment" within the
meaning of Section 280G of the Code and is not disallowed by the $1,000,000
limitation on certain executive compensation under Section 162(m) of the Code.
WHERE CAN I GET A COPY OF THE PLAN, AS AMENDED?
This summary is not a complete description of all the provisions of the plan.
You can obtain a copy of the actual plan document, as amended, by sending a
written request to our Corporate Secretary at 2455 Paces Ferry Road, NW,
Atlanta, Georgia 30339.
WE RECOMMEND THAT YOU VOTE FOR THE ADOPTION OF THIS PROPOSAL
12
STOCKHOLDER PROPOSAL A
(ITEM 5 ON THE PROXY CARD)
We have been notified that this proposal will be presented for consideration at
the meeting:
WHEREAS, Home Depot currently has extensive overseas operations, and
WHEREAS, reports of human rights abuses in the overseas subsidiaries and
suppliers of some U.S.-based corporations has led to an increased
public awareness of the problems of child labor, "sweatshop"
conditions, and the denial of labor rights in U.S. corporate overseas
operations, and
WHEREAS, corporate violations of human rights in these overseas
operations can lead to negative publicity, public protests, and a
loss of consumer confidence which can have a negative impact on
shareholder value, and
WHEREAS, a number of corporations have implemented independent
monitoring programs with respected human rights and religious
organizations to strengthen compliance with international human
rights norms in subsidiary and supplier factories, and
WHEREAS, these standards incorporate the conventions of the United
Nations International Labor Organization (ILO) on workplace human
rights which include the following principles:
1) All workers have the right to form and join trade unions and
to bargain collectively. (ILO Conventions 87 and 98)
2) Workers representatives shall not be the subject of
discrimination and shall have access to all workplaces
necessary to enable them to carry out their representation
functions. (ILO Convention 135)
3) There shall be no discrimination or intimidation in
employment. Equality of opportunity and treatment shall be
provided regardless of race, color, sex, religion, political
opinion, age, nationality, social origin, or other
distinguishing characteristics. (ILO Convention 100 and 111)
4) Employment shall be freely chosen. There shall be no use of
force, including bonded or prison labor. (ILO Conventions 29
and 105)
5) There shall be no use of child labor. (ILO Convention 138),
and
WHEREAS, independent monitoring of corporate adherence to these
standards is essential if consumer and investor confidence in our
company's commitment to human rights is to be maintained,
THEREFORE, be it resolved that shareholders request that the company
commit itself to the implementation of a code of corporate conduct
based on the aforementioned ILO human rights standards by its
international suppliers and in its own international production
facilities and commit to a program of outside, independent monitoring
of compliance with these standards.
Promptly upon receipt of an oral or written request, we will provide you with
the name and address of each proponent and the number of shares of stock held by
each proponent.
13
COMPANY RESPONSE TO STOCKHOLDER PROPOSAL A
WHAT IS THE RECOMMENDATION OF THE COMPANY?
THE COMPANY RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF THIS STOCKHOLDER
PROPOSAL.
WHAT IS THE COMPANY'S POSITION REGARDING HUMAN RIGHTS IN THE WORKPLACE?
Our values require that we have the highest commitment to protecting the rights
of our associates throughout the world. We are also committed to doing business
with vendor partners who respect the rights of their employees. Our vendors and
suppliers must comply with the standards of ethical and legal behavior
prevailing in their respective locations as a condition of their continuing a
business relationship with our Company.
WHAT DOES HOME DEPOT REQUIRE OF ITS VENDORS RELATED TO WORKPLACE STANDARDS?
We require vendors located outside of the United States with whom we directly
contract to purchase merchandise to comply with our ethical standards for
vendors and suppliers as stated in our vendor buying agreements.
WHAT HAS HOME DEPOT DONE RECENTLY TO IMPLEMENT THESE STANDARDS?
During the past year, we formed a cross-functional team including members of
senior management to review and update our code of ethical standards for vendors
and suppliers. As a result, we required our vendors to sign an agreement stating
that they would comply with our ethical standards, in areas including:
- health and safety of workers;
- legal employment; and
- wages and hours.
HOW DO YOU ENSURE COMPLIANCE WITH THESE STANDARDS?
We use independent firms to inspect the quality of the merchandise we directly
source and to assess the compliance of our vendors with a broad range of our
policies and standards.
WHAT IF THESE VENDORS FAIL TO COMPLY WITH THESE POLICIES?
If we discover that a particular factory used by a global vendor from whom we
directly source merchandise violates our standards, we take appropriate
corrective actions, which could include, among other things, canceling the
outstanding orders for merchandise, prohibiting future use of the non-complying
factory or terminating our relationship with the vendor.
WHY DOES THE COMPANY OPPOSE THIS PROPOSAL?
Our philosophy toward our associates and the requirements we place on our global
vendors from whom we directly purchase merchandise reflect principles that are
similar to the goals espoused by the proponent of this proposal and similar
groups. We already commit resources in this area. Having addressed the issues
presented by the proposal, we do not believe that adoption of the proposal would
enhance our values, our commitment to our associates or the standards required
of our vendors.
WE RECOMMEND THAT YOU VOTE
AGAINST THE ADOPTION OF THIS
STOCKHOLDER PROPOSAL
14
EXECUTIVE COMPENSATION
The following tables discuss the compensation earned by our former Chairman of
the Board, our Chief Executive Officer and the four other most highly
compensated executive officers in fiscal years 2001, 2000 and 1999:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM
COMPENSATION AWARDS
Stock
Securities
Other Annual Restricted Underlying All Other
Fiscal Salary Bonus Compensation Award(s) Options Compensation
Name and Principal Position Year(1) ($) ($) ($) ($)(2) (#) ($)(3)
---------------------------------------------------------------------------------------------------------------------------------
Bernard Marcus 2001 917,307 2,000,000 11,548 -- -- 52,231
Former Chairman of the Board(4)(5) 2000 900,000 --(6) 10,561 -- -- 55,705
1999 900,000 2,000,000 60,652(7) -- -- 56,478
Robert L. Nardelli 2001 1,528,845 5,000,000(8) 7,250,757(9) 9,050,000 1,000,000 9,822
Chairman, President and 2000 202,531 -- -- 30,562,500 3,500,000 50,400(10)
Chief Executive Officer(4) 1999 -- -- -- -- -- --
Larry M. Mercer 2001 551,922 550,000 6,928 2,658,840 150,000 21,887
Executive Vice President - 2000 496,153 -- 7,184 -- 17,886 31,557
Operations 1999 474,230 320,880 1,897 -- 25,137 28,855
Dennis M. Donovan 2001 444,230 1,005,795(11) 189,081(11) 19,536,881 370,000 4,058
Executive Vice President - 2000 -- -- -- -- -- --
Human Resources 1999 -- -- -- -- -- --
Frank L. Fernandez 2001 444,230 775,000(13) 143,117(14) 4,786,340 370,000 4,712
Executive Vice President - 2000 -- -- -- -- -- --
General Counsel & Secretary 1999 -- -- -- -- -- --
Carol B. Tome 2001 400,576 525,000 6,280 1,549,560 210,000 15,120
Executive Vice President - 2000 288,076 -- 2,077 -- 11,886 15,637
Chief Financial Officer 1999 -- -- -- -- -- --
1) The Company's 2001 fiscal year consisted of 53 weeks.
