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)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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:
TO OUR STOCKHOLDERS:
It is my pleasure to invite you to attend our 2003 Annual Meeting of
Stockholders on Friday, May 30, 2003, at 10:00 a.m., Central Time. The meeting
will be held in the James Simpson Theater at The Field Museum of Natural History
in Chicago, Illinois.
The matters to be acted upon at the meeting are described in the Notice of
Annual Meeting of Stockholders and Proxy Statement. At the meeting, we will also
report on the Company's performance and operations during fiscal 2002 and
respond to stockholder questions.
We anticipate a large number of attendees at our Annual Meeting of Stockholders.
While we will make every effort to accommodate all attendees, we cannot
guarantee seating availability. We will seat attendees on a first-come, first-
served basis. We strongly recommend that stockholders arrive at The Field Museum
20 to 30 minutes prior to the start of the meeting. If you will need special
assistance or seating at the meeting, please contact Audrey Davies at (770)
433-8211 Ext. 17598. We will provide an interpreter for the hearing impaired.
Please note that for security reasons we discourage attendees from bringing
large bags, knapsacks, backpacks or similar items into the theater. Attendees
who bring such items may be asked to check them at the coat check.
PLEASE NOTE THAT YOU WILL NEED TO PRESENT AN ADMISSION TICKET IN ORDER TO ATTEND
THE ANNUAL MEETING. If your shares are registered in your name and you received
your proxy materials by mail, your admission ticket is attached to your proxy
card. If your shares are registered in your name and you received your proxy
materials electronically via the Internet, you will need to print an admission
ticket after you vote by clicking on the "Options" button at the bottom of the
screen that provides a summary of your vote. Then click on the "Admission
Ticket" button that appears on the next screen and click on the "Print this
Page" icon to print your ticket. If you hold shares through an account with a
bank or broker, you will need to contact your bank or broker and request a legal
proxy, which will serve as your admission ticket. All stockholders will be
required to present valid picture identification to enter the meeting. IF YOU DO
NOT HAVE AN ADMISSION TICKET OR LEGAL PROXY AND VALID PICTURE IDENTIFICATION,
YOU MAY NOT BE ADMITTED TO 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 6, 2003.
You may elect to receive future proxy materials electronically through the
Internet. You may sign up by following the instructions on your proxy card or
broker instruction form. Receiving future annual reports and proxy statements
through the Internet will be simpler for you, will save the Company money and is
friendlier to the environment. If you have a computer with Internet access, we
hope you will follow the instructions and choose to receive proxy materials
electronically.
Your vote is very important. Whether or not you plan to attend the Annual
Meeting of Stockholders, we urge you to vote and submit your proxy by telephone,
the Internet or by mail. If you are a registered stockholder and attend the
meeting, you may revoke the proxy and vote your shares in person. If you hold
your shares through a bank or broker and want to vote your shares in person at
the meeting, please contact your bank or broker to obtain a legal proxy.
Thank you for your support.
Sincerely,
/s/ Bob
Robert L. Nardelli
Chairman, President and Chief Executive Officer
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
TIME: 10:00 a.m., Central Time, on Friday, May 30, 2003.
PLACE: The Field Museum of Natural History
James Simpson Theater
1400 South Lake Shore Drive
Chicago, Illinois 60605
ITEMS OF BUSINESS: (1) To elect all of the members of the board of
directors;
(2) To ratify the appointment of KPMG LLP as the
independent auditors of the Company for the fiscal
year ending February 1, 2004;
(3) To approve the material terms of the
performance-based compensation payable under the
Company's Management Incentive Plan;
(4) To act on stockholder proposals described in the
attached Proxy Statement; and
(5) To transact any other business properly coming
before the meeting.
WHO MAY VOTE: You may vote if you were a stockholder of record on
March 31, 2003.
ANNUAL REPORT: A copy of our 2002 Annual Report is enclosed.
DATE OF MAILING: This notice and the Proxy Statement are first being
mailed to stockholders on or about April 18, 2003.
By Order of the Board of Directors,
/s/ Frank L. Fernandez
Frank L. Fernandez, Secretary
ABOUT THE MEETING
WHAT AM I VOTING ON?
You will be voting on the following:
- To elect all of the members of the board of directors;
- To ratify the appointment of KPMG LLP as the independent auditors of the
Company for the fiscal year ending February 1, 2004 ("fiscal 2003");
- To approve the material terms of the performance-based compensation payable
under the Company's Management Incentive Plan;
- To act on stockholder proposals described in this Proxy Statement; and
- To transact any other business properly coming before the meeting.
WHO IS ENTITLED TO VOTE?
You may vote if you owned shares of the Company's common stock as of the close
of business on March 31, 2003. Each share of common stock is entitled to one
vote. As of March 31, 2003, we had 2,293,776,926 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 through an account with a bank or broker, your ability
to vote by telephone or the Internet depends on their voting procedures. Please
follow the directions that your bank or broker provides.
MAY I VOTE AT THE MEETING?
You may vote your shares at the meeting if you attend in person. If you hold
your shares through an account with a bank or broker, you must obtain a legal
proxy from the bank or broker in order to vote at the meeting. 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., Central Time, on May 30, 2003 or (3) voting at the meeting
if you are a registered stockholder or have obtained a legal proxy from your
bank or broker.
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 nominees for director named on pages 6 through
7 of this Proxy Statement, (2) FOR the ratification of KPMG LLP as the
independent auditors of the Company for fiscal 2003, (3) FOR the approval of the
material terms of the performance-based compensation payable under the Company's
Management Incentive Plan, (4) AGAINST the stockholder proposals, and (5) in
accordance with the best judgement of the named proxies on any other matters
properly brought before the meeting.
HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN?
The number of shares shown on 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 ONE OF THE FUTUREBUILDER PLANS?
Shares credited to your FutureBuilder Plan account are included in the number of
shares shown on your proxy card. You may vote your shares by Internet, telephone
or mail, all as described on the enclosed proxy card. By voting, you are
instructing the trustee of your FutureBuilder Plan to vote all of your shares as
directed. If you do not vote, the shares credited to your account will be voted
by the trustee for the FutureBuilder Plan in the same proportion that it votes
shares in other accounts for which it received 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 Plan account.
1
ABOUT THE MEETING
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD OR INSTRUCTION FORM?
It means that you have multiple accounts with our transfer agent and/or banks or
brokers. Please vote all of these shares. We recommend that you 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 INSTRUCTION FORM?
If you are a registered stockholder and do not provide a proxy, you must attend
the meeting in order to vote your shares. If you hold shares through an account
with a bank or broker, your shares may be voted even if you do not provide
voting instructions on your instruction form. 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. The election of
directors, the ratification of KPMG LLP as the independent auditors of the
Company for fiscal 2003 and the approval of the material terms of the
performance-based compensation under the Company's Management Incentive Plan are
considered routine matters for which brokerage firms may vote without specific
instructions. 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 on March
31, 2003. To attend the meeting, you will need to bring an admission ticket and
valid picture identification. If your shares are registered in your name and you
received your proxy materials by mail, your admission ticket is attached to your
proxy card. If your shares are registered in your name and you received your
proxy materials electronically via the Internet, you will need to print an
admission ticket after you vote by clicking on the "Options" button at the
bottom of the screen that provides a summary of your vote. Then click on the
"Admission Ticket" button that appears on the next screen and click on the
"Print this Page" icon to print your ticket. If you hold shares through an
account with a bank or broker, you will need to contact your bank or broker and
request a legal proxy, which will serve as your admission ticket. IF YOU DO NOT
HAVE AN ADMISSION TICKET OR LEGAL PROXY AND VALID PICTURE IDENTIFICATION, YOU
MAY NOT BE ADMITTED TO 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 6, 2003. (We have
included our website address only as a textual reference. The information
contained on our website is not incorporated by reference into this Proxy
Statement.)
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 March 31, 2003 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 APPROVE THE COMPANY'S PROPOSALS?
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
2
ABOUT THE MEETING
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.
The ratification of the appointment of KPMG LLP as the independent auditors of
the Company for fiscal 2003 and the approval of the material terms of the
performance-based compensation payable under the Company's Management Incentive
Plan require that a majority of the votes cast at the meeting be voted "For" the
proposals. A properly executed proxy card marked "Abstain" with respect to these
proposals will not be voted.
HOW MANY VOTES ARE NEEDED TO APPROVE THIS YEAR'S STOCKHOLDER PROPOSALS?
Approval of each stockholder proposal requires that a majority of votes cast at
the meeting be voted "For" the proposal. A properly executed proxy card marked
"Abstain" with respect to these proposals will not be voted. Broker non-votes
will not be voted with respect to any stockholder proposals presented at the
meeting.
3
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 12 members. Each director stands for
election every year. Nominees may stand for election until they reach the
Company's mandatory retirement age of 72.
WHAT IF A NOMINEE IS UNWILLING OR UNABLE TO SERVE?
Each of the nominees listed in the Proxy Statement has agreed to serve as a
director if elected. If for some unforeseen reason a nominee becomes unwilling
or unable to serve, proxies will be voted for a substitute nominee selected by
the Board of Directors.
HOW ARE DIRECTORS COMPENSATED?
Each Board member who is not employed by the Company received an annual retainer
of $90,000, payable in the following manner:
- $30,000 in the form of shares of restricted stock pursuant to The Home Depot,
Inc. 1997 Omnibus Stock Incentive Plan (the "Omnibus Plan");
- $30,000 in the form of deferred stock rights granted under the Omnibus Plan;
and
- $30,000 in the form of cash or deferred stock units under the Non-Employee
Directors' Deferred Stock Compensation Plan (the "Directors Plan"), at the
election of the director.
Each non-employee Board member also received 5,000 non-qualified stock options.
In addition to the annual retainer and stock options, each director received
$1,000 per Board meeting attended through August 2002 and $2,000 per Board
meeting and $1,000 per Committee meeting attended for each meeting after August
2002. Each director who served as a Chair of a committee of the Board of
Directors received $5,000, except for the Chair of the Audit Committee, who
received $10,000. Board meeting and chair fees are payable in cash or deferred
stock units under the Directors Plan, at the election of the director.
The Company also pays the travel and accommodation expenses of directors and,
when requested by the Company, their spouses to attend Board meetings, conduct
store visits and participate in other corporate functions, together with any
taxes related to such payments.
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 $1,000,000 from the Company
upon the director's mandatory retirement. Additionally, through the program the
Company will match up to $75,000 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 non-management 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 2002?
The Board of Directors met 4 times during fiscal 2002. The number of times that
each Committee of the Board of Directors met is shown on page 5 of this Proxy
Statement. During fiscal 2002, each director attended at least 75% of the
meetings of the Board and of the Committees of which he or she was a member.
MAY STOCKHOLDERS RECOMMEND NOMINEES TO THE BOARD OF DIRECTORS?
Yes. 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. Recommendations for nominees to stand for election
at the 2003 Annual Meeting of Stockholders must be received by April 30, 2003.
4
BOARD OF DIRECTORS INFORMATION
WHAT ARE THE COMMITTEES OF THE BOARD?
During fiscal 2002, the Board of Directors had standing Executive, Audit,
Compensation, Nominating and Corporate Governance and Human Resources Committees
and an Information Technology Advisory Council. The members of each of the
Committees and the Information Technology Advisory Council, their functions and
the number of meetings held in fiscal 2002 are shown below:
Number of Meetings
Name of Committee and Members Functions of the Committee in Fiscal 2002
-------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE: - Exercises the authority of the full 7
Robert L. Nardelli, Chair Board on specified matters between
John L. Clendenin Board meetings
Berry R. Cox
Milledge A. Hart, III
Kenneth G. Langone
Bernard Marcus(1)
AUDIT: - Selects the Company's independent 6
John L. Clendenin, Chair(2) auditors
Gregory D. Brenneman - Oversees auditing procedures
William S. Davila - Receives and accepts the report of
Claudio X. Gonzalez independent auditors
Bonnie G. Hill - Oversees internal systems of accounting
Berry R. Cox(2) and management control
COMPENSATION: - Reviews and recommends compensation of 5
Claudio X. Gonzalez, Chair(3) directors and executive officers
Gregory D. Brenneman - Administers stock incentive and
Berry R. Cox purchase plans
William S. Davila - Makes grants of stock and option awards
Richard A. Grasso pursuant to stock incentive plans
John L. Clendenin(3)
NOMINATING AND - Makes recommendations for nominees for 4
CORPORATE GOVERNANCE: director
Kenneth G. Langone, Chair - Reviews and monitors activities of
Richard H. Brown Board members
John L. Clendenin - Oversees the Company's corporate
Richard A. Grasso governance practices and procedures
Milledge A. Hart, III
Roger S. Penske
HUMAN RESOURCES: - Reviews and recommends policies, 4
Bonnie G. Hill, Chair practices and procedures concerning
Richard H. Brown human resource-related matters
Milledge A. Hart, III
Kenneth G. Langone
Roger S. Penske
INFORMATION TECHNOLOGY - Reviews and recommends practices and 6
ADVISORY COUNCIL: procedures concerning information
Milledge A. Hart, III, Chair practices support and security systems
Richard H. Brown(4)
Berry R. Cox(4)
Richard A. Grasso
Roger S. Penske
Gregory D. Brenneman(4)
(1) Mr. Marcus served as a member of the Board and the Executive Committee until
his retirement in May 2002.