2) Amounts set forth in the restricted stock awards column include grants
of restricted stock and deferred stock units. Restricted stock awards made to
executive officers vest according to the following schedule: 25% on the third
anniversary of grant, 25% on the sixth anniversary of grant and 50% when the
officer reaches age 62. Messrs. Nardelli, Donovan and Fernandez were granted
awards of deferred stock units corresponding to 250,000 shares, 328,821 shares
and 50,000 shares, respectively, in fiscal 2001. The units held by Mr. Nardelli
vest one-fifth on the date of grant and one-fifth on the first four
anniversaries of his employment date, the units held by Mr. Donovan vest in
one-third increments on the first, third and fifth anniversaries of his
employment date, and the units held by Mr. Fernandez vest one-fourth per year
beginning on the second anniversary of the date of his employment. These awards
were made to Messrs. Donovan and Fernandez pursuant to the terms of their
employment agreements. Pursuant to the terms of his employment agreement, in
fiscal 2000 Mr. Nardelli received an award of deferred stock units corresponding
to 750,000 shares, which vests one-fifth per year beginning on his employment
date. Mr. Nardelli does not hold any shares of restricted stock. Mr. Marcus did
not receive equity awards.
15
EXECUTIVE COMPENSATION
The number and value at fiscal 2001 year-end of shares of restricted stock and
deferred stock units held by each executive named in the table was,
respectively, for Mr. Nardelli: 1,000,000 units and $48,650,000; for Mr. Mercer:
60,000 shares and $2,919,000; for Mr. Donovan: 400,821 shares and units and
$19,499,941; for Mr. Fernandez: 110,000 shares and units and $5,351,500; and for
Ms. Tome: 36,000 shares and $1,751,400.
Dividends on restricted stock and vested deferred stock unit awards are paid at
the same rate as paid to all stockholders.
3) "All other compensation" consists of:
- Matching contributions under the 401(k) component of
our FutureBuilder plan;
- Allocations of "stock units" under the 401(k)
restoration plan valued based on the market value of
our common stock on the day such amounts were
credited to the participants' accounts; and
- Payment of annual life insurance premiums.
The following table shows the amount of each category of "all other
compensation" received by each of the named individuals in fiscal 2001:
Name 401(k) Matching Contribution Allocation under Restoration Plan Insurance Premiums
---- ---------------------------- --------------------------------- ------------------
Bernard Marcus $ 5,950 $ 25,576 $ 20,705
Robert L. Nardelli $ 4,038 -- $ 5,784
Larry M. Mercer $ 6,084 $ 12,849 $ 2,954
Dennis M. Donovan -- -- $ 4,058
Frank L. Fernandez -- -- $ 4,712
Carol B. Tome $ 6,313 $ 7,338 $ 1,469
4) Mr. Marcus served as Chairman of the Board until January 1, 2002, when
Mr. Nardelli became Chairman.
5) Mr. Marcus does not participate in any of the Company's stock option
plans.
6) Mr. Marcus earned a bonus for fiscal 2000 of $2,000,000, but declined
to accept any bonus.
7) "Other annual compensation" includes the benefit for personal use of
airplanes owned by the Company in the amount of $31,021 in fiscal 1999 for Mr.
Marcus.
8) The amount in the bonus column includes $3,000,000 that was required to
be paid pursuant to the terms of Mr. Nardelli's employment agreement.
9) Mr. Nardelli's other annual compensation includes $2,587,000 for the
forgiveness of a loan and accrued interest and $2,149,360 for related tax
payments, $1,255,658 related to his relocation and sale of his house and
$954,159 for related tax payments, and $50,325 for the payment of life insurance
premiums and $41,812 for related tax payments, all of which were paid pursuant
to the terms of his employment agreement. Other annual compensation also
includes $83,255 for personal use of Company aircraft and $69,171 for related
tax payments. Mr. Nardelli is required to use Company aircraft for all travel.
10) Mr. Nardelli received this payment from the Company to reimburse him
for certain payments related to restricted stock he forfeited from his former
employer.
11) The amount in the bonus column includes a signing bonus of $430,795 and
a bonus for fiscal 2001 of $525,000 that were required to be paid pursuant to
the terms of Mr. Donovan's employment agreement.
12) Mr. Donovan's other annual compensation includes $96,933 of expenses
related to his relocation and $66,426 of related tax payments, which were paid
pursuant to the terms of his employment agreement.
13) The amount in the bonus column includes a signing bonus of $250,000 and
a bonus for fiscal 2001 of $341,250 that were required to be paid pursuant to
the terms of Mr. Fernandez's employment agreement.
14) Mr. Fernandez's other annual compensation includes $75,384 of expenses
related to his relocation and $43,401 of related tax payments, which were paid
pursuant to the terms of his employment agreement.
16
EXECUTIVE COMPENSATION
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
----------------------------------------------------------------
Percent
of Total Potential Realizable Value at
Number of Options Assumed Annual Rate of Stock
Securities Granted to Price Appreciation for Option
Underlying Employees Exercise or Term (10 Years)(*)
Options Granted in Fiscal Year Base Price Expiration
Name (#) (%) ($/Sh) Date 5% ($) 10% ($)
-----------------------------------------------------------------------------------------------------------------------------
Bernard Marcus -- -- -- -- -- --
Robert L. Nardelli 1,000,000 3.95 36.20 9/16/11 22,765,985 57,693,477
Larry M. Mercer 100,000 .39 40.00 2/21/11 2,515,578 6,374,969
50,000 .19 36.69 9/17/11 1,153,707 2,923,720
Dennis M. Donovan 320,000 1.26 42.55 4/1/11 8,563,029 21,700,397
50,000 .19 36.69 9/17/11 1,153,707 2,923,720
Frank L. Fernandez 320,000 1.26 42.55 4/1/11 8,563,029 21,700,397
50,000 .19 36.69 9/17/11 1,153,707 2,923,720
Carol B. Tome 60,000 .23 40.00 2/21/11 1,509,347 3,824,981
100,000 .39 49.99 5/29/11 3,143,844 7,967,118
50,000 .19 36.69 9/17/11 1,153,707 2,923,720
(*) These amounts represent assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on future performance of
our stock. There can be no assurance that the amounts reflected in these columns
will be achieved or, if achieved, will exist at the time of any option exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year-End (#) Fiscal Year-End ($)
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------------------------------------
Bernard Marcus -- -- -- -- -- --
Robert L. Nardelli -- -- 2,200,000 2,300,000 19,940,000 23,535,000
Larry M. Mercer 225,000 9,894,802 356,265 226,158 13,628,948 3,092,238
Dennis M. Donovan -- -- -- 370,000 -- 2,827,500
Frank L. Fernandez -- -- -- 370,000 -- 2,827,500
Carol B. Tome -- -- 150,555 253,908 5,670,489 1,873,394
17
EXECUTIVE COMPENSATION
WHAT ARE THE TERMS OF EMPLOYMENT AGREEMENTS WITH THE COMPANY'S EXECUTIVE
OFFICERS?