(2) Mr. Cox served as the Chair and a member of the Audit Committee through
August 2002, but did not serve on the Committee for the remainder of the
fiscal year. Mr. Clendenin served as the Chair and a member of the Committee
thereafter.
(3) Mr. Clendenin served as the Chair and a member of the Compensation Committee
through August 2002, but did not serve on the Committee for the remainder of
the fiscal year. Mr. Gonzalez served as the Chair and a member of the
Committee thereafter.
(4) Mr. Brown served on the Information Technology Advisory Council through May
2002, but did not serve on the Council thereafter. Mr. Brenneman served on
the Council from August 2002 through November 2002, but did not serve on the
Council thereafter. Mr. Cox joined the Council for its January 2003 meeting.
5
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
WHO ARE THIS YEAR'S NOMINEES?
The nominees standing for election this year to hold office until the 2004
Annual Meeting of Stockholders and until his or her successor is elected are:
GREGORY D. BRENNEMAN, 41, Director since 2000
- Chairman and Chief Executive Officer of TurnWorks, Inc., a private equity
firm, since October 2002
- President and Chief Executive Officer of PricewaterhouseCoopers Consulting
from June 2002 to October 2002
- 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.
RICHARD H. BROWN, 55, Director since 2000
- Chairman and Chief Executive Officer of Electronic Data Systems Corporation
from 1999 to March 2003
- 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 E.I. du Pont 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, 68, 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, 49, Director since 1978
- Chairman of Berry R. Cox, Inc., a privately held investment management company
- Principally engaged in investments in public and private securities and real
estate development for over 25 years
- Member of the Board of Trustees of Southwestern Medical Foundation
WILLIAM S. DAVILA, 71, Director since 1999
- Retired as Chief Operating Officer of Vons Grocery Company in 1992 and served
as President Emeritus from 1992 through 1998
- Member of the Board of:
- Hormel Foods Corporation
- Pacific Gas and Electric Company
CLAUDIO X. GONZALEZ, 68, 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
- Mexico Fund, Inc.
- Grupo Carso
- Grupo ALFA
- Grupo Mexico
- Grupo Televisa
- Investment Co. of America
RICHARD A. GRASSO, 56, Director since 2002
- Chairman and Chief Executive Officer of The New York Stock Exchange since 1995
- Member of the Board of:
- 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
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ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
MILLEDGE A. HART, III, 69, 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 1977
- Member of the Board of:
- Patton Surgical Corporation
- Lyco Energy Corporation
- Member of the Board of Trustees, Chairman of the Investment Committee and
member of the Academic Policy and Hart E-Center Committees of the Board of
Southern Methodist University
- Member of the Board of Trustees and the Terry Sanford Institute of Public
Policy of Duke University
- Member of the Board of Trustees and Chairman of the Investment Committee of
Episcopal School of Dallas
BONNIE G. HILL, 61, 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 Transco plc
- Orange County Performing Arts Center
- Los Angeles Urban League
- Police Assessment Resource Center
- Member of the National Advisory Panel of the Institute for Research on Women
and Gender at Stanford University
KENNETH G. LANGONE, 67, 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
- YUM Brands, 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, 54, 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, 66, 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
- 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 EACH OF
THESE NOMINEES TO
THE BOARD OF DIRECTORS
7
PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP
(ITEM 2 ON THE PROXY CARD)
WHAT AM I VOTING ON?
A proposal to ratify the appointment of KPMG LLP as the independent auditors of
the Company for fiscal 2003. The Audit Committee of the Board of Directors has
appointed KPMG LLP 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 the appointment of KPMG LLP be ratified by the
stockholders.
WHAT SERVICES DO THE INDEPENDENT
AUDITORS PROVIDE?
Audit services provided by KPMG LLP for fiscal 2002 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 LLP 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 in the Audit Committee Report on pages 35-36 of
this Proxy Statement.
WILL A REPRESENTATIVE OF KPMG LLP BE
PRESENT AT THE MEETING?
One or more representatives of KPMG LLP 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 questions from stockholders.
WHAT IF THIS PROPOSAL IS NOT APPROVED?
If the appointment of KPMG LLP is not ratified, the Audit Committee of the Board
of Directors will reconsider the appointment.
WE RECOMMEND THAT YOU
VOTE FOR THE RATIFICATION OF
KPMG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR
FISCAL 2003
8
PROPOSAL TO APPROVE THE MATERIAL TERMS OF THE PERFORMANCE-BASED
COMPENSATION PAYABLE UNDER THE COMPANY'S MANAGEMENT INCENTIVE PLAN
(ITEM 3 ON THE PROXY CARD)
WHAT AM I VOTING ON?
A proposal to approve the material terms of performance-based compensation
payable to the Company's officers and other members of management under the
Company's Management Incentive Plan (the "MIP"). The Compensation Committee of
the Board of Directors and the full Board of Directors have approved this
proposal.
WHAT IS THE PURPOSE OF THIS PROPOSAL?
The purpose of the MIP is to replace The Home Depot, Inc. Executive Officers'
Bonus Plan, a performance-based compensation plan, the material terms of which
were approved by the Company's stockholders at the 1997 Annual Stockholders
Meeting (the "Prior Plan"). The Prior Plan is being replaced because Section
162(m) of the Internal Revenue Code requires that the material terms of
performance-based compensation must be re-approved by stockholders every five
years. Approval of this proposal will ensure that the Company is able to receive
tax deductions for the full amount of performance-based compensation paid to
officers under the MIP. Section 162(m) of the Internal Revenue Code prevents a
publicly held corporation from claiming tax deductions for annual compensation
in excess of $1,000,000 to certain of its senior executives. The executives
subject to the limitations of Section 162(m) include any individual who, as of
the last day of the corporation's taxable year, is the corporation's chief
executive officer or among the four highest compensated officers other than the
chief executive officer. Compensation is exempt from this limitation if it is
qualified "performance-based compensation." One of the requirements for
performance-based compensation is that the corporation's stockholders must
approve the material terms of the performance-based compensation. The material
terms that must be approved include (1) the employees eligible to receive the
performance-based compensation, (2) the objectives under which the
performance-based compensation will be determined, and (3) the maximum amount of
performance-based compensation that could be paid to any executive in a fiscal
year.
WHO IS ELIGIBLE TO RECEIVE PERFORMANCE-BASED COMPENSATION?
The performance-based compensation being approved will be paid under the MIP to
officers and other members of management of the Company, including, but not
limited to, the Chief Executive Officer and all Executive Vice Presidents.
Currently, the Company has 126 members of management participating in the MIP.
The Compensation Committee, in its discretion, may authorize awards of
compensation that are intended to qualify as performance-based compensation
under Section 162(m) as well as awards of compensation that are not intended to
so qualify, and an individual may receive both types of awards. Any award that
is intended to qualify as performance-based compensation will be designated as
such.
WHAT ARE THE PERFORMANCE OBJECTIVES
BEING APPROVED?
Awards under the MIP that are intended to be exempt from Section 162(m) will be
based on one or more of the following performance objectives: return on equity,
earnings per share, total earnings, earnings growth, return on capital, return
on assets, earnings before interest and taxes, sales, sales growth, gross
margin, gross margin return on investment, increase in the fair market value of
the common stock, share price (including, but not limited to, growth measures
and total stockholder return), operating profit, net income, 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),
inventory turns, financial return ratios, total return to stockholders, market
share, earnings measures/ratios, economic value added (EVA), balance sheet
measurements such as internal rate of return, increase in net present value and
expense targets, Employer of Choice survey results, customer satisfaction survey
results and productivity.
HOW ARE AWARDS DETERMINED?
Awards under the MIP are made for each fiscal year of the Company. The
Compensation Committee selects the employees eligible to participate in the MIP
and establishes the performance objectives that pertain to each participant's
awards under the plan. The Compensation Committee establishes the terms of the
awards within the first 90 days of each fiscal year and,
9
PROPOSAL TO APPROVE THE MATERIAL TERMS OF THE PERFORMANCE-BASED
COMPENSATION PAYABLE UNDER THE COMPANY'S MANAGEMENT INCENTIVE PLAN
(ITEM 3 ON THE PROXY CARD)
within 90 days after the end of each fiscal year, certifies whether the target
level of performance has been attained. In the case of awards that are intended
to qualify as performance-based compensation under Section 162(m), the Committee
does not have discretion to determine that compensation will be paid if the
target level of performance is not attained. All amounts payable under the MIP
will be paid as soon as practicable after the Committee's certification, unless
the employee elects to defer payment under the Company's non-qualified deferred
compensation plan.
No amounts have been awarded under the MIP. As discussed above, amounts to be
awarded under the MIP are based on future performance objectives that cannot be
easily predicted, therefore, no awards under the MIP can be determined at this
time.
WHAT IS THE MAXIMUM AMOUNT OF COMPENSATION PAYABLE UPON ATTAINMENT OF THE
SPECIFIED PERFORMANCE OBJECTIVES?
The maximum amount of performance-based compensation that may be paid to any
participant in the MIP in any one fiscal year is .3% of the Company's net income
for such fiscal year. This limitation may not be increased without stockholder
approval.
WHAT IF THIS PROPOSAL IS NOT APPROVED?
If this proposal is not approved, awards granted under the MIP will not qualify
for the performance-based exemption from Section 162(m), and therefore may not
be tax deductible by the Company going forward.
WE RECOMMEND THAT YOU VOTE
FOR THE APPROVAL OF THE
MATERIAL TERMS OF
THE PERFORMANCE-BASED
COMPENSATION PAYABLE
UNDER THE MANAGEMENT
INCENTIVE PLAN.
10
STOCKHOLDER PROPOSAL REGARDING OUTSIDE DIRECTOR TERM LIMITS
(ITEM 4 ON THE PROXY CARD)
Mrs. Evelyn Y. Davis, located at Watergate Office Building, 2600 Virginia
Avenue, N.W., Suite 215, Washington, DC 20037, is the beneficial owner of 200
shares of the Company's common stock and has submitted the following resolution:
RESOLVED: "That the stockholders of HOME DEPOT recommend that the Board
take the necessary steps so that future outside directors shall not
serve for more than six years."
REASONS: "The President of the U.S.A. has a term limit, so do Governors
of many states."
"Newer directors may bring in fresh outlooks and different approaches
with benefits to all shareholders."
"No director should be able to feel that his or her directorship is until
retirement."
"In addition a TERM LIMIT could lead to more independent actions by
outside directors.
"If you AGREE, please mark your proxy FOR this resolution."
11
COMPANY RESPONSE TO STOCKHOLDER PROPOSAL REGARDING OUTSIDE DIRECTOR TERM LIMITS
WHAT IS THE RECOMMENDATION OF THE
COMPANY?
THE COMPANY RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF THIS STOCKHOLDER
PROPOSAL.
WHY DOES THE COMPANY OPPOSE THIS
PROPOSAL?
The Company's goal is to have the most competent, experienced and engaged Board
of Directors as possible in order to provide leadership to the Company and
guidance to executive management. Because of the size and complexity of the
Company's business, we believe that directors continue to deepen their
understanding of the Company's operations and the issues and challenges facing
our business throughout their years of service on the Board. We believe that
placing a limit on the number of years of service for outside directors would
arbitrarily deprive the Company of the benefits of the service of directors who
have served for a number of years and have acquired valuable knowledge and
insights about the Company and the home improvement industry. Replacing these
directors solely because of their length of service with new directors could
dramatically reduce the Board's effectiveness.
The Company also believes that term limits for outside directors are not
necessary to discourage directors from acting as if they have a permanent
position on the Board. Each member of the Board is elected annually by the
stockholders of the Company, and stockholders may nominate their own candidates
if they believe that the slate of nominees selected by the Nominating and
Corporate Governance Committee is not adequate. Because adoption of this
proposal would limit stockholder discretion in selecting the best candidates to
lead the Company, we do not believe it is in our stockholders' best interests.
HOW OFTEN DOES THE COMPANY EVALUATE ITS BOARD MEMBERS?
The Nominating and Corporate Governance Committee reviews the qualifications of
each director nominee when it selects the slate of directors that the Board
submits to the stockholders for election each year. The Board believes that this
practice serves the Company and its stockholders well by providing for regular
reviews of its directors' contributions.
WE RECOMMEND THAT YOU VOTE
AGAINST THE ADOPTION OF THIS STOCKHOLDER PROPOSAL
12
STOCKHOLDER PROPOSAL REGARDING POISON PILL IMPLEMENTATION
(ITEM 5 ON THE PROXY CARD)
Mr. John R. Chevedden, located at 2215 Nelson Avenue, No. 205, Redondo Beach,
California 90278, is the beneficial owner of 300 shares of the Company's common
stock and has submitted the following proposal:
5 - ALLOW SHAREHOLDER VOTE ON ANY POISON PILL
THIS TOPIC WON AN OVERALL 60%-YES VOTE AT 50 COMPANIES IN 2002
This is to recommend that our Board of Directors not adopt, maintain or extend
any poison pill unless such adoption, maintenance or extension is submitted to a
shareholder vote.
This topic won an average 60%-yes vote at 50 companies in 2002 according to the
Investor Responsibility Research Center Tabulation on Average Voting Results,
December 2002.
This proposal is submitted by John Chevedden, 2215 Nelson Ave., No. 205, Redondo
Beach, CA 90278.
HARVARD REPORT
A 2001 Harvard Business School study found that good corporate governance (which
took into account whether a company had a poison pill) was positively and
significantly related to company value. This study, conducted with the
University of Pennsylvania's Wharton School, reviewed the relationship between
the corporate governance index for 1,500 companies and company performance from
1990 to 1999.
Some investors believe that a company with good governance will perform better
over time, leading to a higher stock price. Other investors see good governance
as a means of reducing risk, as they believe it decreases the likelihood of bad
things happening to a company. Source: "Investors Will Pay for Good Governance,"
Directors & Boards, Fall 2001.
Since the 1980s Fidelity, a mutual fund giant with $800 billion invested, has
withheld votes for directors at companies that have approved poison pills, Wall
Street Journal, June 12, 2002.
CHALLENGES FACED BY OUR COMPANY
I believe that the challenges faced by our company in the past year demonstrate
a need for shareholders to have an expanded role in voting, particularly in
voting on any poison pill that may be considered by our company. A poison pill
may be more likely to be considered by our management since our share price is
down substantially. Home Depot's stock price fell more than 50% in 2002.
I believe that a shareholder vote on any poison pill can be viewed as part of a
larger issue - maximization of shareholder opportunity to give guidance to
management when necessary. Currently we are subject to these shareholder
restrictions:
1) No cumulative shareholder voting.
2) Shareholder ballots are not confidential.
3) No shareholder right to act by written consent.
4) No shareholder right to call a special meeting.
COUNCIL OF INSTITUTIONAL INVESTORS RECOMMENDATION
The Council of Institutional Investors www.cii.org, an organization of 120
pension funds investing $1.5 trillion, called for shareholder approval of poison
pills. The Council of Institutional Investors' recommendation is validated in
Council Policies, Corporate Governance Policies, General Principles, Shareholder
Voting Rights, Item 5.b., approved March 25, 2002.
ALLOW SHAREHOLDER VOTE ON ANY POISON PILL
THIS TOPIC WON AN OVERALL 60%-YES VOTE AT 50 COMPANIES IN 2002
YES ON 5
13
COMPANY RESPONSE TO STOCKHOLDER PROPOSAL REGARDING POISON PILL
IMPLEMENTATION
WHAT IS THE RECOMMENDATION OF THE
COMPANY?
THE COMPANY RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF THIS STOCKHOLDER
PROPOSAL.
WHY DOES THE COMPANY OPPOSE THIS
PROPOSAL?
The Company's Board of Directors and management understand the positive effect
that good corporate governance practices have on Company performance and value.
For this reason, the Board has adopted an independence standard for directors,
appointed a Lead Director for the non-management directors and implemented many
other policies and procedures designed to ensure that the interests of the
Company's stockholders and other stakeholders are protected. The Company
believes, however, that adoption of this proposal may unnecessarily restrict the
discretion of the Board in a takeover situation and, therefore, is not in the
best interests of the Company's stockholders. The Board of Directors has not
adopted a stockholder rights plan (often called a "poison pill") and has no
present intention to adopt one. Circumstances could arise in the future,
however, where the adoption of such a plan could be an important tool for
protecting the interests of the Company's stockholders in compliance with the
fiduciary duties of the Board of Directors. Requiring stockholder approval for
the adoption of a stockholder rights plan would seriously impede the ability of
the Board of Directors to adopt such a plan within an effective timeframe.
WHAT IS A POISON PILL?
A "poison pill" or stockholder rights plan is a defensive measure against a
hostile takeover of the Company that works by diluting the ownership of a
potential acquiror upon the occurrence of specific events. Stockholder rights
plans are designed to strengthen the ability of a board of directors to maximize
stockholder value and protect stockholders from abusive or opportunistic
takeover tactics by encouraging negotiations with the board of directors of the
target company. The ability to adopt a stockholder rights plan does not,
however, give a board of directors absolute discretion to veto a proposed
business combination. Under Delaware law, the Company's Board of Directors must
always act in accordance with its fiduciary duties in adopting and maintaining a
stockholder rights plan.
IS A TAKEOVER BID LIKELY?
Although we believe a hostile takeover of a company with the market
capitalization the size of The Home Depot's is unlikely, if this proposal were
implemented the Board of Directors would not have the flexibility to
meaningfully consider a stockholder rights plan in response to a hostile bid.
The recommendation to vote against the proposal is based on the Company's belief
that restricting the Board's choices in this way is not in the best interest of
the Company's stockholders.
WE RECOMMEND THAT YOU VOTE
AGAINST THE ADOPTION OF THIS
STOCKHOLDER PROPOSAL
14
STOCKHOLDER PROPOSAL REGARDING PROVISION OF NON-AUDIT RELATED SERVICES BY
AUDITORS
(ITEM 6 ON THE PROXY CARD)
Trowel Trades S&P 500 Index Fund, located at Post Office Box 75000, Detroit,
Michigan 48275, is the beneficial owner of 47,000 shares of the Company's Common
Stock and has submitted the following resolution:
RESOLVED: The shareholders of The Home Depot, Inc. (the "Company") urge
the Board of Directors to adopt a policy that in the future the firm
that is appointed to be the Company's independent accountants will only
provide audit or audit-related services to the Company and not provide
any other services.
SUPPORTING STATEMENT
New disclosure requirements by the Securities and Exchange Commission required
corporations, starting in 2001, to disclose how much they were paying their
"independent" auditors for audit work and how much they were paying them for
"other" work.
The results were startling. Surveys by the Wall Street Journal and the Investor
Responsibility Research Center each found that, on the average, corporations
were paying their "independent" auditors three times more for "other" work than
for their audit work. That raised the obvious concern as to how "independent"
and objective the auditors really were. This concern was heightened by the
subsequent accounting scandals at Enron and WorldCom.
In response to these accounting concerns, President Bush signed into law the
Sarbanes-Oxley Act, which places restriction on the types of non-audit services
auditors can render in an effort to reduce the conflict of interests. While the
new law is certainly a step in the right direction, it does contain a potential
and serious loophole. The auditors can still render tax and certain other
services as long as they are pre-approved by the audit committee.
According to this Company's 2002 proxy statement, it paid its auditors
$1,160,000 for audit services, $453,000 for audit related services and
$4,553,000 for other services - primarily tax compliance and advisory services
and services related to litigation and training. Such substantial payments for
other services does not provide comfort to shareholders concerned about auditor
conflicts of interest.
It is respectfully submitted that this new Board of Directors could send a
positive message to its investors and the public at large by adopting a policy
that in the future its auditors would do no other work for the Company other
than audit or audit-related work.
15
COMPANY RESPONSE TO STOCKHOLDER PROPOSAL REGARDING PROVISION OF
NON-AUDIT RELATED SERVICES BY AUDITORS
WHAT IS THE RECOMMENDATION OF THE
COMPANY?
THE COMPANY RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF THIS STOCKHOLDER
PROPOSAL.
WHY DOES THE COMPANY OPPOSE THIS
PROPOSAL?
The Company's Board of Directors and management recognize the important role
that auditor independence plays in ensuring the accuracy and integrity of The
Home Depot's financial statements and in protecting the interests of investors.
In light of recent accounting scandals, the Company has thoroughly reviewed its
relationship with its independent auditors and has policies and procedures in
place to ensure auditor independence. These policies comply with rules issued by
the Securities and Exchange Commission to strengthen auditor independence. Given
the investor protection provided by the Company's policies and the Securities
and Exchange Commission rules, the Company believes adoption of this proposal is
unnecessary and would limit the ability of the Audit Committee to allocate tasks
among the accounting firms that provide services to the Company in a manner that
best serves the interests of the Company and its stockholders.
WHAT RESTRICTIONS DO THE NEW RULES
ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION PLACE ON THE ENGAGEMENT
OF AUDITORS?
On January 28, 2003, the Securities and Exchange Commission issued final rules
implementing Title II of the Sarbanes-Oxley Act of 2002. These rules
specifically prohibit companies' independent auditors from providing specified
non-audit services, and require that non-audit services that are not prohibited
be subject to pre-approval by companies' audit committees. The new rules also
mandate that the lead audit partner and concurring partner rotate every five
years and that auditors report to the Audit Committee on critical accounting
policies, alternative accounting treatments and other communications between
management and the auditors. The new rules also include a prohibition on firms
providing audit services if certain key members of management have recently been
employed in an audit capacity by such audit firm. The Company believes that its
compliance with these new rules will accomplish the objectives of the
stockholder proposal - the maintenance of a truly independent relationship with
the Company's auditors - and consequently, that adopting the proposal is
unnecessary.
WHAT HAS THE COMPANY DONE TO ADDRESS AUDITOR INDEPENDENCE ISSUES?
In order to support the independence of the Company's auditors, the Board of
Directors has adopted a policy regarding the retention of the independent
auditors by the Company and its subsidiaries and the Company has adopted
procedures to ensure that the Audit Committee or the Chairman of the Audit
Committee, as provided by the new rules, approves all services to be provided by
our independent auditors. In accordance with the new rules issued by the
Securities and Exchange Commission, the policy specifically prohibits our
independent auditors from providing many services that are not audit or
audit-related, such as bookkeeping, financial information system design and
implementation, appraisal or valuation services, internal audit services and
expert services. Where our policy permits the Audit Committee to exercise
discretion in determining which firm to engage, the Audit Committee makes its
determinations in the context of safeguards that already exist to ensure that
auditor independence is maintained. These safeguards include the fact that the
Audit Committee is made up of all independent directors and operates in
accordance with a written charter in compliance with New York Stock Exchange
rules. The Audit Committee also reviews relationships or services that might
have a negative impact on auditor objectivity and independence. In addition, the
Audit Committee regularly monitors and evaluates the auditors' performance, the
fees paid for each type of service and the compatibility of any non-audit
services with the goal of maintaining auditor independence.
In addition to the Company's policy and the safeguards provided by the structure
and practices of the Audit Committee, the interests of the Company's
stockholders are supported by the fact that the Company seeks stockholder
ratification of the Audit Committee's selection of the Company's independent
auditors each year. To enable stockholders to make an informed decision, the
Company provides information regarding the amounts of audit, non-audit, tax and
all other fees paid to the Company's auditors each year in its Proxy Statement
for the Annual Meeting of Stockholders. To
16
COMPANY RESPONSE TO STOCKHOLDER PROPOSAL REGARDING PROVISION OF
NON-AUDIT RELATED SERVICES BY AUDITORS
date, the stockholders have always chosen to ratify the Company's selection of
independent auditors.
WHY SHOULD THE COMPANY'S INDEPENDENT AUDITORS BE ABLE TO PROVIDE SERVICES OTHER
THAN AUDIT AND AUDIT-RELATED SERVICES?
The Company believes that in some circumstances hiring the Company's independent
auditors to perform services that are not audit or audit-related is in the best
interests of the Company and its stockholders. Frequently, non-audit and
non-audit related services are so integrally related to the operations of the
Company that retaining the auditor to provide those services results in higher
quality services and significant cost savings to the Company. Particularly with
respect to tax services, the auditors' comprehensive knowledge of the Company's
operations, legal structure and accounting practices may make the auditors the
best choice to assist with income tax returns and tax compliance matters.
The Company believes that adopting the stockholder proposal to prohibit the
Company's auditors from performing any services that are not strictly audit or
audit-related services, will unnecessarily reduce the Audit Committee's ability
to choose the best firm to provide particular needed services. For this reason,
and in light of the policies and procedures the Company already has in place,
the Company believes that adopting the proposal is not necessary or in the best
interests of its stockholders.
WE RECOMMEND THAT YOU VOTE
AGAINST THE ADOPTION OF THIS
STOCKHOLDER PROPOSAL
17
STOCKHOLDER PROPOSAL REGARDING IMPLEMENTATION OF ILO HUMAN RIGHTS
STANDARDS
(ITEM 7 ON THE PROXY CARD)
The Comptroller of the City of New York, as custodian and trustee of the New
York City Employees' Retirement System, the New York City Teachers' Retirement
System, the New York City Fire Department Pension Fund and the New York City
Police Pension Fund, 1 Centre Street, New York, New York 10007-2341, the
beneficial owner of 7,233,909 shares of the Company's Common Stock, together
with the Connecticut Retirement Plans and Trust Funds, 55 Elm Street, Hartford,
Connecticut 06106-1773, the beneficial owner of 2,384,145 shares of the
Company's Common stock, have submitted the following proposal:
WHEREAS, Home Depot, Inc. 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
Nation's 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 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 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.
18
COMPANY RESPONSE TO STOCKHOLDER PROPOSAL REGARDING IMPLEMENTATION OF ILO HUMAN
RIGHTS STANDARDS
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 Company's 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 will not do business with any vendor that employs child or forced labor, and
we require vendors to comply with all laws of the jurisdictions in which they do
business. In addition, we require vendors located outside of the United States
from whom we directly purchase merchandise to comply with other ethical
standards for vendors and suppliers as stated in our vendor buying agreements.
WHAT HAS HOME DEPOT DONE RECENTLY TO IMPLEMENT THESE STANDARDS?
In 2001, the Company updated its code of ethical standards for vendors and
suppliers. As a result, we required that thousands of our vendors sign an
agreement stating that they would comply with our ethical standards, including:
- paying fair wages,
- maintaining reasonable, legal work hours,
- not using child or forced labor,
- providing safe and healthy work conditions, and
- employing workers based on their ability to perform the job and being
committed to basic principles of human rights.