The Company has an Employment Agreement dated as of December 4, 2000 with Robert
L. Nardelli retaining him as the President and Chief Executive Officer of the
Company. The initial term of the agreement expires on December 31, 2005, and,
beginning on January 1, 2003, the term automatically extends so that the
remaining term is always three years.
In determining Mr. Nardelli's compensation, the Board focused on competitive
levels of compensation for CEOs managing operations of similar size, complexity
and performance level and the importance of hiring a President and CEO with the
strategic, financial and leadership skills to ensure the Company's continued
growth into the foreseeable future. Based on these factors, the Board determined
that Mr. Nardelli's annual base salary shall be not less than $1,500,000 and his
annual bonus shall be not less than $3,000,000.
The Company believes it is essential that a large portion of our executive
officers' total compensation is tied to stock performance, which more closely
aligns their interests with the long-term interests of stockholders. To reflect
this belief and in recognition that Mr. Nardelli forfeited substantial equity
ownership rights provided by his former employer, Mr. Nardelli received two
stock option awards. The first entitles him to purchase 1,000,000 shares of
common stock at $40.75 per share. This stock option was immediately exercisable
as of the date of the employment agreement. The second stock option award
entitles him to purchase 2,500,000 shares of common stock at $40.75 per share
and vests in 500,000 share increments on the date of the employment agreement
and each of the first four anniversaries of such date. Beginning in 2002, Mr.
Nardelli will receive additional annual option awards to purchase no less than
450,000 shares of common stock. The Company also granted him deferred stock
units corresponding to 750,000 shares of common stock, which vest one-fifth per
year beginning on the date of the employment agreement. In addition, Mr.
Nardelli received a lump sum payment of $50,400 when he entered into the
employment agreement.
Mr. Nardelli received a loan from the Company in the amount of $10,000,000,
which accrues interest at the rate of 5.87% per year, compounded annually. As a
long-term employment incentive, the obligation to repay the loan and accrued
interest is forgiven 20% per year on each of the first five anniversaries of the
date Mr. Nardelli's employment began if he is employed by the Company on each
such date. The loan (and any accrued interest) will be forgiven upon a change of
control (as defined in the employment agreement) if Mr. Nardelli is employed by
the Company on such date, or upon the date of termination of Mr. Nardelli's
employment with the Company prior to December 4, 2005 if such termination is by
the Company without cause, by Mr. Nardelli for good reason or by reason of Mr.
Nardelli's death or disability. If Mr. Nardelli's employment is terminated by
the Company for cause or by Mr. Nardelli other than for good reason, then Mr.
Nardelli is required to repay the outstanding principal amount.
To compensate Mr. Nardelli in part for forfeiting retirement benefits made
available by his former employer, the Company agreed to provide him with
deferred compensation upon any termination of his employment. Beginning on the
later of his 62nd birthday or termination of employment, Mr. Nardelli will be
entitled to a cash benefit in an annual amount equal to 50% of his salary as of
the date of his termination and his most recent annual bonus (or, if greater,
the then-current target amount for his bonus), subject to offset for certain
pension benefits paid or payable to Mr. Nardelli by the Company or his prior
employers. The amount of the benefit may be reduced if Mr. Nardelli's employment
is terminated under certain circumstances, such as if Mr. Nardelli is terminated
by the Company for cause or if Mr. Nardelli terminates his employment without
good reason, prior to his 62nd birthday and/or prior to the fifth anniversary of
the date of the employment agreement.
In addition, if Mr. Nardelli's employment is terminated either by the Company
for cause or by Mr. Nardelli other than for good reason, then the Company will
pay him all cash compensation accrued but not paid as of the termination date.
If Mr. Nardelli's employment is terminated by the Company other than for cause,
by Mr. Nardelli for good reason or for any reason within 12 months after a
change in control or due to death or
18
EXECUTIVE COMPENSATION
disability, Mr. Nardelli will receive certain benefits, including: (1) all cash
compensation accrued but not paid as of the termination date; (2) $20,000,000;
(3) immediate vesting of unvested equity-based awards and compensation; (4) for
each year prior to 2006 for which an annual option award has not yet been
granted, a fully vested stock option award in accordance with the agreement; and
(5) immediate forgiveness of any outstanding principal and accrued interest of
the loan. If Mr. Nardelli's employment terminates due to his retirement after he
attains age 62 or upon a change in control of the Company, all equity-based
awards made under his employment agreement or otherwise will fully vest and
remain exercisable through the end of their original term.
The Company also has an employment agreement with Dennis M. Donovan, Executive
Vice President - Human Resources, dated as of March 16, 2001, and with Frank L.
Fernandez, Executive Vice President, Secretary and General Counsel, dated as of
April 2, 2001. The initial term of Mr. Donovan's contract terminates on December
31, 2005, and beginning on January 1, 2003, automatically extends so that the
remaining term is always three years. The initial term of Mr. Fernandez's
contract terminates on April 2, 2004, and beginning on April 2, 2002,
automatically extends so that the remaining term is always two years. Each
contract provides that the automatic extensions will continue until either the
Company or the employee gives written notice of termination of the extension
provision.
The employment agreements provide for each of Messrs. Donovan and Fernandez to
receive a base salary of not less than $525,000 per year. Mr. Donovan is
eligible for an annual bonus of no less than his then-current base salary. Mr.