HOW DO YOU ENSURE COMPLIANCE WITH
THESE STANDARDS?
We use independent firms to inspect the quality of the merchandise we purchase
and the factories of global vendors from which we directly source merchandise.
The managers of these factories must sign documents confirming their compliance
with our standards regarding child labor and forced labor prior to the release
of shipments of merchandise.
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 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
19
STOCKHOLDER PROPOSAL REGARDING INDEPENDENT DIRECTOR AS CHAIRMAN OF THE BOARD
(ITEM 8 ON THE PROXY CARD)
United Association S&P 500 Index Fund, located at PMB 606, 303 16th Street,
Suite 016, Denver, Colorado 80202-5657, is the beneficial owner of 168,808
shares of the Company's Common Stock and has submitted the following resolution:
RESOLVED: The shareholders of The Home Depot, Inc. ("Company") urge the
Board of Directors to amend the Company's by laws to require that an
independent director-as defined by the rules of the New York Stock
Exchange ("NYSE")-who has not served as an officer of the Company be its
Chairman of the Board of Directors.
SUPPORTING STATEMENT
The recent wave of corporate scandals at such companies as Enron, WorldCom and
Tyco has resulted in renewed emphasis on the importance of independent
directors. For example, both the NYSE and the NASDAQ have proposed new rules
that would require corporations that wish to be traded on them to have a
majority of independent directors.
Unfortunately, having a majority of independent directors alone is clearly not
enough to prevent the type of scandals that have afflicted Enron, WorldCom and
Tyco. All of these corporations had a majority of independent directors on their
boards when the scandals occurred.
All of these corporations also had a Chairman of the Board who was also an
insider, usually the Chief Executive Officer ("CEO"), or a former CEO, or some
other officer. Obviously, no matter how many independent directors there are on
a board, that board is less likely to protect shareholder interests by providing
independent oversight of the officers if the Chairman of that board is also the
CEO, former CEO or some other officer of the company.
We respectfully urge the board of our Company to dramatically change its
corporate governance structure and the public's perception of it by having an
independent director serve as its Chairman who is not a former CEO. The Board
has already taken a step in this direction by designating a "lead director" to
help the Chairman develop the agenda for Board meetings and to review the
Board's governance procedures and policies. The next logical step to protect
shareholder interests is to have an independent director actually serve as
Chairman.
Although this change would be dramatic, it would hardly be radical. In the
United Kingdom it is common to separate the offices of Chairman and CEO. In
1996, a blue ribbon commission on Director Professionalism of the National
Association of Corporate Directors recommended that an independent director
should be charged with "organizing the board's evaluation of the CEO and
providing continuous ongoing feedback; chairing executive sessions of the board;
setting the agenda with the CEO, and leading the board in anticipating and
responding to crises."
20
COMPANY RESPONSE TO STOCKHOLDER PROPOSAL REGARDING INDEPENDENT DIRECTOR AS
CHAIRMAN OF THE BOARD
WHAT IS THE RECOMMENDATION OF THE
COMPANY?
THE COMPANY RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF THIS STOCKHOLDER
PROPOSAL.
WHY DOES THE COMPANY OPPOSE THIS
PROPOSAL?
The Company believes that it is in the best interests of the stockholders for
the Board of Directors to have the flexibility to determine the best director to
serve as the Chairman of the Board, whether such director is an independent
director or a member of executive management. The Company also believes that its
twelve member Board of Directors, which is elected annually by the stockholders
and includes ten independent directors, is best situated to determine which
director should serve as Chairman of the Board. The Company opposes this
proposal because amending the Bylaws to restrict the Board's discretion could
deprive the Board of the freedom to select the most qualified and appropriate
individual to lead the Board as Chairman.
WHAT ARE THE ADVANTAGES OF HAVING THE CEO SERVE AS CHAIRMAN OF THE BOARD?
The Board believes that at this time, the Company is best served by having the
Chief Executive Officer also serve as Chairman of the Board. In his position as
Chairman and Chief Executive Officer, Mr. Nardelli is able to promote
communication, synchronize activities and provide consistent leadership to both
the Board and the Company by acting as a conduit between the Board and the
operating organization and coordinating the strategic objectives of both groups.
SHOULD THE LEAD DIRECTOR SERVE AS
CHAIRMAN OF THE BOARD?
The Company believes that the Lead Director's role is significantly different
than the Chairman of the Board's role and that the Company and its stockholders
are best served by having different directors fill each position. Unlike the
Chairman's role, which is to set the strategic priorities for the Board, preside
over its meetings and communicate the Board's findings and guidance to
management, the Lead Director serves as the liaison between the non-management
directors and the senior management team. In such role, the Lead Director helps
maintain the Board's independence and ability to fulfill its management
oversight responsibilities. The Company believes that this structure provides
the appropriate balance between the need for consistent strategic direction and
the need for true objectivity and independence of non-management directors.
WE RECOMMEND THAT YOU VOTE
AGAINST THE ADOPTION OF THIS
STOCKHOLDER PROPOSAL
21
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by (i) our
Chief Executive Officer, (ii) the Company's four other most highly compensated
executive officers and (iii) the former Executive Vice President of Strategy,
Business Development and Corporate Operations (collectively referred to herein
as the "Named Executive Officers") during each of the Company's last three
fiscal years:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION Restricted Securities
Other Annual Stock Underlying All Other
Fiscal Salary Bonus Compensation Awards(2) Options Compensation
Name and Principal Position Year(1) ($) ($) ($) ($) (#) ($)
-----------------------------------------------------------------------------------------------------------------------------------
Robert L. Nardelli 2002 1,865,384 4,000,000 5,288,284(4) 8,482,500(6) 750,000 393,990(7)
Chairman, President and 2001 1,528,845 5,000,000 7,265,665(5) 9,050,000(6) 1,000,000 67,300
Chief Executive Officer(3) 2000 202,531 -- -- 30,562,500(6) 3,500,000 50,400
Francis S. Blake 2002 474,711 1,200,000(9) 51,960(10) 5,323,000(11) 350,000 2,555(12)
Executive Vice President -
Business Development &
Corporate Operations(8)
Robert P. DeRodes 2002 499,231 1,250,000(14) 3,318 5,556,100(15) 220,000 2,975(16)
Executive Vice President -
Information Technology & CIO(13)
Dennis M. Donovan 2002 579,808 420,000 354,960(19) 2,035,800(21) 100,000 22,034(23)
Executive Vice President - 2001 444,230 1,005,795(18) 189,081(20) 19,536,881(22) 370,000 4,058
Human Resources(17)
Carol B. Tome 2002 509,711 437,000 7,698 2,035,800(24) 100,000 38,973(26)
Executive Vice President - 2001 400,576 525,000 6,820 1,549,560(25) 210,000 15,120
Chief Financial Officer 2000 288,076 -- 2,077 -- 11,886 15,637
Dennis J. Carey 2002 600,000 600,000 11,372 -- -- 28,394(27)
Former Executive Vice 2001 600,000 300,000 -- -- 150,000 4,696
President - Business 2000 540,384 -- 9,600 -- 101,886 27,094
Strategy & Corporate
Operations
(1) Fiscal 2002 and the fiscal year ended January 28, 2001 ("fiscal 2000")
include 52 weeks, while the fiscal year ended February 3, 2002 ("fiscal 2001")
includes 53 weeks.
(2) Amounts set forth in the restricted stock awards column represent the value
of grants of restricted stock and/or deferred stock units. The value is
calculated by multiplying the closing price of the Company's common stock on the
date of grant by the number of shares or units granted. Dividends on restricted
stock and deferred stock unit awards are paid at the same rate as paid to all
stockholders.
(3) Mr. Nardelli joined the Company effective December 4, 2000.
22
EXECUTIVE COMPENSATION
(4) Mr. Nardelli's other annual compensation for fiscal 2002 includes
$2,469,600 for the forgiveness of a loan and accrued interest, together with
$2,007,058 for related tax payments.
(5) Mr. Nardelli's other annual compensation for fiscal 2001 includes (i)
$2,587,000 for the forgiveness of a loan and accrued interest, together with
$2,149,360 for related tax payments and (ii) $2,178,697 related to his
relocation and sale of his house and related tax payments.
(6) The amounts shown reflect the value of grants of 250,000 and 750,000
deferred stock units to Mr. Nardelli in fiscal 2001 and 2000, respectively, and
a grant of 250,000 shares of restricted stock in fiscal 2002. The deferred stock
units granted to Mr. Nardelli in fiscal 2001 vest in 20% increments on September
17, 2001 and December 4 of 2001, 2002, 2003 and 2004. The deferred stock units
granted to Mr. Nardelli in fiscal 2000 vest in 20% annual increments beginning
on the date of grant. The restrictions on the restricted shares lapse on 25% of
the shares on the third anniversary of the date of grant, on another 25% of the
shares on the sixth anniversary of the date of grant and on the remaining 50% of
the shares when Mr. Nardelli turns 62. At the end of fiscal 2002, Mr. Nardelli
held 1,250,000 deferred stock units and shares of restricted stock with an
aggregate value of $26,125,000.
(7) The amount shown includes (i) matching contributions by the Company to the
Company's FutureBuilder Plan on behalf of Mr. Nardelli of $8,346, (ii) an
allocation of share equivalents under the Company's FutureBuilder Restoration
Plan on behalf of Mr. Nardelli of $325,584 and (iii) payment of annual life and
long-term disability insurance premiums.
(8) Mr. Blake joined the Company effective March 21, 2002.
(9) The amount shown includes Mr. Blake's $100,000 signing bonus and an initial
incentive payment of $525,000 paid in April 2002.
(10) Mr. Blake's other annual compensation for fiscal 2002 includes (i) $27,815
related to his relocation and (ii) $17,195 for professional fees.
(11) The amount shown reflects the value of grants of 70,000 and 60,000 shares
of restricted stock to Mr. Blake in April and August of fiscal 2002,
respectively. Restrictions lapse on 25% of the shares on the third anniversary
of the date of grant, on another 25% of the shares on the sixth anniversary of
the date of grant, and on the remaining 50% of the shares when Mr. Blake turns
62. At the end of fiscal 2002, Mr. Blake held 130,000 shares of restricted stock
with an aggregate value of $2,717,000.
(12) The amount shown reflects annual long-term disability insurance premiums.
(13) Mr. DeRodes joined the Company effective February 25, 2002.
(14) The amount shown includes Mr. DeRodes' $150,000 initial bonus and an
incentive payment of $550,000 to compensate Mr. DeRodes for benefits forfeited
from his previous employer.
(15) The amount shown reflects the value of grants of 70,000 and 60,000 shares
of restricted stock to Mr. DeRodes in March and August of fiscal 2002,
respectively. Restrictions lapse on 25,000 of the 70,000 share grant on the
first and second anniversaries of his date of grant, and on 10,000 shares on the
third and fourth anniversaries of the date of grant. Restrictions lapse on 25%
of the shares in the 60,000 share grant on the third anniversary of the date of
grant, on another 25% of the shares on the sixth anniversary of the date of
grant, and on the remaining 50% of the shares when Mr. DeRodes turns 62. At the
end of fiscal 2002, Mr. DeRodes held 130,000 shares of restricted stock with an
aggregate value of $2,717,000.
(16) The amount shown reflects annual long-term disability insurance premiums.
(17) Mr. Donovan joined the Company on April 2, 2001.
(18) The amount shown includes an initial incentive payment to Mr. Donovan of
$430,795.
23
EXECUTIVE COMPENSATION
(19) Mr. Donovan's other annual compensation for fiscal 2002 includes $315,732
for the forgiveness of interest on a loan and related tax payments.
(20) Mr. Donovan's other annual compensation for fiscal 2001 includes $96,933
related to his relocation, together with $66,426 of related tax payments.
(21) The amount shown reflects the value of a grant of 60,000 shares of
restricted stock to Mr. Donovan in August 2002. Restrictions lapse on 25% of the
shares on the third anniversary of the date of grant, on another 25% of the
shares on the sixth anniversary of the date of grant, and on the remaining 50%
of the shares when Mr. Donovan turns 62. At the end of fiscal 2002, Mr. Donovan
held 132,000 shares of restricted stock and 328,821 deferred stock units with an
aggregate value of $9,631,159.
(22) The amount shown reflects the value of (i) grants of 24,000 shares of
restricted stock in April, August and September of 2001 and (ii) a grant of
328,821 deferred stock units in May 2001. Restrictions on the shares of
restricted stock lapse on 25% of the shares on the third anniversary of the date
of grant, on another 25% of the shares on the sixth anniversary of the date of
grant, and on the remaining 50% of the shares when Mr. Donovan turns 62. The
deferred stock units vest in three increments of 109,607 units on the first,
third and fifth anniversaries of the date of Mr. Donovan's date of employment.
(23) The amount shown includes (i) matching contributions by the Company to the
Company's FutureBuilder Plan on behalf of Mr. Donovan of $8,615, (ii) an
allocation of share equivalents under the Company's FutureBuilder Restoration
Plan on behalf of Mr. Donovan of $10,012 and (iii) payment of annual long-term
disability insurance premiums.