Fernandez is eligible for an annual bonus of no less than 65% and no more than
100% of his then-current base salary. Both Messrs. Donovan and Fernandez were
guaranteed a bonus for fiscal 2001. In connection with the commencement of
employment, Messrs. Donovan and Fernandez each received awards of stock options
exercisable for 320,000 shares and awards of deferred restricted stock units
corresponding to 328,821 shares and 50,000 shares, respectively. Beginning in
2002, Messrs. Donovan and Fernandez are eligible for annual grants of stock
options exercisable for at least 90,000 and 70,000 shares, respectively.
In connection with their relocations, Messrs. Donovan and Fernandez received
loans in the amount of $3,000,000 and $500,000, respectively. Interest on the
loans accrue at the rate of 5.8% per year. Interest will be forgiven 20% per
year on each of the first five anniversaries of the loans. The loans must be
repaid upon the earlier of (1) the fifth anniversary of the date of the loan, in
the case of Mr. Donovan, and the fourth anniversary of the date of the loan, in
the case of Mr. Fernandez, and (2) ninety days following the termination of the
employee's employment by the Company for cause or by the employee without good
reason. In addition, Messrs. Donovan and Fernandez received lump sum payments of
$430,795 and $250,000, respectively, when they entered into the employment
agreements. Mr. Donovan will also be reimbursed for up to $15,000 of expenses he
incurred in connection with the preparation and execution of his employment
agreement.
Upon the termination of the employment of either Mr. Donovan or Mr. Fernandez by
the Company for cause or by the employee without good reason, the Company will
pay the employee all cash compensation accrued but not paid as of the
termination date. If the employment of Mr. Donovan or Mr. Fernandez is
terminated by the Company other than for cause, by the employee for good reason
or for any reason within 12 months after a change in control or due to death or
disability, the employee will receive all cash compensation accrued but not paid
as of the termination date and certain additional benefits, including salary and
bonus continuation for 24 months and immediate vesting of all unvested
equity-based awards. In the event of a change in control, in addition to
receiving any protection that is applicable to other senior executives, all
grants of equity-based awards to Messrs. Donovan and Fernandez shall become
fully vested and exercisable.
Pursuant to their respective agreements, each of Messrs. Donovan and Fernandez
has agreed that during the term of his employment and for two years thereafter,
he shall not, without the prior written consent of the Company, participate (as
defined in the agreements) in the management of certain competitors of the
Company. During the same period, each executive has also agreed not to solicit
any employee of the Company to accept a position with another entity or to
solicit any vendor or customer of the Company to alter its relationship
19
EXECUTIVE COMPENSATION
with the Company in any way that would be adverse to the Company.
Under the terms of the agreements with Messrs. Nardelli, Donovan and Fernandez,
termination of employment for good reason generally means the occurrence of
certain events without the employee's consent, including, among other things,
(1) the Company assigning him duties inconsistent in any material respect with
his duties and responsibilities as contemplated by the employment agreement or
taking any other action that results in a significant diminution in such
employee's position, duties or responsibilities, or (2) failure of the Company
to comply with any material provision of the employment agreement. Termination
for cause means, among other things, that the employee (1) has engaged in
conduct that constitutes willful gross neglect or willful gross misconduct with
respect to employment duties that results in material economic harm to the
Company, subject to certain conditions, or (2) has been convicted of a felony
involving theft or moral turpitude. Any determination that cause exists must be
approved by a majority of the Company's Board of Directors after giving notice
of such meeting to the employee and providing the employee and his legal counsel
an opportunity to address such meeting.
In addition to these and other benefits set forth in the applicable employment
agreements, Messrs. Nardelli, Donovan and Fernandez are entitled to participate
in the benefit plans offered to all executive officers of the Company and to
receive the same perquisites as are commonly provided to other senior executives
of the Company. The Company will also reimburse them for income taxes applicable
to certain specified benefits and payments under the agreement and for excise
taxes imposed in the event payments or benefits received by the employee under
their respective agreements, or otherwise, result in "parachute payments" under
the Internal Revenue Code.
20
COMPENSATION COMMITTEE REPORT
Filings made by companies with the Securities and Exchange Commission sometimes
"incorporate information by reference." This means the Company is referring you
to information that has been previously filed with the SEC and that this
information should be considered as part of the filing you are reading. The
Compensation Committee Report, Audit Committee Report and Stock Performance
Graph in this proxy statement are not incorporated by reference into any other
filings with the SEC.
The Compensation Committee of the Board of Directors has furnished the following
report on executive compensation:
WHAT ARE THE COMPONENTS OF EXECUTIVE COMPENSATION?
Our compensation program for executives consists of three key elements:
- Annual base salary;
- Performance-based annual bonus; and
- Long-term stock incentive compensation.
WHAT IS THE PHILOSOPHY OF EXECUTIVE COMPENSATION?
We have a "pay for performance" philosophy, which rewards executives for
long-term strategic management and enhancement of stockholder value. This
philosophy is implemented by setting base salaries near retail industry
averages. Annual performance-based bonuses and long-term stock incentive awards
make it possible for total executive compensation packages to exceed retail
industry averages.
We believe it is important for our executives to have ownership incentives in
our company and to operate in an environment that measures rewards against
personal and Home Depot goals. We believe this philosophy attracts, retains and
motivates key executives critical to the long-term success of our company.
HOW IS THE CHIEF EXECUTIVE OFFICER COMPENSATED?
On December 4, 2000, the Company hired Mr. Nardelli as President and Chief
Executive Officer. The Board of Directors approved Mr. Nardelli's employment
agreement after an extensive search had been conducted by the Board with the
assistance of an executive search firm. Pursuant to the terms of his employment
agreement, in fiscal 2001, Mr. Nardelli's base salary was $1,500,000. Mr.
Nardelli received a bonus of $5,000,000, $3,000,000 of which was required to be
paid pursuant to the terms of his employment agreement. In addition during
fiscal 2001, the Compensation Committee determined it was appropriate to grant
Mr. Nardelli a stock option to purchase 1,000,000 shares at an exercise price of
$36.20 per share, 450,000 of which shares were required to be awarded pursuant
to his employment agreement. This stock option vests in 200,000 share increments
on the date of grant and on each of the first four anniversaries of such date.
Mr. Nardelli also received a discretionary award of deferred stock units during
fiscal 2001 corresponding to 250,000 shares of common stock, one fifth of which
vested on the date of grant and one fifth of which vests on each of the next
four anniversaries of the date of his employment agreement. In determining Mr.
Nardelli's cash and equity compensation for fiscal 2001, the Board focused on
the Company's financial performance during the year (net income increase of 18%,
sales increase of 17%, earnings per share of $1.29), the number of initiatives
begun, expanded and/or completed by the Company since Mr. Nardelli's employment
began, competitive levels of compensation for CEOs managing operations of
similar size, complexity and performance level and the importance of retaining a
President and Chief Executive Officer with the strategic, financial and
leadership skills to ensure the Company's continued growth into the foreseeable
future. The terms of Mr. Nardelli's employment agreement are set forth under
"Executive Compensation" in this proxy statement.
HOW ARE OTHER EXECUTIVE OFFICERS COMPENSATED?
In setting all other executive officer annual salaries for fiscal 2001, the
Compensation Committee reviewed an annual salary plan recommended by Mr.
Nardelli. The annual salary plan was based on numerous subjective factors, which
included performance, merit increases and responsibility levels. All executive
officers (other than Mr. Marcus) participate in the officers' bonus plans. Under
these plans, officers are eligible to earn a bonus of up to an established
percentage of their annual base salary, depending on the Company's performance
relative to criteria such as gross margin, return on investment, return on
assets and sales target levels. The exact objective criteria employed depend on
the officer's responsibilities. Performance criteria may be computed by various
methods depending on the Compensation Committee's assessment of the best match
between job duties and performance criteria. The Compensation
21
COMPENSATION COMMITTEE REPORT
Committee believes that disclosure of actual targets under these plans could
adversely affect the Company since, among other things, such projections are not
publicly disclosed and could place the Company at a competitive disadvantage
with respect to hiring and retaining key employees. Disclosure could potentially
expose the Company to claims by third parties based on the projections,
especially because these projections are not intended as a predictor of future
performance. During fiscal 2001, although these targets were not achieved, the
named executive officers other than Messrs. Marcus and Nardelli were awarded
bonuses as reflected in the Summary Compensation Table contained in this proxy
statement. These bonuses were awarded based on the Compensation Committee's
recognition of the individual contributions made by these executive officers
that enabled the Company to perform well both financially and operationally
despite the very difficult economic environment and based on competitive levels
of compensation at similar companies. Bonuses paid to Messrs. Donovan and
Fernandez were, in part, based on the terms of their respective employment
agreements, which are described under "Executive Compensation" in this proxy
statement.
Mr. Marcus was eligible for a maximum cash bonus of $2,000,000 for fiscal 2001
under the Company's Senior Officers' Bonus Pool Plan. This plan pays a total
bonus equal to 10% of the Company's earnings in excess of a threshold amount.
For fiscal 2001, the threshold amount was $2.58 billion, which is approximately
equal to Home Depot's net earnings for fiscal 2000. In fiscal 2001, Home Depot's
earnings exceeded the threshold amount, and Mr. Marcus received the maximum
bonus. A large portion of the executive officers' total compensation is tied to
stock performance, more closely aligning their interests with the long-term
interests of stockholders. This is accomplished through our 1997 Omnibus Stock
Incentive Plan. Stock options are granted to all executive officers to purchase
stock at the then current market price. Shares of restricted stock are granted
to certain executive officers. Stock options are typically exercisable at a rate
of 25% per year commencing on the first or second year after the date of grant
depending on the type of stock option granted. Stock options are typically
exercisable for ten years after the date of grant. The restrictions on shares of
restricted stock typically lapse with regard to 25% of the shares on each of the
third anniversary and sixth anniversary of the date of grant and with regard to
50% of the shares when the holder reaches age 62. The number of shares subject
to equity awards is determined by the Compensation Committee and is based on the
individual's position within the Company, job performance, future potential,
awards made to executives at comparable companies and other factors.
Additionally, certain executive officers have employment agreements that provide
that awards of a specified number of stock options be made to such officers, as
described under "Executive Compensation" in this proxy statement.
DOES THE COMPENSATION COMMITTEE COMPARE COMPANY SALARIES TO OTHER COMPANIES?
Salaries are based on the Compensation Committee's assessment of each officer's
past performance and the expectation for future contributions in leading the
Company. In addition, the Compensation Committee reviews compensation data for
the retail industry and other companies similar in size. The Compensation
Committee uses other company compensation data for informational purposes only
and also considers subjective factors relating to the differences between
companies.
HOW ARE LIMITATIONS ON THE DEDUCTIBILITY OF COMPENSATION HANDLED?
Section 162(m) of the Internal Revenue Code limits the deductibility of
executive compensation paid by publicly held corporations to $1,000,000 per
employee. The $1,000,000 limitation generally does not apply to compensation
based on performance goals if certain requirements are met. The Company believes
its officers' bonus plans each satisfy Section 162(m). The Compensation
Committee, as much as possible, uses and intends to use performance-based
compensation, which should minimize the effect of these tax limits. However, the
committee believes that the Company must attract, retain and reward the
executive talent necessary to maximize the return to stockholders and that the
loss of a tax deduction may be necessary and appropriate in some circumstances.
WHO PREPARED THIS REPORT?
This report has been furnished by the members of the Compensation Committee:
- John L. Clendenin, Chair
- Gregory D. Brenneman
- Berry R. Cox
- William S. Davila
- Roger S. Penske
22
AUDIT COMMITTEE REPORT AND AUDIT FEES
AUDIT COMMITTEE REPORT
WHO SERVES ON THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS?
The members of the committee are Berry R. Cox, Chair, Richard H. Brown, William
S. Davila, Claudio X. Gonzalez and Milledge A. Hart, III. Each member of the
committee is independent under the rules of The New York Stock Exchange.
WHAT DOCUMENT GOVERNS THE ACTIVITIES OF THE AUDIT COMMITTEE?
The Audit Committee acts under a written charter, which sets forth its
responsibilities and duties, as well as requirements for the committee's
composition and meetings.
HOW DOES THE AUDIT COMMITTEE CONDUCT ITS MEETINGS?
During the fiscal year 2001, at each of its meetings, the committee met with the
senior members of the Company's financial management team, our vice president of
internal audit and our independent auditors. The committee's agenda was
established by the chairman and the chief financial officer. At each meeting,
the committee reviewed and discussed various business risks of the Company. The
committee had private, separate sessions at each of its meetings with each of
KPMG, the chief financial officer and the vice president of internal audit, at
which candid discussions of financial management, accounting and internal
control issues took place. Additionally, the chairman had separate discussions
regularly with each of KPMG, the chief financial officer and the vice president
of internal audit.
WHAT MATTERS HAVE MEMBERS OF THE AUDIT COMMITTEE DISCUSSED WITH THE INDEPENDENT
AUDITORS?
In its meetings with representatives of the independent auditors, the committee
asked them to address, and discussed their responses to several questions that
the committee believed were particularly relevant to its oversight. These
questions included:
- Are there any significant judgments made by management in preparing the
financial statements that would have been made differently had the
auditors themselves prepared and been responsible for the financial
statements?
- Based on the auditors' experience, and their knowledge of the Company,
do the Company's financial statements fairly present to investors, with
clarity and completeness, the Company's financial position and
performance for the reporting period in accordance with generally
accepted accounting principles and SEC disclosure requirements?