(24) The amount shown reflects the value of a grant of 60,000 shares of
restricted stock to Ms. Tome in August 2002. Restrictions lapse on 25% of the
shares on the third anniversary of the date of grant, on another 25% of the
shares on the sixth anniversary of the date of grant, and on the remaining 50%
of the shares when Ms. Tome turns 62. At the end of fiscal 2002, Ms. Tome held
96,000 shares of restricted stock with an aggregate value of $2,006,400.
(25) The amount shown reflects the value of grants of 12,000 shares of
restricted stock to Ms. Tome in April, August and September of 2001.
Restrictions on the shares of restricted stock lapse on 25% of the shares on the
third anniversary of the date of grant, on another 25% of the shares on the
sixth anniversary of the date of grant, and on the remaining 50% of the shares
when Ms. Tome turns 62.
(26) The amount shown includes (i) matching contributions by the Company to the
Company's FutureBuilder Plan on behalf of Ms. Tome of $7,269, (ii) an allocation
of share equivalents under the Company's FutureBuilder Restoration Plan on
behalf of Ms. Tome of $28,946 and (iii) payment of annual long-term disability
insurance premiums.
(27) The amount shown includes (i) an allocation of share equivalents under the
Company's FutureBuilder Restoration Plan on behalf of Mr. Carey of $24,500 and
(ii) payment of annual long-term disability insurance premiums.
24
EXECUTIVE COMPENSATION
The following tables set forth information regarding options to purchase shares
of the Company's common stock granted to and exercised by the Company's Named
Executive Officers during fiscal 2002. The Company has no outstanding stock
appreciation rights. In accordance with the rules of the Securities and Exchange
Commission, the first table shows the hypothetical "gains" or "option spreads"
that would exist for the respective options based on assumed rates of annual
stock price appreciation of 5% and 10% from the date the options were granted
over the full option term. Actual gains, if any, on stock option exercises are
dependent on the future value of the stock at the time of any option exercise.
OPTION GRANTS IN FISCAL 2002
Individual Grants
---------------------------------------------------------------
Percent of
Number of Total Options Potential Realizable Value at
Securities Granted to Exercise or Assumed Annual Rate of
Underlying Employees Base Price Stock Price Appreciation for
Options Granted in Fiscal Year Per Share Expiration Option Term
Name (#) (%) ($) Date 5% ($) 10% ($)
------------------- ---------------- --------------- ------------ ----------- ------------- -------------
Robert L. Nardelli 750,000 2.28 46.96 04/28/12 22,149,669 56,131,609
Francis S. Blake 350,000 1.06 46.96 04/28/12 10,336,512 26,194,751
Robert P. DeRodes 220,000 0.67 50.29 02/29/12 6,957,964 17,632,848
Dennis M. Donovan 100,000 0.30 46.96 04/28/12 2,953,289 7,484,215
Carol B. Tome 100,000 0.30 46.96 04/28/12 2,953,289 7,484,215
Dennis J. Carey -- -- -- -- -- --
AGGREGATED OPTION EXERCISES IN FISCAL 2002 AND
FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Acquired Value Options at In-the-Money Options at
on Exercise Realized Fiscal Year-End (#) Fiscal Year-End ($)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------------- ---------------- ------------- ------------ ------------- ------------ -------------
Robert L. Nardelli -- -- 2,900,000 2,350,000 -- --
Francis S. Blake -- -- -- 350,000 -- --
Robert P. DeRodes -- -- -- 220,000 -- --
Dennis M. Donovan -- -- -- 470,000 -- --
Carol B. Tome 10,575 250,263 159,785 334,103 1,432,668 --
Dennis J. Carey -- -- 379,595 364,903 -- --
25
EXECUTIVE COMPENSATION
The following table sets forth information regarding The Home Depot Long Term
Incentive Plan implemented during fiscal 2002.
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts Under Non-Stock
Price-Based Plans
Performance or Other ----------------------------------------
Number of Shares, Period Until Threshold Target Maximum
Name Units or Other Rights Maturation or Payout ($ or #) ($ or #) ($ or #)
------------------- ---------------------- --------------------- ----------- ----------- ------------
Robert L. Nardelli 100% of base salary on February 2, 2002 - $750,000 $1,500,000 $ 2,250,000
February 2, 2002 January 30, 2005
Francis S. Blake 75% of base salary on February 2, 2002 - $196,875 $ 393,750 $ 590,625
February 2, 2002 January 30, 2005
Robert P. DeRodes 75% of base salary on February 2, 2002 - $206,250 $ 412,500 $ 618,750
February 2, 2002 January 30, 2005
Dennis M. Donovan 75% of base salary on February 2, 2002 - $196,875 $ 393,750 $ 590,625
February 2, 2002 January 30, 2005
Carol B. Tome 75% of base salary on February 2, 2002 - $180,000 $ 360,000 $ 540,000
February 2, 2002 January 30, 2005
Dennis J. Carey -- N/A N/A N/A N/A
In January 2002, the Compensation Committee granted new long-term performance
incentive awards to certain senior executives, including the Named Executive
Officers shown above, for the fiscal 2002-2005 performance period. Such awards
are intended to provide continuing emphasis on specified financial performance
goals which the Committee considers to be important contributors to long term
stockholder value. The awards are payable only if the Company achieves specified
levels of total stockholder return (change in stock price over the performance
period plus dividends paid divided by the beginning stock price) measured
against a peer group (companies included in the S&P Retail Composite Index)
during the three-year performance period beginning February 2, 2002 and ending
January 30, 2005. Awards are payable 50% in cash and 50% in restricted shares to
be granted under the Company's Omnibus Plan. The shares of restricted stock vest
on the earlier of the third anniversary of the pay-out date or retirement at age
60 with five years of service. As of February 2, 2003, the maximum aggregate
pay-out for the Named Executive Officers for the fiscal 2002-2005 performance
period is $4,590,000, to be paid both in cash and shares of restricted stock.
Pro rata awards are paid for actual results at the end of the performance period
if an executive's employment terminates due to death, disability or retirement
and the executive has participated for at least two years of the performance
period.
26
EXECUTIVE COMPENSATION
EQUITY COMPENSATION PLAN INFORMATION
Number of Securities
Remaining Available
for Future Issuance
Number of Securities Under Equity
to be Issued Weighted-Average Compensation Plans
Upon Exercise of Exercise Price of (Excluding Securities
Outstanding Options, Outstanding Options, Reflected in
Plan Category Warrants and Rights Warrants and Rights First Column)
-------------------------- --------------------- --------------------- -----------------------
Equity Compensation Plans
Approved by Security
Holders(1) 86,608,033(2) $37.18(3) 128,032,257(4)
Equity Compensation Plans
Not Approved by Security
Holders(5) 4,245,925(6) $40.75(7) 20,961,452(8)
---------- -----------
Total 90,853,958 148,993,709
========== ===========
(1) These plans are the Company's 1997 Omnibus Stock Incentive Plan (the
"Omnibus Plan"), the Amended and Restated Employee Stock Purchase Plan (the
"ESPP") and the Non-Employee Directors' Deferred Stock Compensation Plan (the
"Directors Plan").
(2) Includes an aggregate of 80,666,188 stock options and 1,973,119 of deferred
shares and shares of restricted stock under the Omnibus Plan, 37,781 stock units
credited to participant accounts under the Directors Plan and the right to
purchase 3,930,945 shares under the ESPP. The number of shares under the ESPP
was determined by dividing the amount of payroll deductions credited to
associates' accounts as of February 2, 2003 by $17.765 which is 85% of the fair
market value of a share of the Company's common stock on February 2, 2003. The
actual number of shares purchased under the plan may differ since the plan
provides for the right to purchase shares at the lower of 85% of the fair market
value of the Company's common stock on the first or last day of the plan year.
The first day of the April purchase period is April 19, 2002 and the purchase
period ends on April 18, 2003. The first day of the October purchase period is
October 25, 2002 and the purchase period ends on October 24, 2003.
(3) Weighted average exercise price of outstanding options; excludes deferred
shares and shares of restricted stock under the Omnibus Plan, stock units under
the Directors Plan and rights to purchase shares under the ESPP.
(4) Represents 108,266,885 shares under the Omnibus Plan, 17,562,715 available
shares under the ESPP and 2,202,657 shares under the Directors Plan.
(5) These plans are the Company's Non-U.S. Employee Stock Purchase Plan (the
"non-US ESPP"), the Home Depot FutureBuilder Restoration Plan (the "Restoration
Plan"), the December 4, 2000 Non-Qualified Stock Option and Deferred Stocks
Units Plan and Agreement, the April 2, 2001 Deferred Stock Units Plan and
Agreement, the May 31, 2001 Deferred Stock Units Plan and Agreement and the
September 17, 2001 Deferred Stock Units Plan and Agreement.
(6) Includes an aggregate of 2,500,000 non-qualified stock options, rights to
purchase 284,064 shares of the Company's common stock under the non-US ESPP,
83,040 stock units under the Restoration Plan and 1,378,821 stock units under
the Deferred Stock Units Plans referred to in Note 5. The number of shares under
the non-US ESPP was determined in the same manner as for the ESPP described in
Note 2.
(7) Weighted average exercise price of outstanding options; excludes stock units
credited to associates' accounts under the individual Deferred Stock Units Plans
and Agreements and under the Restoration Plan.
(8) Represents shares available under the non-US ESPP.
27
EXECUTIVE COMPENSATION
DESCRIPTION OF PLANS NOT APPROVED BY STOCKHOLDERS:
- NON-U.S. ESPP. Substantially all non-U.S. associates of the Company and its
subsidiaries are eligible to participate in this plan. The plan operates in a
manner that is substantially similar to the Company's Employee Stock Purchase
Plan covering the U.S. associates of the Company and its affiliates but is
not governed by the Internal Revenue Code. The plan currently consists of
Spring and Fall purchase periods, each lasting 12 months. Associates fund
their purchases through voluntary payroll deductions that accumulate in
accounts maintained in each associate's name in the currency of the country
where the associate is employed. At the end of each purchase period, the
amount credited to the associate's account is converted to U.S. dollars and
applied to the purchase of the Company's stock at a price equal to 85% of the
market price on the first or last day of the purchase period, whichever price
is lower. There are three limitations on the number of shares an associate
may purchase under the plan: (1) associates may not elect to make payroll
deductions under the plan that are more than 20% of their gross annual income
for any year; (2) associates who would own 5% or more of the Company's
outstanding shares of stock or options cannot enroll in the plan; and (3)
associates may not purchase more than U.S. $25,000 of stock in a given
calendar year.
- RESTORATION PLAN. The primary purpose of the Restoration Plan is to provide
additional retirement income to certain key executive employees of the
Company and its participating affiliates to reduce the impact of certain
provisions of the Internal Revenue Code that limit the maximum benefits that
may accrue under the Company's qualified retirement plans. In particular, the
Company intends for the plan to offset the effects of the maximum
compensation limitation under Code Section 401(a)(17) by providing the amount
of supplemental retirement income specified in the plan. The plan constitutes
an unfunded, non-qualified deferred compensation plan that benefits certain
designated employees who are within a select group of key management or
highly compensated employees. Payments under the plan are made in shares of
the Company's common stock.
- DEFERRED STOCK UNIT PLANS AND AGREEMENTS. The Deferred Stock Unit Plans and
Agreements represent shares underlying stock units, payable on a one-for-one
basis, that vest over a period of years as described below and fully vest
upon employment termination for reasons other than cause or upon the
occurrence of a change in control. Unless deferred at the election of the
participant, units are payable as they vest. Units vest in 150,000 increments
under the December 4, 2000 Deferred Stock Unit Plan and Agreement on the
December 4, 2000 award date and on each anniversary of the award date until
fully vested on December 4, 2004. Units vest under the April 2001 Deferred
Stock Unit Plan and Agreement in 12,500 increments on April 2 of each of
2003, 2004, 2005 and 2006. Units vest under the May 31, 2001 Deferred Stock
Units Plan and Agreement in 109,607 units on April 2 of each of 2002, 2004
and 2006. Units vest in 50,000 increments under the September 17, 2001
Deferred Stock Units Plan and Agreement on the September 17, 2001 award date
and on December 4 of each of 2001, 2002, 2003 and 2004. As of February 2,
2003, 709,607 deferred stock units were vested but payment deferred at the
election of the participant. The December 4, 2002 Non-Qualified Stock Option
and Deferred Stock Units Plan and Agreement represents 2,500,000
non-qualified stock options at an exercise price of $40.75, said options
vesting 20% on the December 4, 2000 award date and an additional 20% on each
anniversary thereof until fully vested on December 4, 2004. Options
representing 1,500,000 shares were vested on February 2, 2003. The options
expire on the tenth anniversary of the date the option first becomes
exercisable.
WHAT ARE THE TERMS OF EMPLOYMENT AGREEMENTS WITH THE COMPANY'S NAMED 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
28
EXECUTIVE COMPENSATION
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 2003, 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 is forgiven 20%
per year, together with accrued interest, 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 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 deferred 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
29
EXECUTIVE COMPENSATION
Resources, dated as of March 16, 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
contract provides that the automatic extensions will continue until either the
Company or Mr. Donovan gives written notice of termination of the extension
provision.
The employment agreement provides that Mr. Donovan will 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. Donovan was guaranteed a bonus
for fiscal 2001. In connection with the commencement of employment, Mr. Donovan
received an award of stock options exercisable for 320,000 shares and an award
of 328,821 deferred restricted stock units. Beginning in fiscal 2003, Mr.
Donovan is eligible for an annual grant of stock options exercisable for at
least 90,000 shares.
In connection with his relocation, Mr. Donovan received a loan in the amount of
$3,000,000. Interest on the loan accrues at the rate of 5.8% per year. Accrued
interest is forgiven each year on the first five anniversaries of the loan. The
loan must be repaid upon the earlier of (1) the fifth anniversary of the date of
the loan 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, Mr. Donovan received a lump sum payment of $430,795 when he entered
into the employment agreement. 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 Mr. Donovan 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 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 with continued
exercisability through the end of their full original terms. 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 Mr. Donovan shall
become fully vested and exercisable.
Pursuant to his agreement, Mr. Donovan 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, Mr.
Donovan 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 with the Company in any way that would be adverse to
the Company.
Under the terms of the agreements with Messrs. Nardelli and Donovan, 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.
During fiscal 2002, the Company entered into employment agreements with Robert
P. DeRodes and Francis S. Blake, effective February 25, 2002 and March 21, 2002,
respectively. The employment agreements provide that Messrs. DeRodes and Blake
will receive annual base salaries of $550,000 and $525,000, respectively. Mr.
DeRodes is eligible for an annual bonus equal to 100% of his base salary and
30
EXECUTIVE COMPENSATION
received payments totaling $700,000 in fiscal 2002 as a signing bonus and to
compensate him for benefits forfeited from his previous employer. Mr. Blake is
also eligible for an annual bonus equal to 100% of his base salary in fiscal
2002 and received a $100,000 signing bonus, a $25,000 relocation allowance and
an initial incentive payment of $525,000 in April 2002. Both Mr. DeRodes and Mr.
Blake were guaranteed a bonus payment equal to 100% of base salary for fiscal
2002.
In addition to their cash compensation, each of Messrs. DeRodes and Blake
received non-qualified stock options exercisable for 220,000 and 250,000 shares,
respectively, and 70,000 shares of restricted stock.
Pursuant to their respective agreements, each of Messrs. DeRodes and Blake has
agreed that for 36 months subsequent to termination of employment with the
Company he will not, without the prior written consent of the Company, enter
into or maintain an employment or contractual relationship with certain
competitors of the Company. During the same period, each of Messrs. DeRodes and
Blake has agreed not to solicit any employee of the Company to terminate his or
her relationship with the Company without the prior written consent of the
Company.
Upon the termination of the employment of either Mr. DeRodes or Mr. Blake by the
Company without cause or by Mr. DeRodes or Blake for good reason, the Company
will pay 12 months base salary continuation, target incentive and medical
coverage. In addition, all stock options granted pursuant to the employment
agreements will vest and all restrictions on the grants of shares of restricted
stock awarded pursuant to the employment agreements shall lapse immediately.
During the 12 months after termination, all other unvested stock options shall
continue to vest and restrictions on outstanding shares of restricted stock will
continue to lapse in accordance with their terms.
In addition to these and other benefits set forth in the applicable employment
agreements, Messrs. Nardelli, Donovan, DeRodes and Blake 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. Messrs.
Nardelli and Donovan are also entitled to reimbursement for excise taxes imposed
in the event payments or benefits received by them under their respective
agreements, or otherwise, result in "parachute payments" under the Internal
Revenue Code.
The Company entered into a Non-Competition Agreement with Ms. Carol Tome on
March 24, 2003. Pursuant to such agreement, upon the termination of Ms. Tome's
employment by the Company without cause or by Ms. Tome for good reason, the
Company will pay 24 months base salary continuation. During the period of salary
continuation, all unvested stock options shall continue to vest and restrictions
on outstanding shares of restricted stock will continue to lapse in accordance
with their terms.
Pursuant to the agreement, Ms. Tome has agreed that for 36 months subsequent to
the earlier of the beginning of the salary continuation period or termination of
her employment with the Company she will not, without the prior written consent
of the Company, enter into or maintain an employment or contractual relationship
to provide financial, executive or managerial services in the same or similar
manner as she has for the Company with certain competitors of the Company.
During the same period, Ms. Tome has agreed not to solicit any employee of the
Company to terminate his or her relationship with the Company without the prior
written consent of the Company.
On August 14, 2002, the Company entered into agreements with Mr. Dennis J. Carey
pursuant to which Mr. Carey was obligated to provide services to the Company at
the direction of the Chief Executive Officer and/or the Executive Vice President
of Strategy, Business Development and Corporate Operations until September 30,
2002. For one year thereafter, Mr. Carey was placed on a paid leave of absence
from the Company. During the leave, Mr. Carey is entitled to receive salary
payments at his then-current salary level and is guaranteed to receive a bonus
of $300,000 for fiscal 2001 (payable in fiscal 2002) and a bonus of $600,000 for
fiscal 2002 (payable in fiscal 2003). Pursuant to the agreements, Mr. Carey's
outstanding stock options continue to vest during the leave, and, upon the
termination of the leave of absence, all restrictions on any outstanding shares
of restricted stock lapse. The agreements also provide that Mr. Carey will
provide consulting services from October 1, 2003 to October 1, 2006 to the Chief
Executive Officer and/or the Executive Vice President of Strategy, Business
Development and Corporate Operations relating to Six Sigma process and merger
and acquisition issues. Contingent upon his availability to provide such
services, Mr. Carey is entitled to receive a consulting fee of $600,000 per
year.
31
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?
Three critical elements comprise our compensation programs for executive
officers:
- BASE SALARIES: We provide competitive base salaries that allow us to attract
and retain a high performing leadership team. When establishing base
salaries, we consider many factors, including the total compensation package,
the scope of responsibilities, the years of experience of the individual, and
the competitive marketplace. Merit increases, which typically occur in April
of each fiscal year, are established based on a comprehensive performance
management process that assesses each executive officer's leadership and
performance over the previous year, as well as the executive officer's
potential for development and performance in the future.
- ANNUAL BONUS: All executive officers participate in our Company's Management
Incentive Plan (MIP). The MIP is designed to motivate and reward executives
by aligning pay with annual performance. The MIP is a cash-based bonus plan
that rewards executives for the achievement of financial and non-financial
performance objectives which are established at the beginning of each fiscal
year. In addition, we consider certain qualitative factors for each executive
in determining the total cash bonus to be paid to each executive officer.
- LONG-TERM INCENTIVES: To better align the interests of management with
long-term stockholder interests, we provide long-term incentives to executive
officers. We deliver these long-term incentives typically in the form of
three vehicles: stock options, performance shares/cash plan, and shares of
restricted stock. The long-term incentives are designed to reward executives
for increasing long-term stockholder value and to retain them at The Home
Depot.
- STOCK OPTIONS: We provide annual non-qualified stock option grants as part
of our long-term incentive compensation under the Omnibus Plan. For an
executive to receive value from a stock option, the stock price must be
above the grant date price after the stock option vests. The Company
grants stock options with an exercise price equal to the fair market
value of the Company's stock on the date of grant. Generally, stock
options may be exercised over a term of ten years from the date of grant,
and vest 25% per year beginning on the second anniversary of the grant
date. 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.
- PERFORMANCE SHARES: Executive officers are eligible to participate in the
Company's Long-Term Incentive Plan (LTIP). This program rewards
management for stockholder return over a three-year period. Performance
is relative to a peer group, offsetting stock price changes as a result
of bear and bull market periods. Under the LTIP, executive officers are
eligible to receive a targeted amount of shares and cash at the end of a
three-year period. The Home Depot's total return to stockholders over the
three-year performance period is compared to that of an established peer
group of retailers. If The Home Depot's total return to stockholders is
at the 70th percentile of the peer group after the three-year period,
targeted awards are paid to the executive. No awards are paid if The Home
Depot's total return to stockholders is below the 50th percentile of the
peer group. Better performance relative to the peer group triggers larger
payouts to executives. All performance shares are subject to a three-year
vesting provision.
32
COMPENSATION COMMITTEE REPORT
- RESTRICTED STOCK: Prior to last fiscal year, restricted stock was not a
core component of our compensation programs. In fiscal 2002, in a period
of depressed capital markets, we granted restricted stock to executive
officers to (i) serve as a retention mechanism; (ii) realign management
and stockholder interests by delivering ownership; and (iii) offset the
less than competitive supplemental executive retirement benefits offered
to our executives. Typically, the restricted stock vests 25% on the third
anniversary of the date of grant, 25% on the sixth anniversary and the
remaining 50% at age 62.
WHAT IS THE PHILOSOPHY OF EXECUTIVE COMPENSATION?
We believe that compensation plays a vital role in achieving short and long-term
business objectives that ultimately drive long-term business success. Our
compensation programs are designed to focus our executives on the Company's
critical goals that translate into long-term stockholder value. As a result, a
large percentage of our executive officers' compensation package is variable,
based on corporate, divisional and individual performance. Our pay practices
support our endeavors to attract, motivate, incentivize and retain exceptional
business leaders with demonstrated performance, leadership and potential
capabilities to deliver innovative initiatives while concurrently meeting
aggressive long-term business objectives.
Such pay practices are highly differentiated based on individual performance,
leadership, and potential as well as overall enterprise and business unit
results. They are assessed in the context of a rigorous performance management
process. Furthermore, these practices are responsive to a significant enterprise
transformation effort that commenced and continues amidst a challenging economic
and business climate.
In 2003, the Compensation Committee and the Board of Directors approved the
Executive Stock Ownership Guidelines. This program will assist in focusing
executives on long-term success and stockholder value by requiring executives to
hold Company stock over the long term. Under this program, executive officers of
the Company will be required to hold shares of common stock with a value equal
to a specified multiple of base salary. The multiples for specific positions are
shown in the table below:
TITLE MULTIPLE OF SALARY
----- ------------------
President & Chief Executive
Officer 6X
Executive Vice Presidents 4X
Division Presidents/Senior Vice
Presidents 3X
Shares owned outright, restricted stock, and shares acquired pursuant to the
Employee Stock Purchase Plan, FutureBuilder Plan and the Restoration Plan will
be counted towards this requirement. Executives will have a period of four years
to reach the specified levels of ownership. Once the four-year period has
expired, we will review each executive officer's stock holdings on an annual
basis. As of March 2003, 13 of 17 executives, including Mr. Nardelli, comply
with the stock ownership guidelines.
HOW IS THE CHIEF EXECUTIVE OFFICER
COMPENSATED?
The Committee considered a number of factors in determining Mr. Nardelli's cash
and equity compensation for fiscal 2002. The achievement of 21% growth in
diluted earnings per share, net sales growth of 9% during very difficult
economic times, continuing success in developing a new foundation for long-term
growth, and continuing to provide superior leadership and vision during a period
of management transition were the primary factors that were considered when
determining his compensation. For fiscal year 2002, Mr. Nardelli received
$2,000,000 in base salary, which became effective in April of 2002. Mr. Nardelli
was awarded a cash bonus of $4,000,000 and received 750,000 non-qualified stock
options and 250,000 shares of restricted stock.
WHAT OTHER FACTORS INFLUENCED EXECUTIVE OFFICER COMPENSATION IN FISCAL 2002?
A weakened economy and depressed capital markets made fiscal year 2002 a very
turbulent one for many companies. Despite the volatile environment, The Home
Depot, under the leadership of Mr. Nardelli and the rest of the executive team,
was able to achieve certain critical financial goals, while continuing to
develop a solid foundation for long-term business success. In determining
compensation for the executive team for
33
COMPENSATION COMMITTEE REPORT
2002, we considered the progress that has been made over the last year in the
development and implementation of programs designed to restructure the Company
during a period of transition. In conjunction with individual and corporate
performance reviews, we work with two nationally recognized compensation
consulting firms to establish appropriate compensation benchmarks for our
executive officers.
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 that are similar to the Company 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 limitation generally does not apply to compensation based on
performance goals if certain requirements are met. The Compensation Committee,
as much as possible, uses and intends to use performance-based compensation.
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 current members of the Compensation
Committee:
- Claudio X. Gonzalez, Chair
- Gregory D. Brenneman
- Berry R. Cox
- William S. Davila
- Richard A. Grasso
34
AUDIT COMMITTEE REPORT AND FEES PAID TO INDEPENDENT AUDITORS
AUDIT COMMITTEE REPORT
WHO SERVES ON THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS?
The current members of the Committee are John L. Clendenin, Chair, Gregory D.
Brenneman, William S. Davila, Claudio X. Gonzalez and Bonnie G. Hill. Berry R.
Cox also served on the Committee as its Chair through August 2002. 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 fiscal 2002, the Committee met with the senior members of the Company's
financial management team, our Vice President of Internal Audit and the
Company's independent auditors at each of its meetings. The Committee's agenda
was established by the Chair and the Chief Financial Officer. At each meeting,
the Committee reviewed and discussed various business risks of the Company. The
Committee also had private, separate sessions at each of its meetings with each
of KPMG LLP, the Chief Financial Officer and the Vice President of Internal
Audit, at which meetings candid discussions of financial management, accounting
and internal control issues took place. Additionally, the Chair had separate
discussions regularly with each of KPMG LLP, 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 FISCAL 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.
35
AUDIT COMMITTEE REPORT AND FEES PAID TO INDEPENDENT AUDITORS
HAS THE AUDIT COMMITTEE CONSIDERED THE INDEPENDENCE OF THE COMPANY'S AUDITORS?