- Based on the auditors' experience, and their knowledge of the Company,
has the Company implemented internal controls and internal audit
procedures that are appropriate for the Company?
- During the course of the fiscal year, have the auditors received any
communication or discovered any information indicating any
improprieties with respect to the Company's accounting and reporting
procedures or reports?
The Audit Committee has also discussed with the auditors that they are retained
by the committee and that the auditors must raise any concerns about the
Company's financial reporting and procedures directly with the committee. Based
on these discussions with the independent auditors, the committee believes it
has a basis for its oversight judgments and for recommending that the Company's
audited financial statements be included in the Company's Annual Report on Form
10-K.
WHAT HAS THE AUDIT COMMITTEE DONE WITH REGARD TO THE COMPANY'S AUDITED FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2002?
The Audit Committee has:
- reviewed and discussed the audited financial statements with the
Company's management; and
- discussed with KPMG LLP, independent accountants for the Company, the
matters required to be discussed by Statement on Auditing Standards No.
61, Communication with Audit Committees, as amended.
23
AUDIT COMMITTEE REPORT AND AUDIT FEES
HAS THE AUDIT COMMITTEE CONSIDERED THE INDEPENDENCE OF THE COMPANY'S
ACCOUNTANTS?
The committee has received from KPMG the written disclosures and the letter
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and the committee has discussed with KPMG
that firm's independence. The committee has concluded that KPMG is independent
from the Company and its management.
HAS THE AUDIT COMMITTEE MADE A RECOMMENDATION REGARDING THE AUDITED FINANCIAL
STATEMENTS FOR FISCAL 2001?
Based upon its review and the discussions with management and the independent
accountants, the Audit Committee recommended to the Board of Directors of the
Company that the audited consolidated financial statements for the Company be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 2002 for filing with the Securities and Exchange Commission.
HAS THE AUDIT COMMITTEE REVIEWED THE FEES PAID TO THE INDEPENDENT ACCOUNTANTS
DURING FISCAL 2001?
The Audit Committee has reviewed and discussed the fees paid to KPMG during the
last fiscal year for audit and non-audit services, which are set forth in this
proxy statement under "Audit Fees," and has determined that the provision of the
non-audit services are compatible with the firm's independence.
WHO PREPARED THIS REPORT?
This report has been furnished by the members of the Audit Committee:
- Berry R. Cox, Chair
- Richard H. Brown
- William S. Davila
- Claudio X. Gonzalez
- Milledge A. Hart, III
AUDIT FEES
During fiscal 2001, the Company paid KPMG LLP fees in the aggregate amount of
$1,160,000 for the annual audit of our financial statements for fiscal 2001 and
the quarterly reviews of the financial statements included in our Forms 10-Q.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
KPMG did not render any services related to financial information systems design
and implementation during fiscal 2001.
ALL OTHER FEES
Aggregate fees billed for all other services rendered by KPMG for fiscal 2001
were $5,006,000. Of that amount, bills incurred for audit related services
consisting primarily of audits of financial statements of certain employee
benefit plans and other entities, audits of certain businesses acquired during
the year and review of SEC related filings and issuances of consents were
approximately $453,000. The remaining amount of $4,553,000 was incurred for
non-audit services consisting primarily of tax compliance and advisory services
and services related to litigation and training.
24
STOCK PERFORMANCE GRAPH
This graph compares our cumulative total stockholder returns (assuming quarterly
reinvestment of dividends), with that of the Standard & Poor's 500 Composite
Stock Index, and our industry peer group as compiled by the S&P Retail Composite
for the five-year period commencing February 2, 1997. The graph assumes $100
invested at the per share closing price of the common stock of The Home Depot
and of each of the other indices on the New York Stock Exchange on February 2,
1997.
[PERFORMANCE GRAPH]
02/02/1997 02/01/1998 01/31/1999 01/30/2000 01/28/2001 02/03/2002
-----------------------------------------------------------------------------------------------------
HD $100.00 $183.33 $366.67 $514.77 $438.17 $485.50
S&P 500 $100.00 $124.69 $162.76 $177.37 $173.75 $145.88
S&P Retail $100.00 $146.74 $238.78 $237.81 $252.82 $283.66
Composite
25
STOCK OWNERSHIP
This table shows how much of our common stock is owned by directors, each of the
executive officers named in the table on page 15, and all directors and
executive officers as a group as of April 1, 2002.
Shares Right to Percent
Name of Beneficial Owner Owned(1) Acquire(2) of Class
-------------------------------------------------------------------------------------------------------
Bernard Marcus 59,972,649(3) -- 2.6%
Robert L. Nardelli -- 2,200,000 (*)
Gregory D. Brenneman 600 -- (*)
Richard H. Brown 2,600(4) -- (*)
John L. Clendenin 10,786 23,437 (*)
Berry R. Cox 3,275,922(5) 937 (*)
William S. Davila 21,063 4,687 (*)
Claudio X. Gonzalez 6,100 -- (*)
Richard A. Grasso 10,000 -- (*)
Milledge A. Hart, III 4,274,179(6) 937 (*)
Bonnie G. Hill 1,638 4,687 (*)
Kenneth G. Langone 18,007,936(7) 937 (*)
Roger S. Penske 3,100 -- (*)
Larry M. Mercer 381,886 396,320 (*)
Dennis M. Donovan 72,130 -- (*)
Frank L. Fernandez 60,000 -- (*)
Carol B. Tome 43,087 166,610 (*)
Directors and executive officers as a group
(20 people) 86,210,516 2,835,578 3.8%
(*)Less than one percent.
1) These amounts include shares for which the named person has sole voting
and investment power or shares such powers with his or her spouse. They
also include shares credited to the named person's account under our
FutureBuilder plan, in the following amounts:
- Bernard Marcus - 39,875 shares
- Larry M. Mercer - 31,599 shares
- Carol B. Tome - 1,909 shares
- All directors and executive officers as a group (20
people) - 76,689 shares
2) These amounts reflect shares that could be purchased by exercise of
stock options as of April 1, 2002, or by May 31, 2002, under the
Company's stock incentive plans.
3) This amount includes the following shares for which Mr. Marcus may be
deemed to have shared voting and investment power, but disclaims
beneficial ownership:
- 493,324 shares held by Mr. Marcus' wife as trustee of
a trust for his children
- 300,185 shares held by a private foundation of which
Mr. Marcus' wife serves as a director
- 5 shares held by Mr. Marcus' wife
4) This amount includes 1,000 shares held by Mr. Brown's wife for which
Mr. Brown may be deemed to have shared voting and investment power.
5) This amount includes 4,500 shares held by a private foundation for
which Mr. Cox may be deemed to have shared voting and investment power.
6) This amount includes 457,855 shares held by a limited partnership whose
general partner is a corporation owned by Mr. Hart and his wife.
7) This amount includes 6,139 shares held by Mr. Langone's wife but for
which he disclaims beneficial ownership.
26
GENERAL
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee, who are identified under
"Compensation Committee Report" in this proxy statement, were at any time
officers or employees of the Company or any of its subsidiaries or had any
relationship with the Company requiring disclosure under Securities and Exchange
Commission regulations.
INSIDER TRANSACTIONS
The Marcus Foundation, of which Bernard Marcus is Chairman, and Mr. Marcus lease
office space from the Company. During fiscal 2001, The Marcus Foundation and Mr.
Marcus paid the Company $140,000 in rent and reimbursed the Company $530,000 for
leasehold improvements.
On February 22, 2001, the Company and Mr. Marcus entered into an agreement under
which Mr. Marcus purchased an aircraft from the Company at fair market value,
and Mr. Marcus leased the aircraft to the Company on a non-exclusive basis,
subject to Mr. Marcus' right to use the aircraft. The Company has also agreed to
make another airplane available for Mr. Marcus to lease if the Company is using
Mr. Marcus' aircraft. The gross rental rate per month is based on 1% of the
purchase price, with certain costs shared with Mr. Marcus. The Company pays rent
to Mr. Marcus based upon the Company's percentage usage of the plane, subject to
a minimum required rent equal to 50% usage by the Company. The Company manages
and maintains the aircraft and provides pilots, and Mr. Marcus reimburses the
Company quarterly for the costs associated with certain of these services based
on the percentage of time the aircraft is used by Mr. Marcus, up to 50%. During
fiscal 2001, Mr. Marcus reimbursed the Company for $182,000 pursuant to the
terms of these agreements. Among other things, the agreement also provides that
the Company will provide Mr. Marcus with security services at his discretion
during his life. Until 18 months after Mr. Marcus' death, the Company will
continue to lease space to Mr. Marcus and organizations affiliated with him at
the Store Support Center. Mr. Marcus or the affiliated organizations will pay
rent at the fair market value, subject to increase based on the Consumer Price
Index. Subject to a pro rata reimbursement, the Company will also provide one or
more employees to assist Mr. Marcus with Home Depot work and will provide him
with healthcare and life insurance and similar benefits during his life.
In April 2001, the Company issued $500 million of its 5-3/8% Senior Notes.
Invemed Associates, Inc., of which Kenneth Langone is Chairman, Chief Executive
Officer and President, acted as an underwriter in connection with the issuance
of the Senior Notes.
In connection with their employment, each of Robert L. Nardelli, Dennis M.
Donovan and Frank L. Fernandez received a loan of $10 million, $3 million and
$500,000, respectively, from the Company. The terms of these loans are more
fully described under "Executive Compensation."
Home Depot has purchase, finance and other transactions and relationships in the
normal course of business with companies with which Home Depot directors are
associated, but which are not sufficiently significant to be reportable. We
believe that all of these transactions and relationships during fiscal 2001 were
on terms that were reasonable and competitive. Additional transactions and
relationships of this nature may be expected to take place in the ordinary
course of business in the future.
COMPLIANCE WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the SEC and the
New York Stock Exchange reports of ownership and changes in ownership of the
Company's common stock. Directors, executive officers and greater than ten
percent stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of these reports furnished to the Company or written representations that
no other reports were required, with the exception of Mark Baker and Larry
Mercer, each of whom were late in filing a Form 4, we believe that during fiscal
year 2001, all our directors, executive officers and greater than ten percent
beneficial owners complied with these requirements.
27
GENERAL
AVAILABILITY OF FORM 10-K AND ANNUAL REPORT TO STOCKHOLDERS
SEC rules require us to provide an Annual Report to stockholders who receive
this proxy statement. We will also provide copies of the Annual Report to
brokers, dealers, banks, voting trustees and their nominees for the benefit of
their beneficial owners of record. Additional copies of the Annual Report, along
with copies of our Annual Report on Form 10-K for the fiscal year ended February
3, 2002 (not including documents incorporated by reference), are available
without charge to stockholders upon written request to Investor Relations, The
Home Depot, Inc., 2455 Paces Ferry Rd., Atlanta, Georgia 30339, by calling (770)
384-4388 or via the Internet at www.homedepot.com.
STOCKHOLDER PROPOSALS
To be considered for inclusion in next year's proxy statement, stockholder
proposals must be submitted in writing by December 24, 2002. Any stockholder
proposal, including nomination of a director, to be considered at next year's
meeting, but not included in the proxy statement, must be submitted in writing
by February 27, 2003, or the persons appointed as proxies may exercise their
discretionary voting authority with respect to the proposal. All written
proposals should be submitted to Frank L. Fernandez, Corporate Secretary, The
Home Depot, Inc., 2455 Paces Ferry Road, Atlanta, Georgia 30339.
OTHER PROPOSED ACTIONS
If any other items or matters properly come before the meeting, the proxies
received will be voted on those items or matters in accordance with the
discretion of the proxy holders. A stockholder has indicated his intention to
present proposals recommending that the Company adopt (1) a policy that auditors
not perform any work for the Company in addition to auditing and (2) a policy to
name annually the directors who have philanthropic links to the Company and the
latest annual sum. If these proposals are properly presented, it is intended
that the persons named in the proxy forms will use their discretionary authority
to vote against such proposals.
SOLICITATION BY BOARD; EXPENSES OF SOLICITATION
Our Board of Directors has sent you this proxy statement. Our directors,
officers and associates may solicit proxies by telephone or in person. In
addition, we have hired D.F. King & Co., Inc. to assist us in soliciting
proxies, which it may solicit by telephone or in person. We anticipate paying
D.F. King a fee of $15,000, plus expenses. We will also reimburse brokers,
nominees and fiduciaries to send proxies and proxy materials to our stockholders
so they can vote their shares.
28
[THE HOME DEPOT LOGO]
[RECYCLE LOGO]
PRINTED ON RECYCLED PAPER
2700-PS-02
DIRECTIONS TO THE HOME DEPOT, INC. 2002 ANNUAL STOCKHOLDERS' MEETING
From I-285 (Atlanta Bypass) exit onto Cobb Parkway (also known as U.S. Highway
41). Proceed southbound on Cobb Parkway. Turn left onto Galleria Drive. The
first entrance on the right is Cobb Galleria Centre's main (rotunda) entrance
and drop-off area. Additional parking may be found at the second and third
rights in the 100 Building parking deck. If you have questions, call Investor
Relations at 770-384-3049.
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NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
TIME:
10:00 a.m. on Wednesday, May 29, 2002
PLACE:
Cobb Galleria Centre, 2 Galleria Parkway, Atlanta, Georgia 30339
ITEMS OF BUSINESS:
1. To elect the full board of directors.
2. To ratify the appointment of KPMG LLP as independent auditors for the
Company for the fiscal year 2002.
3. To amend the Company's Certificate of Incorporation to eliminate
Article Eighth, which sets forth our "fair price" provision.
4. To re-approve our 1997 Omnibus Stock Incentive Plan, as amended to add
additional performance objectives.
5. To transact other business properly coming before the meeting,
including the consideration of stockholder proposals.
WHO CAN VOTE:
You can vote if you were a stockholder of record on April 1, 2002.
ANNUAL REPORT:
A copy of our 2001 Annual Report is enclosed with the Proxy Statement.
DATE OF MAILING:
This notice and the proxy statement are first being mailed to stockholders on
or about April 22, 2002.
By Order of the Board of Directors
Frank L. Fernandez, Secretary
- Detach here if mailing -
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PROXY VOTING INSTRUCTIONS
THE HOME DEPOT, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON MAY 29, 2002.
The undersigned stockholder hereby appoints ROBERT L. NARDELLI and FRANK L.
FERNANDEZ, and each of them, attorneys and proxies for the undersigned with
full power of substitution, to act and vote, with the powers the undersigned
would possess if personally present, at the Annual Meeting of Stockholders of
The Home Depot, Inc., to be held at the Cobb Galleria Centre, Atlanta, Georgia,
on Wednesday, May 29, 2002, at 10:00 a.m. and any adjournments or postponements
thereof, as directed on the reverse side, with respect to the matters set forth
on the reverse side and with discretionary authority on all other matters that
come before the meeting, all as more fully described in the proxy statement
received by the undersigned stockholder. If no direction is made, the proxy
will be voted "FOR" the approval of item number 1, "FOR" the approval of item
number 2, "FOR" the approval of item number 3, "FOR" the approval of item
number 4 and "AGAINST" the approval of item number 5 and in accordance with the
recommendations of the Board of Directors.
Participants in the Company's 401(k) plan, FutureBuilder, may vote their
proportionate share of The Home Depot, Inc. common stock held in the plan, by
signing and returning this card, or by voting electronically. By doing so, you
are instructing the trustee to vote all of your shares at the meeting and at
any adjournment, as you have indicated with respect to Proposals 1-5. If this
card is signed and returned without voting instructions, the shares represented
by this proxy will be voted by the plan trustee as indicated in the preceding
paragraph. If this card is not returned or is returned unsigned, shares will be
voted by the plan trustee in the same proportion as the shares for which voting
instructions are received from other participants in the plan.
SEE UNLESS VOTING ELECTRONICALLY OR BY PHONE, SEE
REVERSE PLEASE MARK, SIGN AND DATE REVERSE
SIDE THIS PROXY ON THE REVERSE SIDE. SIDE
[HOME DEPOT LOGO] THE HOME DEPOT, INC. ADMISSION CARD
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940-3068
THE HOME DEPOT, INC.
2002 ANNUAL STOCKHOLDERS' MEETING
May 29, 2002 -- 10:00 a.m.
Cobb Galleria Centre
Atlanta, Georgia
(Please detach card at perforation.)
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VOTE BY TELEPHONE OR INTERNET
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS/WEEK
UNTIL 10:00 A.M., E.T., MAY 29, 2002
The Home Depot, Inc. encourages you to take advantage of either of two
cost-effective and convenient ways to vote your shares. You may now vote your
proxy 24 hours a day, 7 days a week, using either a touch-tone telephone or
through the Internet. Your telephone or Internet vote authorizes you to vote
your shares in the same manner as if you marked, signed and returned your proxy
card.
TO VOTE BY TELEPHONE: CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE
1-877-PRX-VOTE (1-877-779-8683) ANYTIME (THERE IS NO
CHARGE TO YOU FOR THIS CALL). You will be asked to
enter the voter control number located above your
name and address in the lower left corner of this
form. Then simply follow the instructions.
OR
TO VOTE BY INTERNET: POINT YOUR BROWSER TO THE WEB ADDRESS:
HTTP://WWW.EPROXYVOTE.COM/HD
You will be asked to enter the voter control number
located above your name and address in the lower
left corner of this form. Then simply follow the
instructions. You may also indicate if you would be
interested in receiving future proxy materials via
the Internet.
OR
TO VOTE BY MAIL: Simply mark, sign and date your proxy card and
return it in the enclosed postage-paid envelope.
IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET,
PLEASE DO NOT MAIL YOUR PROXY CARD.
- DETACH PROXY CARD HERE -
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PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
UNLESS VOTING ELECTRONICALLY OR BY PHONE, PLEASE MARK, SIGN AND DATE THIS PROXY
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. TO VOTE ELECTRONICALLY OR
BY PHONE, FOLLOW THE INSTRUCTIONS ABOVE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4
AND AGAINST ITEM 5.
FOR AGAINST ABSTAIN
1. Election of Directors: 2. Approval of Company Proposal to ratify the [ ] [ ] [ ]
appointment of KPMG LLP as independent
Nominees: auditors for the Company for the fiscal
year 2002.
(01) Gregory D. Brenneman, 3. Approval of Company Proposal to amend [ ] [ ] [ ]
(02) Richard H. Brown, Certificate of Incorporation to eliminate
(03) John L. Clendenin, Article Eighth, which sets forth a
(04) Berry R. Cox, "fair price" provision.
(05) William S. Davila, FOR WITHHELD
(06) Claudio X. Gonzalez, [ ] [ ] 4. Company Proposal to re-approve The Home
(07) Richard A. Grasso, Depot, Inc. 1997 Omnibus Stock Incentive
(08) Milledge A. Hart, III, Plan, as amended to add additional
(09) Bonnie G. Hill, performance measurements.
(10) Kenneth G. Langone,
(11) Robert L. Nardelli, 5. Approval of Stockholder Proposal regarding [ ] [ ] [ ]
(12) Roger S. Penske global workplace standards.
[ ] DISCONTINUE
DUPLICATE
---------------------------------------------- ANNUAL REPORT [ ]
For all nominees except as noted above
MARK HERE FOR
ADDRESS CHANGE
AND NOTE AT LEFT [ ]
Please sign exactly as name appears at left. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Signature(s) Date Signature(s) Date
--------------------------------- ------------ ---------------------------------- ------------
Please Sign This Proxy as Name(s) Appear(s) Above.