The Committee has received from KPMG LLP 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 LLP
that firm's independence. The Committee has concluded that KPMG LLP is
independent from the Company and its management.
HAS THE AUDIT COMMITTEE MADE A RECOMMENDATION REGARDING THE AUDITED FINANCIAL
STATEMENTS FOR FISCAL 2002?
Based upon its review and the discussions with management and the independent
accountants, the Audit Committee recommended to the Board of Directors that the
audited consolidated financial statements for the Company be included in the
Company's Annual Report on Form 10-K for fiscal 2002 to be filed with the
Securities and Exchange Commission.
HAS THE AUDIT COMMITTEE REVIEWED THE FEES PAID TO THE INDEPENDENT ACCOUNTANTS
DURING FISCAL 2002?
The Audit Committee has reviewed and discussed the fees paid to KPMG LLP during
fiscal 2002 for audit, audit-related, tax and other services, which are set
forth in this Proxy Statement under "Fees Paid to Independent Auditors." The
Audit Committee has determined that the provision of the non-audit services is
compatible with KPMG LLP's independence.
WHO PREPARED THIS REPORT?
This report has been furnished by the current members of the Audit Committee:
- John L. Clendenin, Chair
- Gregory D. Brenneman
- William S. Davila
- Claudio X. Gonzalez
- Bonnie G. Hill
FEES PAID TO INDEPENDENT AUDITORS
AUDIT FEES
During fiscal 2002 and 2001, the Company paid KPMG LLP fees in the aggregate
amount of $2,144,000 and $1,371,000, respectively, for the annual audit of our
financial statements and the quarterly reviews of the financial statements
included in our Forms 10-Q.
AUDIT RELATED FEES
During fiscal 2002 and 2001, the Company paid KPMG LLP $455,500 and $331,650,
respectively, for audit-related services which included audits of financial
statements of certain employee benefit plans and other entities, audits of
certain businesses acquired during the year and review of related SEC filings.
TAX FEES
During fiscal 2002 and 2001, the Company paid KPMG LLP $655,000 and $4,188,000,
respectively, for tax services. These services were primarily comprised of tax
planning and advice.
ALL OTHER FEES
Aggregate fees billed for all other services rendered by KPMG LLP for fiscal
2002 and 2001 were $105,000 and $275,350, respectively.
36
STOCK PERFORMANCE GRAPH
This graph depicts the Company's cumulative total stockholder returns (assuming
quarterly reinvestment of dividends) relative to the performance of the Standard
& Poor's 500 Composite Stock Index and the Standard & Poor's Retail Composite
Index for the five-year period commencing February 1, 1998. The graph assumes
$100 invested at the 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 1, 1998.
The points on the graph represent fiscal year-end index levels based on the last
trading day in each fiscal year.
[PERFORMANCE CHART]
2/01/1998 1/31/1999 1/30/2000 1/28/2001 2/03/2002 2/02/2003
-------------------------------------------------------------------------------------------------------
The Home Depot $100.00 $200.00 $280.78 $239.00 $264.82 $112.73
S&P 500 $100.00 $130.53 $142.25 $139.35 $116.99 $ 90.71
S&P Retail Composite $100.00 $162.72 $162.06 $172.29 $193.31 $139.09
37
BENEFICIAL OWNERSHIP OF COMMON STOCK
This table shows how much of our outstanding common stock is beneficially owned
by our directors, each of the Named Executive Officers, owners of more than 5%
of our outstanding common stock and all directors and executive officers as a
group as of April 1, 2003. According to the rules adopted by the Securities and
Exchange Commission, a person "beneficially owns" securities if he or she has or
shares the power to vote them or to direct their investment or has the right to
acquire beneficial ownership of such securities within 60 days through the
exercise of an option, warrant, right of conversion of a security or otherwise.
Except as otherwise noted, the beneficial owners listed have sole voting and
investment power with respect to the shares shown. An asterisk in the Percent of
Class column indicates beneficial ownership of less than 1%, based on
2,293,783,938 shares of common stock outstanding.
Shares Right to Percent
Name of Beneficial Owner Owned(1) Acquire(2) of Class
----------------------------------------------------------------------------------------
Robert L. Nardelli 2,012(3) 3,100,000 *
Gregory D. Brenneman 20,000 2,187 *
Richard H. Brown 3,000(4) 2,187 *
John L. Clendenin 8,600 25,312 *
Berry R. Cox 3,274,125(5) 2,812 *
William S. Davila 25,001 8,437 *
Claudio X. Gonzalez 25,500 1,250 *
Richard A. Grasso 20,000 0 *
Milledge A. Hart, III 4,297,535 2,812 *
Bonnie G. Hill 1,093 8,437 *
Kenneth G. Langone 18,006,139(6) 2,812 *
Roger S. Penske 2,500 1,250 *
Francis S. Blake 533 0 *
Robert P. DeRodes 25,815 0 *
Dennis M. Donovan 1,129 80,000 *
Carol B. Tome 19,049 209,041 *
Dennis J. Carey 1,414 552,151 *
Directors and executive officers as a group (20
people) 25,770,506 3,644,638 1.3
(1) These amounts include equivalent shares credited under our FutureBuilder
Plan.
(2) These amounts reflect shares subject to options exercisable and deferred
stock units vested on or before May 31, 2003.
(3) This amount includes 1,000 shares held by Mr. Nardelli's wife for which Mr.
Nardelli disclaims beneficial ownership.
(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 6,139 shares held by Mr. Langone's wife for which he
disclaims beneficial ownership.
38
GENERAL
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Board of Directors who served on the Compensation
Committee during fiscal 2002 were 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 2002, The Marcus Foundation and Mr.
Marcus paid the Company $191,103 in rent and reimbursed the Company $899,045 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. During fiscal 2002,
the Company paid Marcus Leasing, LLC $2,336,124 in rent for the use of such
aircraft. 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 2002, Mr. Marcus reimbursed the Company
for $41,895 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 The Home Depot
work and will provide him with healthcare, life insurance and similar benefits
during his life.
In connection with their employment, each of Robert L. Nardelli, Dennis M.
Donovan and Frank L. Fernandez, Executive Vice President, General Counsel and
Secretary of the Company received a loan of $10 million, $3 million and
$500,000, respectively, from the Company. The terms of the loans to Mr. Nardelli
and Mr. Donovan are more fully described under "Executive Compensation." The
loan to Mr. Fernandez accrues interest at the rate of 5.8% per year and accrued
interest is forgiven each year on each of the first four anniversaries of the
loan. The loan must be repaid upon the earlier of the fourth anniversary of the
date of the loan and 90 days following the termination of Mr. Fernandez's
employment by the Company for cause or by Mr. Fernandez without good reason. The
maximum amounts outstanding during fiscal 2002 relating to the loans to Messrs.
Nardelli, Donovan and Fernandez were $8,469,600, $3,174,000 and $529,000,
respectively. As of March 24, 2003, the amounts outstanding relating to the
loans to Messrs. Nardelli, Donovan and Fernandez were $6,106,142, $3,138,247 and
$522,167, respectively.
The Home Depot has purchase, finance and other transactions and relationships in
the normal course of business with companies with which The 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 2002 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 Securities
and Exchange Commission and the New York Stock Exchange reports of ownership and
changes in beneficial ownership of the Company's common stock. Directors,
executive officers and
39
GENERAL
greater than ten percent stockholders are required 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, we believe that during fiscal year 2002, all our
directors, executive officers and greater than ten percent beneficial owners
complied with these requirements.
AVAILABILITY OF FORM 10-K AND ANNUAL
REPORT TO STOCKHOLDERS
Securities and Exchange Commission 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 2, 2003 (without exhibits or 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 21, 2003. Any stockholder
proposal to be considered at next year's meeting, but not included in the proxy
statement, must be submitted in writing by March 1, 2004, or the persons
appointed as proxies may exercise their discretionary voting authority with
respect to the proposal. Recommendations for nominees to stand for election at
the 2004 Annual Meeting of Stockholders must be received 30 days prior to the
date of such meeting. All written proposals or nominations 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 the following for consideration at the meeting: (1) a proposal to
eliminate the practice of compensating executives and directors by granting
stock options, (2) a proposal to establish an independent board to focus wholly
on stockholder interests with the executive compensation committee to be
isolated from company executives when determining executive salaries and
benefits, (3) a proposal that once granted, stock options cannot be reissued,
restated, re-priced (except for stock splits) or extended, (4) a proposal that
no personal loans may be made to any person or entity connected with The Home
Depot, (5) a proposal that Company executives cannot negotiate or enter
contracts for severance or retirement that differ from the rank and file
employee, and (6) a proposal that instructions and deadlines for stockholder
proposals are to be published in the same size and font with every quarterly and
annual report. If these proposals are determined to be properly presented, it is
intended that the persons named on the proxy cards 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 the expenses
of brokers, nominees and fiduciaries who send proxies and proxy materials to our
stockholders.
40
APPENDIX A
THE HOME DEPOT MANAGEMENT INCENTIVE PLAN
(EFFECTIVE FEBRUARY 3, 2003)
1. PURPOSE. The purpose of The Home Depot Management Incentive Plan is to
advance the interests of The Home Depot, Inc. and its stockholders by
motivating key associates of the Company to take actions that will promote
the Company's long-term success and growth.
2. DEFINITIONS
(a) "Award" means an award entitling a Participant to receive incentive
compensation subject to the terms and conditions of the Plan.
(b) "Board" means the Company's Board of Directors.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Compensation Committee of the Board.
(e) "Common Stock" means shares of the Common Stock, $.05 par value per
share, of the Company.
(f) "Company" means The Home Depot, Inc., a Delaware corporation.
(g) "Disability" means, with respect to a Participant, the Participant's
becoming eligible for permanent and total disability benefits under
the Company's or a Subsidiary's long-term disability plan.
(h) "Fair Market Value" means the fair market value of a share of Common
Stock as determined by the Committee from time to time. Unless
determined otherwise by the Committee, the fair market value shall
be the closing price of the Common Stock on the New York Stock
Exchange on the relevant date or, if no sale occurred on such date,
the closing price on the nearest preceding date on which sales
occurred.
(i) "Officer" means a Participant who an officer of the Company.
(j) "Participant" means a key employee of the Company or a Subsidiary
who is selected by the Committee to participate in the Plan.
(k) "Performance Objectives" means the performance objectives
established pursuant to this Plan for Participants who have received
Awards. Performance Objectives may be described in terms of Company-
wide objectives or objectives that are related to the performance of
the individual Participant or the Subsidiary, division, department
or function within the Company or Subsidiary in which the
Participant is employed. Any Performance Objectives applicable to a
Qualified Performance-Based Award shall be limited to specified
levels of or increases in the Company's or Subsidiary's return on
equity, earnings per share, total earnings, earnings growth, return
on capital, return on assets, earnings before interest and taxes,
sales, sales growth, gross margin return on investment, increase in
the fair market value of the Common Stock, share price (including,
but not limited to, growth measures and total stockholder return),
operating profit, net income, 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),
inventory turns, financial return ratios, total return to
shareholder, market share, earnings measures/ratios, economic value
added (EVA), balance sheet measurements such as inventory or
receivable turnover, internal rate of return, increase in net
present value or expense targets, Employer of Choice survey results,
customer satisfaction survey and productivity. Except in the case of
a Qualified Performance-Based Award, if the Committee determines
that a change in the business, operations, corporate structure or
capital structure of the Company, or the manner in which it conducts
its business, or other events or circumstances render the
Performance Objectives unsuitable, the Committee may modify such
Performance Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Committee deems appropriate
and equitable.
(l) "Performance Target" means a target level of performance, based on
one or more Performance Objectives, established for a Performance
Year in accordance with Section 4.
1
THE HOME DEPOT MANAGEMENT INCENTIVE PLAN
(EFFECTIVE FEBRUARY 3, 2003)
(m) "Performance Year" means a period coinciding with the Company's
fiscal year for accounting purposes, which shall be used for purposes
of determining whether Awards are earned by Participants.
(n) "Plan" means The Home Depot Management Incentive Plan, as stated
herein, and as amended from time to time.
(o) "Qualified Performance-Based Award" means an Award or portion of an
Award to an Officer that is intended to satisfy the requirements for
"qualified performance-based compensation" under Code Section
162(m). The Committee shall designate any Qualified
Performance-Based Award as such at the time of grant.
(p) "Retirement" means termination of employment with the Company or a
Subsidiary after completing at least 5 years of continuous
employment and attaining age 60.
(q) "Subsidiary" means a corporation or other entity (i) more than fifty
percent (50%) of whose outstanding shares or securities
(representing the right to vote for the election of directors or
other managing authority) are, or (ii) which does not have
outstanding shares or securities (as may be the case in a
partnership, joint venture or unincorporated association), but more
than fifty percent (50%) of whose ownership interest (representing
the right generally to make decisions for such other entity) is, now
or hereafter owned or controlled directly or indirectly by the
Company.
2. PARTICIPATION. For each Performance Year, the Committee shall designate
those key employees of the Company and its Subsidiaries who shall receive
Awards under the Plan. Selection for participation for one Performance
Year shall not confer on a Participant the right to participate in the
Plan for any other Performance Year.
3. AWARDS. For each Performance Year, each Participant shall receive an Award
entitling the Participant to receive cash incentive compensation upon the
attainment of one or more Performance Targets. The Committee may establish
different terms for Awards for different Participants or groups of
Participants. The amount of compensation payable under an Award may be
stated as a dollar amount or as a percentage of the Participant's base
compensation. The Committee may provide for a threshold level of
performance below which no amount of compensation will be paid and a
maximum level of performance above which no additional amount of
compensation will be paid, and it may provide for the payment of differing
amounts of compensation for different levels of performance.
4. ESTABLISHMENT OF PERFORMANCE TARGETS. Within the first ninety (90) days of
each Performance Year, the Committee shall establish one or more
Performance Targets for that Performance Year. Each Performance Target
shall be specified as a percentage increase in or attainment of a specific
level of a Performance Objective for the Performance Year.
5. PAYMENT OF AWARDS. Within ninety (90) days following the end of each
Performance Year, the Committee shall determine whether the Performance
Targets for such Performance Year have been satisfied and shall certify
its determination in approved minutes of the Committee meeting held for
such purpose. If the Committee certifies that one or more Performance
Targets for a Performance Year have been achieved, all compensation
payable in respect of Awards subject to such Performance Target shall be
paid to Participants as soon as reasonably practicable thereafter;
provided, however, that the Committee may permit the deferral of such
compensation under a deferred compensation plan of the Company or a
Subsidiary. If a Performance Target for a Performance Year is not
achieved, the Committee in its sole discretion may determine that all or a
portion of any Award shall be deemed to be earned based on such criteria
as the Committee deems appropriate, including without limitation
individual performance or the performance of the Subsidiary or business
division employing the Participant; provided, however, that the Committee
shall not have such discretion with respect to any Qualified
Performance-Based Award. Any Award that is not considered earned in
accordance with this Section shall be forfeited.
2
THE HOME DEPOT MANAGEMENT INCENTIVE PLAN
(EFFECTIVE FEBRUARY 3, 2003)
6. PARTIAL YEARS OF PARTICIPATION. The Committee may establish rules and
procedures for partial years of participation consistent with the
following:
(a) EMPLOYMENT TERMINATION. If a Participant terminates employment with
the Company before payment of Awards are made for a Performance Year
for reasons other than death, Disability or Retirement, any Award
granted to the Participant in respect of that Performance Year shall
be forfeited and cancelled.
(b) NEW HIRES. In the case of an associate who is hired by the Company or
a Subsidiary after the beginning of a Performance Year, the Committee
may in its discretion designate such associate as a Participant in the
Plan for that Performance Year, provided that the Committee may
specify that such a Participant's Award shall be determined only with
respect to the portion of the Performance Year during which the
Participant is employed by the Company or Subsidiary in the eligible
position.
(c) DEATH, DISABILITY OR RETIREMENT. A Participant whose employment
terminates during a Performance Year because of death, Disability or
Retirement may, at the discretion of the Committee and under such
rules as the Committee may from time to time prescribe, be eligible
for consideration for a pro-rata Award based on the period of active
employment during the Performance Year.
(d) PROMOTIONS AND TRANSFERS. A Participant who is transferred to a
non-exempt, hourly or other ineligible position during the Performance
Year shall forfeit any Award granted to the Participant in respect of
that Performance Year. An employee who is promoted to an eligible
position, or a Participant who is transferred from one eligible
position to another, during a Performance Year, may, at the discretion
of the Committee and under such rules as the Committee may from time
to time prescribe, be eligible for consideration for a pro-rata Award
based on the period in the eligible position during the Performance
Year.
(e) LEAVE OF ABSENCE. A Participant who is on a leave of absence other
than a personal leave for more than ninety (90) consecutive days
during the Performance Year, or who is on a personal leave of absence
for more than thirty (30) consecutive days, shall forfeit any portion
of an Award attributable to said period of leave pursuant to such
rules as the Committee may establish.
7. MAXIMUM AMOUNT OF QUALIFIED PERFORMANCE-BASED AWARDS. The maximum dollar
amount of compensation that may be paid to any Participant in respect of
Qualified Performance-Based Awards for a single Performance Year shall be
three tenths of one percent (.3%) of the Company's net income for the
Performance Year.
8. ADJUSTMENTS. To the extent that a Performance Target is based on an
increase in the Fair Market Value of the Common Stock, in the event of any
stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Company, any merger,
consolidation, spin-off, reorganization, partial or complete liquidation
or other distribution of assets (other than a normal cash dividend),
issuance of rights or warrants to purchase securities or any other
corporate transaction having an effect similar to any of the foregoing,
then the Committee may make or provide for such adjustments in such
Performance Target as the Committee in its sole discretion may in good
faith determine to be equitably required in order to prevent dilution or
enlargement of the rights of Participants.
9. TAX WITHHOLDING. The Company shall be entitled to withhold from any
payment made under the Plan the full amount of any required federal, state
or local taxes.
10. NONTRANSFERABILITY OF BENEFITS. A Participant may not assign or transfer
any interest in an Award. Notwithstanding the foregoing, upon the death of
a Participant, the Participant's rights and benefits under the Plan shall
pass by will or by the laws of descent and distribution.
11. ADMINISTRATION AND INTERPRETATION. Subject to the express provisions of
the Plan, the Committee shall have complete authority to interpret the
Plan, to prescribe rules and requirements relating to it, and to make all
determinations necessary or advisable in the administration of the Plan,
including, without limitation, the amending or altering of the Plan as may
be required to comply with or conform to any federal, state or local laws
or regulations.
3
THE HOME DEPOT MANAGEMENT INCENTIVE PLAN
(EFFECTIVE FEBRUARY 3, 2003)
12. AMENDMENT AND TERMINATION OF PLAN. The Committee may at any time terminate
the Plan and may at any time and from time to time amend or modify the
Plan in any respect; provided, however, that no amendment shall be
effective without approval of the stockholders of the Company if the
amendment would increase the maximum amount of compensation payable to a
Participant in any Performance Year pursuant to Qualified
Performance-Based Awards as specified in Section 7. Neither the
termination of the Plan nor any amendment to the Plan shall reduce
benefits accruing under Awards granted prior the date of such termination
or amendment.
13. GOVERNING LAW. The Plan shall be governed and construed in accordance with
the laws of the State of Georgia. As a condition to eligibility to receive
an Award under the Plan, each Participant irrevocably consents to the
exclusive jurisdiction of the courts of the State of Georgia and of any
federal court located in the Northern District of Georgia in connection
with any action or proceeding arising out of or relating to this Plan, any
document or instrument delivered pursuant to or in connection with this
Plan, or any alleged breach of this Plan or any such document or
instrument.
14. EFFECTIVE DATES AND STOCKHOLDER APPROVAL. This Plan shall be effective for
periods beginning on and after February 3, 2003, provided that no
Qualified Performance-Based Award shall be effective if the Plan is not
approved by a vote of the stockholders of the Company at an annual meeting
or special meeting.
15. OFFSETS. As a condition to eligibility for an Award, each Participant
consents to the deduction from the Award of any amounts owed by the
Participant to the Company to the extent permitted by applicable law.
16. NO RIGHTS TO CONTINUED EMPLOYMENT. Participation in the Plan does not
create or constitute an express or implied employment contract between the
Company and the Participant nor limit the right of the Company to
discharge or otherwise deal with a Participant without regard to the
existence of the Plan.
17. UNFUNDED PLAN. The Plan shall at all times be an unfunded payroll practice
and no provision shall at any time be made with respect to segregating
assets of the Company for payment of any Award. No Participant or any
other person shall have any interest in any particular assets of the
Company by reason of the right to receive an Award under the Plan and any
such Participant or any other person shall have only the rights of a
general unsecured creditor of the Company.
18. LIMITATIONS PERIOD FOR CLAIMS. Any person who believes he or she is being
denied any benefit or right under the Plan may file a written claim with
the Committee. Any claim must be delivered to the Committee within forty-
five (45) days of the later of the end of the Award Period to which the
claim relates or the specific event giving rise to the claim. Untimely
claims will not be processed and shall be deemed denied. The Committee, or
its designated agent, will notify the Participant of its decision in
writing as soon as administratively practicable. Claims not responded to
by the Committee in writing within ninety (90) days of the date the
written claim is delivered to the Committee shall be deemed denied. The
Committee's decision is final and conclusive and binding on all persons.
No lawsuit relating to the Plan may be filed before a written claim is
filed with the Committee and is denied or deemed denied and any lawsuit
must be filed within one year of such denial of deemed denial or be
forever barred.
4
[THE HOME DEPOT LOGO] ADMISSION TICKET
THE HOME DEPOT, INC.
c/o EquiServe Trust Co., N.A.
P.O. Box 8561
Edison, NJ 08818-8561
2003 ANNUAL MEETING OF STOCKHOLDERS
TIME: May 30, 2003 -- 10:00 a.m. Central Time
PLACE: The Field Museum of Natural History
Chicago, Illinois (see information on back)
AUDIOCAST: Live on the Internet at WWWW.HOMEDEPOT.COM
(Please detach card at perforation.)
--------------------------------------------------------------------------------
VOTE CONTROL NUMBER
_________________________
YOUR VOTE IS IMPORTANT. PLEASE VOTE IMMEDIATELY.
VOTE-BY-INTERNET
1. Log on to the Internet and go to http://www.eproxyvote.com/hd
2. Enter your Voter Control Number listed above and follow the easy steps
outlined on the secured website.
VOTE-BY-TELEPHONE
1. Call toll-free 1-877-PRX-VOTE (1-877-779-8683)
2. Enter your Voter Control Number listed above and follow the easy
recorded instructions.
IF YOU VOTE OVER THE INTERNET OR BY TELEPHONE, PLEASE DO NOT MAIL YOUR CARD.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
-------------------------------------------------------------------------------
X PLEASE MARK
VOTES AS IN
THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS, 1, 2 AND 3
AND AGAINST ITEMS 4, 5, 6, 7 AND 8.
FOR WITHHELD
1. Election of Directors: ---- ----
Nominees: (01) Gregory D. Brenneman
(02) Richard H. Brown, (03) John L. Clendenin,
(04) Berry R. Cox, (05) William S. Davila,
(06) Claudio X. Gonzalez, (07) Richard A. Grasso,
(08) Milledge A. Hart, III, (09) Bonnie G. Hill,
(10) Kenneth G. Langone, (11) Robert L. Nardelli, --------------------------------------
(12) Roger S. Penske For all nominees except as noted above
FOR AGAINST ABSTAIN
2. Approval of Company Proposal to ratify the appointment ---- ---- ----
of KPMG LLP as independent auditors of the Company
for fiscal 2003.
3. Approval of Company Proposal to approve the material
terms of the performance-based compensation payable
under the Management Incentive Plan.
__ __
| |
|__ __|
4. Approval of Stockholder Proposal regarding outside
director term limits.
5. Approval of Stockholder Proposal regarding poison
pill implementation.
6. Approval of Stockholder Proposal regarding
provision of non-audit related services by auditors.
7. Approval of Stockholder Proposal regarding
implementation of ILO Human Rights Standards.
8. Approval of Stockholder Proposal regarding
Independent Director as Chairman of the Board.
WILL MARK HERE FOR
ATTEND COMMENTS AND/OR
MEETING ----- ADDRESS CHANGES ----
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.
ADMISSION TICKET
INFORMATION ABOUT THE HOME DEPOT, INC. 2003 ANNUAL MEETING OF STOCKHOLDERS
Information about parking and detailed directions
to The Field Museum are available via the Internet
at www.fieldmuseum.org or by telephone at (312) 922-9410.
PLEASE BRING ADMISSION TICKET WITH VALID PICTURE I.D.
TO PRESENT FOR ADMISSION TO THE MEETING
--------------------------------------------------------------------------------
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
TIME:
10:00 a.m. Central Time on Friday, May 30, 2003
PLACE:
The Field Museum of Natural History
1400 South Lake Shore Drive, Chicago, Illinois
ITEMS OF BUSINESS:
1. To elect the full board of directors.
2. To ratify the appointment of KPMG LLP as the independent auditors of the
Company for fiscal 2003.
3. To approve the material terms of the performance-based compensation payable
under the Management Incentive Plan.
4. To act on stockholder proposals described in the Proxy Statement.
5. To transact other business properly coming before the meeting.
WHO CAN VOTE:
You can vote if you were a stockholder of record on March 31, 2003.
ANNUAL REPORT:
A copy of our 2002 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 18, 2003.
By Order of the Board of Directors ----------------------
Frank L. Fernandez, Secretary |Detach here if mailing|
--------------------------------------------------------------------------------
PROXY/VOTING INSTRUCTIONS
THE HOME DEPOT, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETINGS OF STOCKHOLDERS ON MAY 30, 2003.
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 Field Museum of Natural History, Chicago,
Illinois, on Friday, May 30, 2003, at 10:00 a.m., Central Time, 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,
"AGAINST" the approval of item number 4, "AGAINST" the approval of item number
5, "AGAINST" the approval of item number 6, "AGAINST" the approval of item
number 7, "AGAINST" the approval of item number 8, and in accordance with the
recommendations of the Board of Directors.
Participants in the FutureBuilder Plans 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 1-8. If this card is signed and
returned without voting instructions, the shares represented by this proxy
will be voted by the plan trustee. 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 REVERSE SEE REVERSE
SIDE SIDE
----------- -----------
UNLESS VOTING ELECTRONICALLY OR BY PHONE,
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE.