Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 5, 2013
- OR -
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 1-8207
THE HOME DEPOT, INC.
(Exact name of Registrant as specified in its charter)
 
Delaware
 
95-3261426
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
2455 Paces Ferry Road N.W., Atlanta, Georgia
 
30339
(Address of principal executive offices)
 
(Zip Code)
(770) 433-8211
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
(Do not check if a smaller reporting company)
 
Smaller reporting company  ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,460,796,393 shares of common stock, $0.05 par value, as of May 21, 2013
 

Table of Contents

THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
amounts in millions, except share and per share data
May 5,
2013
 
February 3,
2013

ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
4,337

 
$
2,494

Receivables, net
1,658

 
1,395

Merchandise Inventories
11,825

 
10,710

Other Current Assets
800

 
773

Total Current Assets
18,620

 
15,372

Property and Equipment, at cost
38,688

 
38,491

Less Accumulated Depreciation and Amortization
14,782

 
14,422

Net Property and Equipment
23,906

 
24,069

Goodwill
1,187

 
1,170

Other Assets
482

 
473

Total Assets
$
44,195

 
$
41,084


LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
7,384

 
$
5,376

Accrued Salaries and Related Expenses
1,264

 
1,414

Sales Taxes Payable
596

 
472

Deferred Revenue
1,377

 
1,270

Income Taxes Payable
515

 
22

Current Installments of Long-Term Debt
1,332

 
1,321

Other Accrued Expenses
1,550

 
1,587

Total Current Liabilities
14,018

 
11,462

Long-Term Debt, excluding current installments
11,460

 
9,475

Other Long-Term Liabilities
2,054

 
2,051

Deferred Income Taxes
270

 
319

Total Liabilities
27,802

 
23,307


STOCKHOLDERS’ EQUITY
 
 
 
Common Stock, par value $0.05; authorized: 10 billion shares; issued: 1.758 billion shares at May 5, 2013 and 1.754 billion shares at February 3, 2013; outstanding: 1.461 billion shares at May 5, 2013 and 1.484 billion shares at February 3, 2013
88

 
88

Paid-In Capital
7,790

 
7,948

Retained Earnings
20,687

 
20,038

Accumulated Other Comprehensive Income
433

 
397

Treasury Stock, at cost, 297 million shares at May 5, 2013 and 270 million shares at February 3, 2013
(12,605
)
 
(10,694
)
Total Stockholders’ Equity
16,393

 
17,777

Total Liabilities and Stockholders’ Equity
$
44,195

 
$
41,084

See accompanying Notes to Consolidated Financial Statements.

3

THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
 
Three Months Ended
amounts in millions, except per share data
May 5,
2013
 
April 29,
2012
NET SALES
$
19,124

 
$
17,808

Cost of Sales
12,445

 
11,625

GROSS PROFIT
6,679

 
6,183


Operating Expenses:
 
 
 
Selling, General and Administrative
4,183

 
4,086

Depreciation and Amortization
402

 
383

Total Operating Expenses
4,585

 
4,469


OPERATING INCOME

2,094

 
1,714

Interest and Other (Income) Expense:
 
 
 
Interest and Investment Income
(3
)
 
(5
)
Interest Expense
164

 
156

Other
—

 
(67
)
Interest and Other, net
161

 
84


EARNINGS BEFORE PROVISION FOR INCOME TAXES
1,933

 
1,630

Provision for Income Taxes
707

 
595

NET EARNINGS
$
1,226

 
$
1,035

 
 
 
 
Weighted Average Common Shares
1,468

 
1,522

BASIC EARNINGS PER SHARE

$
0.84

 
$
0.68

Diluted Weighted Average Common Shares
1,478

 
1,531

DILUTED EARNINGS PER SHARE

$
0.83

 
$
0.68

Dividends Declared Per Share
$
0.39

 
$
0.29

See accompanying Notes to Consolidated Financial Statements.


4

THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended
amounts in millions
May 5,
2013
 
April 29,
2012
Net Earnings
$
1,226

 
$
1,035

Other Comprehensive Income:
 
 
 
Foreign Currency Translation Adjustments
44

 
159

Cash Flow Hedges, net of tax
2

 
1

Other
(10
)
 
—

Total Other Comprehensive Income
36

 
160

COMPREHENSIVE INCOME
$
1,262

 
$
1,195

See accompanying Notes to Consolidated Financial Statements.


5

THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three Months Ended
amounts in millions
May 5,
2013
 
April 29,
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Earnings
$
1,226

 
$
1,035

Reconciliation of Net Earnings to Net Cash Provided by Operating Activities:
 
 
 
Depreciation and Amortization
435

 
410

Stock-Based Compensation Expense
65

 
58

Changes in Assets and Liabilities, net of the effects of acquisition:
 
 
 
Receivables, net
(259
)
 
(254
)
Merchandise Inventories
(1,103
)
 
(1,204
)
Other Current Assets
23

 
(75
)
Accounts Payable and Accrued Expenses
1,797

 
2,097

Deferred Revenue
107

 
69

Income Taxes Payable
576

 
462

Deferred Income Taxes
(89
)
 
(15
)
Other
(81
)
 
(93
)
Net Cash Provided by Operating Activities
2,697

 
2,490


CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital Expenditures
(278
)
 
(228
)
Payments for Business Acquired, net
(13
)
 
—

Proceeds from Sales of Property and Equipment
15

 
7

Net Cash Used in Investing Activities
(276
)
 
(221
)

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from Long-Term Borrowings, net of discount
1,994

 
—

Repayments of Long-Term Debt
(8
)
 
(7
)
Repurchases of Common Stock
(2,196
)
 
(1,131
)
Proceeds from Sales of Common Stock
64

 
412

Cash Dividends Paid to Stockholders
(577
)
 
(444
)
Other Financing Activities
134

 
87

Net Cash Used in Financing Activities
(589
)
 
(1,083
)

Change in Cash and Cash Equivalents
1,832

 
1,186

Effect of Exchange Rate Changes on Cash and Cash Equivalents
11

 
18

Cash and Cash Equivalents at Beginning of Period
2,494

 
1,987

Cash and Cash Equivalents at End of Period
$
4,337

 
$
3,191

See accompanying Notes to Consolidated Financial Statements.


6
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles ("GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 3, 2013 , as filed with the Securities and Exchange Commission.
Business
The Home Depot, Inc. and its subsidiaries (the "Company") operate The Home Depot stores, which are full-service, warehouse-style stores averaging approximately 104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. The stores stock approximately 30,000 to 40,000 different kinds of building materials, home improvement supplies and lawn and garden products that are sold to do-it-yourself customers, do-it-for-me customers and professional customers. The Company also offers over 600,000 products through its Home Depot and Home Decorators Collection websites.
Valuation Reserves
As of May 5, 2013 and February 3, 2013 , the valuation allowances for Merchandise Inventories and uncollectible Receivables were not material.

2.
LONG-TERM DEBT
In April 2013, the Company issued $1.0 billion of 2.70% Senior Notes due April 1, 2023 at a discount of $2 million and $1.0 billion of 4.20% Senior Notes due April 1, 2043 at a discount of $4 million (together, the "April 2013 issuance"). Interest on these Senior Notes is due semi-annually on April 1 and October 1 of each year, beginning October 1, 2013. The net proceeds of the April 2013 issuance will be used for general corporate purposes, including repurchases of shares of the Company's common stock. The $6 million discount associated with the April 2013 issuance is being amortized over the term of the Senior Notes using the effective interest rate method. Issuance costs associated with the April 2013 issuance were approximately $15 million and are being amortized over the term of the Senior Notes.
The Senior Notes may be redeemed by the Company at any time, in whole or in part, at the redemption price plus accrued interest up to the redemption date. The redemption price is equal to the greater of (1)  100% of the principal amount of the Senior Notes to be redeemed, and (2) the sum of the present values of the remaining scheduled payments of principal and interest to maturity. Additionally, if a Change in Control Triggering Event occurs, as defined by the terms of the April 2013 issuance, holders of the April 2013 issuance have the right to require the Company to redeem those notes at 101% of the aggregate principal amount of the notes plus accrued interest up to the redemption date. The Company is generally not limited under the indenture governing the Senior Notes in its ability to incur additional indebtedness or required to maintain financial ratios or specified levels of net worth or liquidity. Further, while the indenture governing the Senior Notes contains various restrictive covenants, none is expected to impact the Company's liquidity or capital resources.

3.
ACCELERATED SHARE REPURCHASE
In the first quarter of fiscal 2013, the Company entered into an Accelerated Share Repurchase ("ASR") agreement with a third-party financial institution to repurchase $1.5 billion of the Company’s common stock. Under this agreement, the Company paid $1.5 billion to the financial institution and received an initial delivery of approximately 18 million shares in the first quarter of fiscal 2013. The fair market value of the 18 million shares on the date of purchase was $1.3 billion and is included in Treasury Stock in the accompanying Consolidated Balance Sheets as of May 5, 2013 . The remaining $239 million is included in Paid-In Capital in the accompanying Consolidated Balance Sheets as of May 5, 2013 . The final number of shares delivered upon settlement of the $1.5 billion ASR agreement will be determined with reference to the average price of the Company’s common stock over the term of the ASR agreement.



7
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.
FAIR VALUE MEASUREMENTS
The fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, rather than the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
•
Level 1 –
Observable inputs that reflect quoted prices in active markets
•
Level 2 –
Inputs other than quoted prices in active markets that are either directly or indirectly observable
•
Level 3 –
Unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The assets and liabilities of the Company that are measured at fair value on a recurring basis as of May 5, 2013 and February 3, 2013 were as follows (amounts in millions):
 
Fair Value at May 5, 2013 Using
 
Fair Value at February 3, 2013 Using
 
Level 1    
 
Level 2    
 
Level 3    
 
Level 1    
 
Level 2    
 
Level 3    
Derivative agreements - assets
$
—

 
$
67

 
$
—

 
$
—

 
$
64

 
$
—

Derivative agreements - liabilities
—

 
(12
)
 
—

 
—

 
(15
)
 
—

Total
$
—

 
$
55

 
$
—

 
$
—

 
$
49

 
$
—

The Company uses derivative financial instruments from time to time in the management of its interest rate exposure on long-term debt and its exposure on foreign currency fluctuations. The fair value of the Company’s derivative financial instruments was measured using level 2 inputs.
 
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The assets and liabilities of the Company that were measured at fair value on a nonrecurring basis during the three months ended May 5, 2013 and April 29, 2012 were as follows (amounts in millions):
 
Fair Value Measured During
 
 
 
the Three Months Ended
 
Gains
 
May 5, 2013 - Level 3
 
(Losses)
Lease obligation costs, net
$
(133
)
 
$
(2
)
Total for the first three months of fiscal 2013
 
 
$
(2
)
 
 
Fair Value Measured During
 
 
 
the Three Months Ended
 
Gains
 
April 29, 2012 - Level 3
 
(Losses)
Lease obligation costs, net
$
(138
)
 
$
—

Total for the first three months of fiscal 2012
 
 
$
—

Lease obligation costs were related to certain store closings and the exit of certain businesses in fiscal 2009 and 2008. These charges were measured on a nonrecurring basis using fair value measurements with unobservable inputs (level 3).
Long-lived assets were analyzed for impairment on a nonrecurring basis using fair value measurements with unobservable inputs (level 3). Impairment charges related to long-lived assets in the first three months of fiscal 2013 and 2012 were not material.
The aggregate fair value of the Company’s Senior Notes, based on quoted market prices, was $ 14.3 billion and $ 12.2 billion at May 5, 2013 and February 3, 2013 , respectively, compared to a carrying value of $ 12.3 billion and $10.3 billion at May 5, 2013 and February 3, 2013 , respectively.

8
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5.
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
The reconciliation of basic to diluted weighted average common shares for the three months ended May 5, 2013 and April 29, 2012 was as follows (amounts in millions):
 
Three Months Ended
 
May 5,
2013
 
April 29,
2012
Weighted average common shares
1,468

 
1,522

Effect of potentially dilutive securities:
 
 
 
Stock plans
10

 
9

Diluted weighted average common shares
1,478

 
1,531

Stock plans consist of shares granted under the Company’s employee stock plans. Options to purchase 1 million and 2 million shares of common stock for the three months ended May 5, 2013 and April 29, 2012 , respectively, were excluded from the computation of Diluted Earnings per Share because their effect would have been anti-dilutive.


9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
The Home Depot, Inc.:
We have reviewed the Consolidated Balance Sheet of The Home Depot, Inc. and subsidiaries as of May 5, 2013 , and the related Consolidated Statements of Earnings, Comprehensive Income, and Cash Flows for the three -month periods ended May 5, 2013 and April 29, 2012 . These Consolidated Financial Statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the Consolidated Financial Statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheet of The Home Depot, Inc. and subsidiaries as of February 3, 2013 , and the related Consolidated Statements of Earnings, Comprehensive Income, Stockholders’ Equity, and Cash Flows for the year then ended (not presented herein); and in our report dated March 28, 2013, we expressed an unqualified opinion on those Consolidated Financial Statements. In our opinion, the information set forth in the accompanying Consolidated Balance Sheet as of February 3, 2013 , is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.
/s/ KPMG LLP
Atlanta, Georgia
May 29, 2013


10

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
Certain statements contained herein regarding our future performance constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may relate to, among other things, the demand for our products and services, net sales growth, comparable store sales, state of the economy, state of the residential construction, housing and home improvement markets, state of the credit markets, including mortgages, home equity loans and consumer credit, inventory and in-stock positions, commodity price inflation and deflation, implementation of store and supply chain initiatives, continuation of share repurchase programs, net earnings performance, earnings per share, capital allocation and expenditures, liquidity, return on invested capital, management of relationships with our suppliers and vendors, stock-based compensation expense, the effect of accounting charges, the effect of adopting certain accounting standards, the ability to issue debt on terms and at rates acceptable to us, store openings and closures, expense leverage and financial outlook.
Forward-looking statements are based on currently available information and our current assumptions, expectations and projections about future events. You should not rely on our forward-looking statements. These statements are not guarantees of future performance and are subject to future events, risks and uncertainties – many of which are beyond our control or are currently unknown to us – as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the fiscal year ended February 3, 2013 as filed with the Securities and Exchange Commission ("SEC") on March 28, 2013 ("Form 10-K") and in Item 1A of Part II and elsewhere in this report. You should read such information in conjunction with our Consolidated Financial Statements and related notes and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this report. There also may be other factors that we cannot anticipate or that are not described in this report, generally because we do not currently perceive them to be material. Such factors could cause results to differ materially from our expectations.
Forward-looking statements speak only as of the date they are made, and we do not undertake to update these statements other than as required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the SEC.
EXECUTIVE SUMMARY AND SELECTED CONSOLIDATED STATEMENTS OF EARNINGS DATA
For the first quarter of fiscal 2013 , we reported Net Earnings of $1.2 billion and Diluted Earnings per Share of $0.83 compared to Net Earnings of $1.0 billion and Diluted Earnings per Share of $0.68 for the first quarter of fiscal 2012 .
Net Sales increased 7.4% to $19.1 billion for the first quarter of fiscal 2013 from $17.8 billion for the first quarter of fiscal 2012 . Due to the 53 rd week in fiscal 2012, the first quarter of fiscal 2013 benefited from a seasonal timing change that added approximately $574 million, or approximately 320 basis points, of growth to Net Sales. Our comparable store sales increased 4.3% in the first quarter of fiscal 2013 , driven by a 4.2% increase in our comparable store average ticket and a 0.1% increase in our comparable store customer transactions. Comparable store sales for our U.S. stores increased 4.8% in the first quarter of fiscal 2013 .
In the first quarter of fiscal 2013 , we continued to focus on the following four key initiatives:
Customer Service – Our focus on customer service is anchored on the principles of creating an emotional connection with customers, putting customers first and simplifying the business. We continue to work toward and expect to achieve our goal of having 60% of our store labor hours dedicated to customer-facing activity by the end of fiscal 2013.
Product Authority – Our focus on product authority is facilitated by our merchandising transformation and portfolio strategy, which is aimed at delivering innovation, assortment and value. As part of this effort, we introduced innovative new products and great values for both our professional and do-it-yourself customers in a variety of departments.
Disciplined Capital Allocation, Productivity and Efficiency – Our approach to driving productivity and efficiency is advanced through continuous operational improvement, incremental supply chain benefits, disciplined capital allocation and expense control and building shareholder value through higher returns on invested capital and total value returned to shareholders in the form of dividends and share repurchases. Our inventory turnover ratio was 4.4 times at the end of the first quarter of fiscal 2013 compared to 4.3 times at the end of the first quarter of fiscal 2012 .
During the first quarter of fiscal 2013, we entered into an Accelerated Share Repurchase ("ASR") agreement with a third-party financial institution to repurchase $1.5 billion of our common stock. We received an initial delivery of approximately 18 million shares in the first quarter of fiscal 2013 under the $1.5 billion ASR agreement. We also repurchased approximately 9 million additional shares through the open market during the first quarter of fiscal 2013.

11
Table of Contents

Interconnected Retail – Our focus on interconnected retail is based on building a competitive platform across all commerce channels. During the first quarter of fiscal 2013 , we completed the roll out of Buy Online, Ship To Store ("BOSS"), which allows customers access to over 300,000 items available for pickup in our stores. We also continued to improve the shopping experience for our customers by simplifying our online checkout process and implementing electronic receipts on our website, on our mobile applications and in our stores.
We opened one new store in Mexico during the first quarter of fiscal 2013 , for a total store count of 2,257 at the end of the quarter. As of the end of the first quarter of fiscal 2013 , a total of 281 of our stores, or 12.5%, were located in Canada and Mexico.
We generated $2.7 billion of cash flow from operations in the first quarter of fiscal 2013 . This cash flow, along with $2.0 billion of long-term debt issued in the first quarter of fiscal 2013, was used in part to fund $2.2 billion of share repurchases, pay $577 million of dividends and fund $278 million in capital expenditures.
Our return on invested capital (computed on net operating profit after tax for the trailing twelve months and the average of beginning and ending long-term debt and equity) was 17.7% for the first quarter of fiscal 2013 compared to 15.4% for the first quarter of fiscal 2012 .


12
Table of Contents

We believe the selected sales data, the percentage relationship between Net Sales and major categories in the Consolidated Statements of Earnings and the percentage change in the dollar amounts of each of the items presented below are important in evaluating the performance of our business operations.

 
% of Net Sales
 
 
 
Three Months Ended
 
 
 
May 5, 2013
 
April 29, 2012
 
% Increase (Decrease)
in Dollar Amounts
NET SALES
100.0
 %
 
100.0
 %
 
7.4
 %
GROSS PROFIT
34.9

 
34.7

 
8.0

Operating Expenses:
 
 
 
 
 
Selling, General and Administrative
21.9

 
22.9

 
2.4

Depreciation and Amortization
2.1

 
2.2

 
5.0

Total Operating Expenses
24.0

 
25.1

 
2.6

 
 
 
 
 
 
OPERATING INCOME
10.9

 
9.6

 
22.2

Interest and Other (Income) Expense:
 
 
 
 
 
Interest and Investment Income
—

 
—

 
(40.0
)
Interest Expense
0.9

 
0.9

 
5.1

Other
—

 
(0.4
)
 
(100.0
)
Interest and Other, net
0.8

 
0.5

 
91.7

 
 
 
 
 
 
EARNINGS BEFORE PROVISION FOR INCOME TAXES
10.1

 
9.2

 
18.6

Provision for Income Taxes
3.7

 
3.3

 
18.8

NET EARNINGS
6.4
 %
 
5.8
 %
 
18.5
 %

SELECTED SALES DATA
 
 
 
 
 
Number of Customer Transactions (in millions)
337.1

 
328.9

 
2.5
 %
Average Ticket
$
57.24

 
$
54.51

 
5.0
 %
Weighted Average Weekly Sales Per Operating Store (in thousands)
$
658

 
$
612

 
7.5
 %
Weighted Average Sales per Square Foot
$
328.17

 
$
304.44

 
7.8
 %
Comparable Store Sales Increase (%) (1)
4.3
 %
 
5.8
 %
 
N/A

Note: Certain percentages may not sum to totals due to rounding.
  —————
(1)
Includes Net Sales at locations open greater than 12 months, including relocated and remodeled stores and online sales and excluding closed stores. Retail stores become comparable on the Monday following their 365 th day of operation. Comparable store sales is intended only as supplemental information and is not a substitute for Net Sales or Net Earnings presented in accordance with generally accepted accounting principles.
N/A – Not Applicable


13
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RESULTS OF OPERATIONS
Net Sales for the first quarter of fiscal 2013 increased 7.4% to $ 19.1 billion from $ 17.8 billion for the first quarter of fiscal 2012 . The increase in Net Sales for the first quarter of fiscal 2013 reflects the impact of positive comparable store sales and the benefit from a seasonal timing change. Total comparable store sales increased 4.3% for the first quarter of fiscal 2013 compared to an increase of 5.8% for the first quarter of fiscal 2012 . Due to the 53 rd week in fiscal 2012, the first quarter of fiscal 2013 included one additional week of spring, and this seasonal timing change added approximately $574 million, or approximately 320 basis points, of growth to Net Sales.
The positive comparable store sales for the first quarter of fiscal 2013 reflect a number of factors, including the execution of our key initiatives and an improved U.S. housing market. All of our departments except two posted positive comparable store sales for the first quarter of fiscal 2013 , and comparable store average ticket increased 4.2% for the first quarter of fiscal 2013 . Comparable store sales for our Kitchen, Lumber, Tools, Plumbing, Décor, Electrical, Bath, Flooring, Lighting and Hardware product categories were above the Company average for the first quarter of fiscal 2013 . Comparable store sales for our Paint, Millwork and Building Materials product categories were positive for the first quarter of fiscal 2013 . Comparable store sales for our Indoor Garden and Outdoor Garden product categories were negative for the first quarter of 2013 , reflecting the impact of cooler weather and difficult year-over-year comparisons due to last year's unusually warm spring weather.
Gross Profit increased 8.0% to $ 6.7 billion for the first quarter of fiscal 2013 from $6.2 billion for the first quarter of fiscal 2012 . Gross Profit as a percent of Net Sales was 34.9% for the first quarter of fiscal 2013 compared to 34.7% for the first quarter of fiscal 2012 , an increase of 20 basis points. The increase in gross profit margin for the first quarter of fiscal 2013 was driven primarily by our recently acquired businesses, which are gross margin accretive, and improved shrink performance partially offset by a change in mix of products sold.
Selling, General and Administrative expenses ("SG&A") increased 2.4% to $ 4.2 billion for the first quarter of fiscal 2013 from $ 4.1 billion for the first quarter of fiscal 2012 . As a percent of Net Sales, SG&A was 21.9% for the first quarter of fiscal 2013 compared to 22.9% for the same period last year. The decrease in SG&A as a percent of sales reflects expense leverage resulting from the positive comparable store sales environment and strong expense controls.
Depreciation and Amortization increased 5.0% to $ 402 million for the first quarter of fiscal 2013 from $ 383 million for the first quarter of fiscal 2012 . Depreciation and Amortization as a percent of Net Sales was 2.1% for the first quarter of fiscal 2013 compared to 2.2% for the first quarter of fiscal 2012 . The decrease in Depreciation and Amortization as a percent of Net Sales for the first quarter of fiscal 2013 reflects expense leverage in the positive comparable store sales environment offset by higher depreciation related to our capital expenditures in recent years being more heavily weighted toward technology assets that have shorter depreciable lives.
Operating Income increased 22.2% to $ 2.1 billion for the first quarter of fiscal 2013 from $1.7 billion for the first quarter of fiscal 2012 . Operating Income as a percent of Net Sales was 10.9% for the first quarter of fiscal 2013 compared to 9.6% for the first quarter of fiscal 2012 .
For the first quarter of fiscal 2013 , we recognized $ 161 million of Interest and Other, net, compared to $84 million for the first quarter of fiscal 2012 . Interest and Other, net, as a percent of Net Sales was 0.8% for the first quarter of fiscal 2013 compared to 0.5% for the first quarter of fiscal 2012 . Interest and Other, net, for the first quarter of 2012 included a $67 million pretax benefit related to the termination of our guarantee of a senior secured loan of HD Supply, Inc.
Our combined effective income tax rate was 36.6% for the first quarter of fiscal 2013 compared to 36.5% for the first quarter of fiscal 2012 .

Diluted Earnings per Share were $ 0.83 for the first quarter of fiscal 2013 compared to $ 0.68 for the first quarter of fiscal 2012 . Diluted Earnings per Share for the first quarter of fiscal 2013 reflect $0.03 of benefit from repurchases of our common stock in the twelve months ended May 5, 2013 .
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operations provides us with a significant source of liquidity. During the first quarter of fiscal 2013 , Net Cash Provided by Operating Activities was $ 2.7 billion compared to $ 2.5 billion for the same period of fiscal 2012 . This increase is primarily due to a $191 million increase in Net Earnings resulting from higher comparable store sales and expense controls. The amount of cash flow generated in the first quarter of fiscal 2013 from working capital and other, including Merchandise Inventories and Accounts Payable and Accrued Expenses, was consistent with the same period last year.

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Net Cash Used in Investing Activities for the first quarter of fiscal 2013 was $ 276 million compared to $ 221 million for the same period of fiscal 2012 . This change was primarily due to a $50 million increase in Capital Expenditures in the first quarter of fiscal 2013 compared to the same period last year.
Net Cash Used in Financing Activities for the first quarter of fiscal 2013 was $ 589 million compared to $ 1.1 billion for the same period of fiscal 2012 . This change was primarily the result of $2.0 billion in net proceeds from long-term borrowings, partially offset by $1.1 billion more in repurchases of common stock and $348 million less in proceeds from the sale of common stock in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012.
In April 2013, we issued $1.0 billion of 2.70% Senior Notes due April 1, 2023 at a discount of $2 million and $1.0 billion of 4.20% Senior Notes due April 1, 2043 at a discount of $4 million (together, the "April 2013 issuance"). Interest on these Senior Notes is due semi-annually on April 1 and October 1 of each year, beginning October 1, 2013. The net proceeds of the April 2013 issuance will be used for general corporate purposes, including repurchases of shares of our common stock.
In the first quarter of fiscal 2013, we entered into an ASR agreement with a third-party financial institution to repurchase $1.5 billion of our common stock. Under this agreement, we paid $1.5 billion to the financial institution and received an initial delivery of approximately 18 million shares in the first quarter of fiscal 2013. The final number of shares delivered upon settlement of the $1.5 billion ASR agreement will be determined with reference to the average price of our common stock over the term of the agreement.
In the the first quarter of fiscal 2013 , we repurchased approximately 9 million additional shares of our common stock for $650 million through the open market. As of the end of the first quarter of fiscal 2013 , $14.9 billion remained under the $17.0 billion share repurchase authorization approved by our Board of Directors in February 2013.
We have commercial paper programs that allow for borrowings up to $2.0 billion. In connection with the programs, we have a back-up credit facility with a consortium of banks for borrowings up to $2.0 billion. As of May 5, 2013 , there were no borrowings outstanding under the commercial paper programs or the related credit facility. The credit facility expires in July 2017 and contains various restrictive covenants. As of May 5, 2013 , we were in compliance with all of the covenants, and they are not expected to impact our liquidity or capital resources.
As of May 5, 2013 , we had $ 4.3 billion in Cash and Cash Equivalents. We believe that our current cash position, access to the debt capital markets and cash flow generated from operations should be sufficient to enable us to complete our capital expenditure programs and fund dividend payments, share repurchases and any required long-term debt payments through the next several fiscal years. In addition, we have funds available from our commercial paper programs and the ability to obtain alternative sources of financing.

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Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risks results primarily from fluctuations in interest rates. There have been no material changes to our exposure to market risks from those disclosed in our Form 10-K.

Item 4.
Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act) during the fiscal quarter ended May 5, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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PART II. OTHER INFORMATION

Item 1A.
Risk Factors
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed under Item 1A, "Risk Factors" and elsewhere in our Form 10-K. These risks and uncertainties could materially and adversely affect our business, financial condition and results of operations. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business. There have been no material changes in the risk factors discussed in our Form 10-K.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
(a)
During the first quarter of fiscal 2013 , the Company issued 512 deferred stock units under The Home Depot, Inc. NonEmployee Directors’ Deferred Stock Compensation Plan pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The deferred stock units were credited to the accounts of such nonemployee directors during the first quarter of fiscal 2013 who elected to receive board retainers in the form of deferred stock units instead of cash. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in that plan.

(b)
During the first quarter of fiscal 2013 , the Company credited 1,224 deferred stock units to participant accounts under The Home Depot FutureBuilder Restoration Plan pursuant to an exemption from the registration requirements of the Securities Act of 1933 for involuntary, non-contributory plans. The deferred stock units convert to shares of common stock on a one-for-one basis following the termination of services as described in that plan.

(c)
In the first quarter of fiscal 2013, the Board of Directors authorized a $17.0 billion share repurchase program. Through the end of the first quarter of fiscal 2013 , the Company has repurchased shares of its common stock having a value of approximately $2.1 billion under this program. The number and average price of shares purchased in each fiscal month of the first quarter of fiscal 2013 are set forth in the table below:
Period
 
Total
Number of
Shares
Purchased (1)
 
Average Price
Paid
Per Share (1)
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Program (2)
 
Dollar Value of
Shares that May Yet
Be Purchased 
Under the Program (2)
February 4, 2013 – March 3, 2013
 
173,445

 
$
68.25

 
—

 
$
17,000,000,000

March 4, 2013 – March 31, 2013 (3)
 
23,823,938

 
$
69.81

 
22,210,496

 
$
15,210,002,358

April 1, 2013 – May 5, 2013
 
4,985,643

 
$
72.27

 
4,981,435

 
$
14,850,002,375


(1)
These amounts include repurchases pursuant to the Company’s 1997 and Amended and Restated 2005 Omnibus Stock Incentive Plans (the “Plans”). Under the Plans, participants may surrender shares as payment of applicable tax withholding on the vesting of restricted stock and deferred share awards. Participants in the Plans may also exercise stock options by surrendering shares of common stock that the participants already own as payment of the exercise price. Shares so surrendered by participants in the Plans are repurchased pursuant to the terms of the Plans and applicable award agreement and not pursuant to publicly announced share repurchase programs.
(2)
In the first quarter of fiscal 2013, the Board of Directors authorized a $17.0 billion share repurchase program that replaced the previous authorization. The program does not have a prescribed expiration date.
(3)
In the first quarter of fiscal 2013, the Company paid $1.5 billion under an ASR agreement and received an initial delivery of approximately 18 million shares. The Average Price Paid Per Share was calculated using the fair market value of the shares on the date the initial shares were delivered. See Note 3 to the Consolidated Financial Statements included in this report.



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Item 6.
Exhibits
Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the SEC, as indicated by the references in brackets. All other exhibits are filed or furnished herewith.
 
* 3.1

Amended and Restated Certificate of Incorporation of The Home Depot, Inc. [Form 10-Q filed on September 1, 2011, Exhibit 3.1]
 
 
* 3.2

By-Laws of The Home Depot, Inc. (Amended and Restated Effective June 2, 2011). [Form 8-K filed on June 7, 2011, Exhibit 3.1]
 
 
10.1 †

The Home Depot, Inc. Amended and Restated 2005 Omnibus Stock Incentive Plan.
 
 
12.1

Statement of Computation of Ratio of Earnings to Fixed Charges.
 
 
15.1

Acknowledgement of Independent Registered Public Accounting Firm, dated May 29, 2013.
 
 
31.1

Certification of the Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
 
 
31.2

Certification of the Chief Financial Officer and Executive Vice President – Corporate Services pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
 
 
32.1

Certification of Chairman and Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2

Certification of Chief Financial Officer and Executive Vice President – Corporate Services furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101

The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended May 5, 2013, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.
—————
†
Management contract or compensatory plan or arrangement.




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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
THE HOME DEPOT, INC.
 
 
(Registrant)
 
 
 
 
By:
/s/ FRANCIS S. BLAKE
 
 
Francis S. Blake
 
 
Chairman and Chief Executive Officer
 
 
 
 
 
/s/ CAROL B. TOMÉ
 
 
Carol B. Tomé
 
 
Chief Financial Officer and
 
 
Executive Vice President – Corporate Services
 
 
May 28, 2013
(Date)

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INDEX TO EXHIBITS
 
 
 
Exhibit
  
Description
 
Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the SEC, as indicated by the references in brackets. All other exhibits are filed or furnished herewith.
 
 
* 3.1

  
Amended and Restated Certificate of Incorporation of The Home Depot, Inc. [Form 10-Q filed on September 1, 2011, Exhibit 3.1]
 
 
* 3.2

  
By-Laws of The Home Depot, Inc. (Amended and Restated Effective June 2, 2011). [Form 8-K filed on June 7, 2011, Exhibit 3.1]
 
 
 
10.1 †

 
The Home Depot, Inc. Amended and Restated 2005 Omnibus Stock Incentive Plan.
 
 
 
12.1

  
Statement of Computation of Ratio of Earnings to Fixed Charges.
 
 
15.1

  
Acknowledgement of Independent Registered Public Accounting Firm, dated May 29, 2013.
 
 
31.1

  
Certification of the Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
 
 
31.2

  
Certification of the Chief Financial Officer and Executive Vice President – Corporate Services pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
 
 
32.1

  
Certification of Chairman and Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2

  
Certification of Chief Financial Officer and Executive Vice President – Corporate Services furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101

  
The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended May 5, 2013, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.
—————
†
Management contract or compensatory plan or arrangement.




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Exhibit 10.1
THE HOME DEPOT, INC.
AMENDED AND RESTATED 2005 OMNIBUS STOCK INCENTIVE PLAN

1. Purpose . The purpose of The Home Depot, Inc. Amended and Restated 2005 Omnibus Stock Incentive Plan (the “Plan”) is to attract and retain employees and directors for The Home Depot, Inc. and its subsidiaries and to provide such persons with incentives and rewards for superior performance. The original effective date of The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan was May 26, 2005. Effective February 28, 2013, the Company amended and restated the Plan, without increasing the number of reserved shares pursuant to Section 3, to: (a) extend the expiration date of the Plan until the tenth anniversary of the approval of the amended and restated Plan by stockholders of the Company, and (b) to make certain other changes as reflected herein.
2. Definitions . As used in this Plan, the following terms shall be defined as set forth below:
2.1    “ Award ” means any Option, Stock Appreciation Right, Restricted Share, Restricted Stock Unit, Deferred Share, Performance Share, Performance Unit or Other Stock-Based Award granted under the Plan.
2.2    “ Award Agreement ” means an agreement, certificate, resolution or other form of writing or other evidence approved by the Committee which sets forth the terms and conditions of an Award. An Award Agreement may be in an electronic medium, may be limited to a notation on the Company's books and records and, if approved by the Committee, need not be signed by a representative of the Company or a Participant.
2.3    “ Base Price ” means the price to be used as the basis for determining the Spread upon the exercise of a Stock Appreciation Right.
2.4    “ Board ” means the Board of Directors of the Company.
2.5    “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.
2.6    “ Committee ” means the committee of the Board described in Section 4.
2.7    “ Company ” means The Home Depot, Inc., a Delaware corporation, or any successor corporation.
2.8    “ Deferral Period ” means the period of time during which Deferred Shares are subject to the deferral limitations under Section 8.
2.9    “ Deferred Shares ” means an Award pursuant to Section 8 of the right to receive Shares at the end of a specified Deferral Period.
2.10    “ Employee ” means any person, including an officer, employed by the Company or a Subsidiary.
2.11    “ Fair Market Value ” means the closing price for the Shares reported on a consolidated basis on the New York Stock Exchange on the relevant date or, if there were no sales on such date, the closing price on the nearest preceding date on which sales occurred.
2.12    “ Grant Date ” means the date specified by the Committee on which a grant of an Award shall become effective, which shall not be earlier than the date on which the Committee takes action with respect thereto.
2.13    “ Incentive Stock Option ” means any Option that is intended to qualify as an “incentive stock option” under Code Section 422 or any successor provision.
2.14    “ Non-Employee Director ” means a member of the Board who is not an Employee.
2.15    “ Nonqualified Stock Option ” means an Option that is not intended to qualify as an Incentive Stock Option.
2.16    “ Option ” means any option to purchase Shares granted under Section 5.
2.17    “ Optionee ” means the person so designated in an agreement evidencing an outstanding Option.
2.18    “ Option Price ” means the purchase price payable upon the exercise of an Option.
2.19    “ Other Stock-Based Award ” means a right granted to a Participant pursuant to Section 10 that is valued by reference to, or relates to, Shares or other Awards relating to Shares.
2.20    “ Participant ” means an Employee or Nonemployee Director who is selected by the Committee to receive benefits under this Plan, provided that only Employees shall be eligible to receive grants of Incentive Stock Options.
2.21    “ 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

1


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. Performance Objectives may be measured on an absolute or relative basis. Relative performance may be measured by a group of peer companies or by a financial market index. 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: (1) Financial Return Metrics : (a) return on equity, (b) return on capital, (c) return on assets, (d) return on investment, (e) return on invested capital, (f) other financial return ratios; and (2) Earnings Metrics : (a) earnings per share, (including variants such as diluted earnings per share), (b) total earnings, (c) earnings growth, (d) earnings before taxes, (e) earnings before interest and taxes, (f) earnings before interest, taxes, depreciation and amortization, (g) operating profit, (h) net earnings; (i) other earnings measures/ratios; and (3) Sales Metrics : (a) sales, (b) sales growth, (c) comparable store sales, (d) sales per square foot, (e) average ticket sales, (f) sales per operating store; and (4) Stock Price Metrics : (a) increase in the Fair Market Value of the Shares, (b) share price (including but not limited to, growth measures and total shareholder return); and (5) Cash Flow Metrics : (a) cash flow (including, but not limited to, operating cash flow and free cash flow), (b) cash flow return on investment (which equals net cash flow divided by total capital); and (6) Store Metrics : (a) inventory shrinkage goals, (b) stocking and other labor hours goals, (c) store payroll goals, (d) markdown goals, (e) workers compensation goals; and (7) Balance Sheet Metrics : (a) inventory, (b) inventory turns, (c) receivables turnover, (d) internal rate of return, (e) increase in net present value or expense targets; and (8) Other Strategic Metrics : (a) gross margin, (b) gross margin return on investment, (c) market share or market penetration with respect to specific designated products or product groups and/or specific geographic areas, (d) economic value added (EVA), (e) operating cost management targets, (f) “Employer of Choice” or similar survey results, (g) customer satisfaction surveys, (h) diversity goals, (i) attrition improvements, (j) safety record goals, (k) timely and successful completion of key corporate projects, and (l) productivity improvements. 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.
2.22    “ Performance Period ” means a period of time established under Section 9 within which the Performance Objectives relating to a Performance Share, Performance Unit, Deferred Shares or Restricted Shares are to be achieved.
2.23    “ Performance Share ” means a bookkeeping entry that records the equivalent of one Share awarded pursuant to Section 9.
2.24    “ Performance Unit ” means a bookkeeping entry that records a unit equivalent to $1.00 awarded pursuant to Section 9.
2.25    “ Qualified Performance-Based Award ” means an Award or portion of an Award 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.
2.26    “ Restricted Shares ” mean Shares granted under Section 7 subject to certain restrictions and a substantial risk of forfeiture.
2.27    “ Restricted Stock Units ” means a right granted under Section 7 to receive Shares (or the equivalent value in cash if the Committee so provides) in the future, which right is subject to certain restrictions and a substantial risk of forfeiture.
2.28    “ Shares ” means shares of the Common Stock of the Company, $.05 par value, or any security into which Shares may be converted by reason of any transaction or event of the type referred to in Section 12.
2.29    “ Spread ” means, with respect to a Stock Appreciation Right, the amount by which the Fair Market Value on the date when any such right is exercised exceeds the Base Price specified in such right.
2.30    “ Stock Appreciation Right ” means a right granted under Section 6 for a Participant to receive from the Company the amount of the Spread, in Shares (or cash if the Committee so provides) at the time of the exercise of such right.
2.31    “ Subsidiary ” means a corporation or other entity in which the Company has a direct or indirect ownership or other equity interest, provided that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, “Subsidiary” means any corporation (within the meaning of the Code) in which the Company owns or controls directly or indirectly more than 50 percent of the total combined voting power represented by all classes of stock issued by such corporation at the time of such grant.
3.     Shares Available Under the Plan.
3.1     Reserved Shares . Subject to adjustment as provided in Section 12, the maximum number of Shares that may be (i) issued or transferred upon the exercise of Options or Stock Appreciation Rights, (ii) awarded as Restricted Shares and released from substantial risk of forfeiture, (iii) issued or transferred in payment of Deferred Shares, Restricted Stock Units, Performance Units, Performance Shares, or Other Stock-Based Awards, or (iv) issued or transferred in payment of dividend equivalents paid

2


with respect to Awards, shall not in the aggregate exceed 255,000,000 Shares. Such Shares may be Shares of original issuance, Shares held in Treasury, or Shares that have been reacquired by the Company.
3.2     Reduction Ratio . For purposes of Section 3.1, each Share issued or transferred pursuant to an Award other than an Option or Stock Appreciation Right shall reduce the number of Shares available for issuance under the Plan by 2.11 Shares.
3.3     ISO Maximum . In no event shall the number of Shares issued upon the exercise of Incentive Stock Options exceed 50,000,000 Shares, subject to adjustment as provided in Section 12.
3.4     Maximum Calendar Year Award . No Participant may receive Awards representing more than 1,000,000 Shares in any one calendar year, subject to adjustment as provided in Section 12. In addition, the maximum number of Performance Units that may be granted to a Participant in any one calendar year is 5,000,000.
3.5     Maximum Annual Grant to a Non-Employee Director . No Non-Employee Director may receive Awards in excess of $500,000, determined with respect to the Fair Market Value on the Grant Date, in any one calendar year, subject to adjustment as provided in Section 12.
3.6     Share Counting Rules . Shares related to Awards, including Awards subject to the Reduction Ratio under Section 3.2 and dividend equivalents that pursuant to an Award are converted to additional Share units, shall reduce the reserved Shares under the Plan. Notwithstanding the previous sentence:
(i)    To the extent that an Award is cancelled, terminates, expires, or is forfeited for any reason, any unissued or forfeited Shares originally subject to the Award will be added back to the Plan share reserve and again be available for issuance pursuant to Awards granted under the Plan.
(ii)    Shares subject to Awards settled in cash will be added back to the Plan share reserve and again be available for issuance pursuant to Awards granted under the Plan.
(iii)    The following Shares may not again be made available for issuance as Awards under the Plan: (a) Shares not issued or delivered as a result of the net settlement of an outstanding Option or Stock Appreciation Right, (b) Shares that are tendered or withheld in payment of all or part of the Option Price of an Option, Base Price of a Stock Appreciation Right, or other exercise price of an Award, or in satisfaction of tax withholding obligations, or (c) shares of Stock repurchased on the open market with the proceeds of the exercise price of an Option.
(iv)    Subject to applicable New York Stock Exchange or other exchange requirements, the Committee may grant Awards pursuant to the Plan in connection with the assumption, conversion, replacement or adjustment of outstanding equity-based awards in the event of a corporate acquisition or merger, to individuals who were not employees of the Company or its Subsidiaries immediately before such acquisition or merger. Shares covered by Awards granted pursuant to this paragraph shall not reduce the reserved Shares under the Plan.
4.     Plan Administration .
4.1     Board Committee Administration . This Plan shall be administered by a Committee appointed by the Board from among its members, provided that the full Board may at any time act as the Committee. The interpretation and construction by the Committee of any provision of this Plan or of any Award Agreement and any determination by the Committee pursuant to any provision of this Plan or any such agreement, notification or document, shall be final and conclusive. No member of the Committee shall be liable to any person for any such action taken or determination made in good faith.
4.2     Committee Delegation . The Committee may delegate to one or more officers of the Company the authority to grant Awards to Participants who are not directors or executive officers of the Company, provided that the Committee shall have fixed the total number of Shares subject to such grants. Any such delegation shall be subject to the limitations of Section 157(c) of the Delaware General Corporation Law.
5.     Options . The Committee may from time to time authorize grants to Participants of Options upon such terms and conditions as the Committee may determine in accordance with the following provisions:
5.1     Number of Shares . Each grant shall specify the number of Shares to which it pertains.
5.2     Option Price . Each grant shall specify an Option Price per Share, which shall not be less than the Fair Market Value per Share on the Grant Date.
5.3     Consideration . Each grant shall specify the form of consideration to be paid in satisfaction of the Option Price and the manner of payment of such consideration, which may include (i) cash in the form of currency or check or other cash equivalent acceptable to the Company, (ii) nonforfeitable, unrestricted Shares owned by the Optionee which have an aggregate value at the time of exercise that is equal to the Option Price, (iii) any other legal consideration that the Committee may deem appropriate, including without limitation any form of consideration authorized under Section 5.4, on such basis as the Committee may determine in accordance with this Plan, or (iv) any combination of the foregoing.

3


5.4     Cashless Exercise/Net Exercise . To the extent permitted by applicable law, any grant may provide for payment of the Option Price from (i) the proceeds of sale through a bank or broker of some or all of the Shares to which the exercise relates, or (ii) withholding of Shares from the Option based on the Fair Market Value of the Shares, in either case on the date of exercise. The Committee may provide in the Award Agreement (or thereafter in the case of a Nonqualified Stock Option) that an Option that is otherwise exercisable and has an Option Price that is less than the Fair Market Value of the Shares on the last day of its term will be automatically exercised on such last day by means of a “net exercise” entitling the Optionee to Shares equal to the intrinsic value of the Option on such exercise date, less the number of Shares required for the minimum required tax withholding.
5.5     Performance-Based Options . Any grant of an Option or the vesting thereof may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 9 regarding Performance Shares and Performance Units.
5.6     Vesting . Each Option grant may specify a period of continuous employment of the Optionee by the Company or any Subsidiary (or, in the case of a Non-Employee Director, service on the Board) that is necessary before the Options or installments thereof shall become exercisable, and any grant may specify the conditions for the earlier exercise of such rights in the event of a change in control of the Company or other similar transaction or event.
5.7     Option Designation . Options granted under this Plan may be Incentive Stock Options, Nonqualified Stock Options or a combination of the foregoing, provided that only Nonqualified Stock Options may be granted to Non-Employee Directors. Each grant shall specify whether (or the extent to which) the Option is an Incentive Stock Option or a Nonqualified Stock Option. Notwithstanding any such designation, the terms of any Incentive Stock Option must comply with the requirements of Code Section 422. If all of the requirements of Code Section 422 are not met, the Option shall automatically become a Nonqualified Stock Option.
5.8     Exercise Period . No Option granted under this Plan may be exercised more than ten years after the Grant Date.
5.9     No Dividend Equivalents . No Option shall provide for dividends or dividend equivalents.
5.10     Award Agreement . Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with this Plan.
6.     Stock Appreciation Rights . The Committee may from time to time authorize grants to Participants of Stock Appreciation Rights upon such terms and conditions as the Committee may determine in accordance with the following provisions:
6.1     Payment in Cash or Shares . Any grant may specify that the amount payable upon the exercise of a Stock Appreciation Right may be paid by the Company in cash, Shares or any combination thereof.
6.2     Base Price . Each grant shall specify a Base Price per Share, which shall not be less than the Fair Market Value per Share on the Grant Date.
6.3     Maximum SAR Payment . Any grant may specify that the amount payable upon the exercise of a Stock Appreciation Right shall not exceed a maximum specified by the Committee on the Grant Date.
6.4     Vesting . Any grant may specify (i) a waiting period or periods before Stock Appreciation Rights shall become exercisable and (ii) permissible dates or periods on or during which Stock Appreciation Rights shall be exercisable. Each grant may specify the conditions for the earlier exercise of such rights in the event of a change in control of the Company or other similar transaction or event.
6.5     Performance-Based SARs . Any grant of a Stock Appreciation Right or the vesting thereof may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 9 regarding Performance Shares and Performance Units.
6.6     Exercise Period . No Stock Appreciation Right granted under this Plan may be exercised more than ten years after the Grant Date.
6.7     No Dividend Equivalents . No Stock Appreciation Right shall provide for dividends or dividend equivalents.
6.8     Award Agreement . Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with this Plan.
7.     Restricted Shares/Restricted Stock Units . The Committee may authorize grants to Participants of Restricted Shares and/or Restricted Stock Units upon such terms and conditions as the Committee may determine in accordance with the following provisions.
7.1     Nature of Award . Each grant of Restricted Shares shall constitute an immediate transfer of the ownership of Shares to the Participant in consideration of the performance of services, subject to the “substantial risk of forfeiture” within the meaning of Code Section 83, and restrictions on transfer hereinafter referred to. Each grant of Restricted Stock Units shall constitute an

4


unsecured promise to deliver Shares (or the equivalent value in cash or other property if the Committee so provides) in the future, which right is subject to certain restrictions and to a substantial risk of forfeiture.
7.2     Consideration . Each grant may be made without additional consideration from the Participant or in consideration of a payment by the Participant that may be less than the Fair Market Value on the Grant Date.
7.3     Dividends, Voting and Other Ownership Rights . Unless otherwise determined by the Committee, an award of Restricted Shares shall entitle the Participant to dividend, voting and other ownership rights during the period for which such substantial risk of forfeiture is to continue. Except as otherwise determined by the Committee, a Participant shall have none of the rights of a stockholder with respect to Restricted Stock Units until such time as Shares are delivered in settlement of such Awards. Any grant of Restricted Stock Units may provide for payment of dividend equivalents. The Committee may on or after the Grant Date authorize the payment of dividend equivalents in cash or additional Shares on a current, deferred or contingent basis. In no event shall dividends or dividend equivalents with respect to Restricted Shares or Restricted Stock Units that are subject to performance-based vesting be paid or distributed until the performance-based vesting provisions of such Awards lapse. Any grant may require that any or all dividends, dividend equivalents or other distributions paid on the Restricted Shares or Restricted Stock Units during the period of such restrictions be automatically sequestered and reinvested on an immediate or deferred basis in additional Shares, which may be subject to the same restrictions as the underlying Award or such other restrictions as the Committee may determine.
7.4     Restrictions on Transfer . Each grant of Restricted Shares shall provide that, during the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Shares shall be prohibited or restricted in the manner and to the extent prescribed by the Committee on the Grant Date. Any grant of Restricted Shares or Restricted Stock Units may specify the conditions for the early vesting of such Award in the event of a change in control of the Company or other similar transaction or event.
7.5     Performance-Based Restricted Shares and Restricted Share Units . Any grant or the vesting thereof may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 9 regarding Performance Shares and Performance Units.
7.6     Award Agreement . Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with this Plan.
8.     Deferred Shares . The Committee may authorize grants of Deferred Shares to Participants upon such terms and conditions as the Committee may determine in accordance with the following provisions:
8.1     Deferred Compensation . Each grant shall constitute the agreement by the Company to issue or transfer Shares to the Participant in the future in consideration of the performance of services, subject to the fulfillment during the Deferral Period of such conditions as the Committee may specify.
8.2     Consideration . Each grant may be made without additional consideration from the Participant or in consideration of a payment by the Participant that may be less than the Fair Market Value on the Grant Date.
8.3     Deferral Period . Each grant shall provide that the Deferred Shares covered thereby shall be subject to a Deferral Period, which shall be fixed by the Committee on the Grant Date, and any grant or sale may specify the conditions for the earlier termination of such period in the event of a change in control of the Company or other similar transaction or event.
8.4     Dividend Equivalents and Other Ownership Rights . During the Deferral Period, the Participant shall not have the right to transfer any rights under the subject Award, shall not have any rights of ownership in the Deferred Shares and shall not have any right to vote such shares, but the Committee may on or after the Grant Date authorize the payment of dividend equivalents on such shares in cash or additional Shares on a current, deferred or contingent basis.
8.5     Performance Objectives . Any grant or the vesting thereof may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 9 regarding Performance Shares and Performance Units.
8.6     Award Agreement . Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with this Plan.
9.     Performance Shares and Performance Units . The Committee may authorize grants of Performance Shares and Performance Units, which shall become payable to the Participant upon the achievement of specified Performance Objectives, upon such terms and conditions as the Committee may determine in accordance with the following provisions:
9.1     Number of Performance Shares or Units . Each grant shall specify the number of Performance Shares or Performance Units to which it pertains, which may be subject to adjustment to reflect changes in compensation or other factors.
9.2     Performance Period . The Performance Period with respect to each Performance Share or Performance Unit shall

5


commence on the Grant Date, and any grant may specify the conditions for early termination in the event of a change in control of the Company or other similar transaction or event.
9.3     Performance Objectives . Each grant shall specify the Performance Objectives that are to be achieved by the Participant. The Committee may provide in any Qualified Performance-Based Award, at the time the Performance Objectives are established, that any evaluation of performance shall exclude or otherwise objectively adjust for any specified circumstance or event that occurs during a Performance Period. To the extent such inclusions or exclusions affect Qualified Performance-Based Awards, they shall be prescribed in a form that meets the requirements of Code Section 162(m).
9.4     Threshold Performance Objectives . Each grant may specify in respect of the specified Performance Objectives a minimum acceptable level of achievement below which no payment will be made and may set forth a formula for determining the amount of any payment to be made if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Objectives.
9.5     Payment of Performance Shares and Units . Each grant shall specify the time and manner of payment of Performance Shares or Performance Units that shall have been earned, and any grant may specify that any such amount may be paid by the Company in cash, Shares or any combination thereof and may either grant to the Participant or reserve to the Committee the right to elect among those alternatives.
9.6     Maximum Payment . Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Committee on the Grant Date. Any grant of Performance Units may specify that the amount payable, or the number of Shares issued, with respect thereto may not exceed maximums specified by the Committee on the Grant Date.
9.7     Dividend Equivalents . Any grant of Performance Shares or Performance Units may provide for the payment to the Participant of dividend equivalents thereon in cash or additional Shares on a current, deferred or contingent basis. No dividend equivalents shall be earned, paid or provided to a Participant in respect of an Award that is conditioned upon the attainment of one or more Performance Objectives until the Committee, or its designee with respect to an Award that is not a Qualified Performance-Based Award, certifies that the specified Performance Objectives have been achieved.
9.8     Adjustment of Performance Objectives . The Committee, with respect to any Award that is not a Qualified Performance-Based Award, may adjust Performance Objectives and the related minimum acceptable level of achievement if, in the sole judgment of the Committee, events or transactions have occurred after the Grant Date that are unrelated to the performance of the Participant and result in distortion of the Performance Objectives or the related minimum acceptable level of achievement. In addition, the Committee has the right, in connection with any Award for which the grant, vesting or payment is conditioned upon the attainment of one or more Performance Objectives, to exercise negative discretion to determine that all or a portion of the Award actually earned, vested and/or payable shall be less than the portion that would be earned, vested or payable based solely upon application of the relevant Performance Objectives.
9.9     Award Agreement . Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with this Plan.
10.     Other Stock-Based Awards . The Committee may, consistent with the Plan and any limitations pursuant to applicable law, grant to Participants Other Stock-Based Awards on such terms and conditions as determined by the Committee.
11.     Transferability .
11.1     Transfer Restrictions on Awards . Except as provided in Section 11.2, no Award granted under this Plan shall be transferable by a Participant other than by will, by beneficiary designation, or the laws of descent and distribution, and Options and Stock Appreciation Rights shall be exercisable during a Participant's lifetime only by the Participant or, in the event of the Participant's legal incapacity, by his or her guardian or legal representative acting in a fiduciary capacity on behalf of the Participant under state law. Any attempt to transfer an Award in violation of this Plan shall render such Award null and void.
11.2     Limited Transfer Rights . The Committee may expressly provide in an Award Agreement (or an amendment to an Award Agreement) that a Participant may transfer such Award (other than an Incentive Stock Option), in whole or in part, to a spouse or lineal descendant (a “Family Member”), a trust for the exclusive benefit of Family Members, a partnership or other entity in which all the beneficial owners are Family Members, or any other entity affiliated with the Participant that may be approved by the Committee, but no such transfer shall be a transfer for value. Subsequent transfers of Awards shall be prohibited except in accordance with this Section 11.2. All terms and conditions of the Award, including provisions relating to the termination of the Participant's employment or service with the Company or a Subsidiary, shall continue to apply following a transfer made in accordance with this Section 11.2.
11.3     Transfer Restrictions on Shares . Any Award made under this Plan may provide that all or any part of the Shares that are (i) to be issued or transferred by the Company upon the exercise of Options or Stock Appreciation Rights, upon the termination of the Deferral Period applicable to Deferred Shares or upon payment under any grant of Performance Shares,

6


Performance Units or Other Stock-Based Awards, or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Section 7, shall be subject to further restrictions upon transfer.
11.4     Beneficiaries . The Committee may permit a Participant to designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan, any applicable Award Agreement, and to any additional conditions deemed appropriate by the Committee. If no beneficiary has been designated or survives the Participant, any payment due to the Participant shall be made to the Participant's estate.
12.     Adjustments . In the event of any stock dividend, stock split, spinoff, rights offering, extraordinary cash dividend, combination or exchange of Shares, recapitalization or other change in the capital structure of the Company constituting an “equity restructuring” within the meaning of U.S. generally accepted accounting principles, the Committee shall make or provide for such adjustments in the (a) number of Shares covered by outstanding Options, Stock Appreciation Rights, Deferred Shares, Restricted Shares, Restricted Stock Units, Performance Shares, Performance Units and Other Stock-Based Awards granted hereunder, (b) prices per share applicable to such Options and Stock Appreciation Rights, and (c) kind of Shares covered thereby (including shares of another issuer), 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. In the event of any merger, consolidation or any other corporate transaction or event having a similar effect, the Committee in its sole discretion may take any action described in the preceding sentence, and, moreover, it may (i) provide in substitution for any or all outstanding Awards under this Plan such alternative consideration as it may in good faith determine to be equitable under the circumstances and may require in connection therewith the surrender of all Awards so replaced, (ii) provide that Awards will be settled in cash rather than Shares, (iii) provide, in the event that Awards are not substituted or settled in cash, that Awards will become immediately vested and non-forfeitable and exercisable (in whole or in part) and will expire after a designated period of time to the extent not then exercised, (iv) provide that Performance Objectives and Performance Periods for Awards for which the grant, vesting or payment is conditioned upon the attainment of one or more Performance Objectives will be modified, consistent with Code Section 162(m) where applicable, or (v) any combination of the foregoing. The Committee shall also make or provide for such adjustments in each of the limitations specified in Section 3 as the Committee in its sole discretion may in good faith determine to be appropriate in order to reflect any transaction or event described in this Section 12. The Committee's determination need not be uniform and may be different for different Participants whether or not such Participants are similarly situated.
13.     Fractional Shares . The Company shall not be required to issue any fractional Shares pursuant to this Plan. The Committee may provide for the elimination of fractions by rounding up or down or for the settlement thereof in cash.
14.     Withholding Taxes . To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under this Plan, it shall be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of all such taxes required to be withheld. At the discretion of the Committee, such arrangements may include relinquishment of a portion of such payment or benefit.
15.     Certain Terminations of Employment, Hardship and Approved Leaves of Absence . Notwithstanding any other provision of this Plan to the contrary, in the event of termination of employment by reason of death, disability, normal retirement, early retirement with the consent of the Company or leave of absence approved by the Company, or in the event of hardship or other special circumstances, of a Participant who holds an Option or Stock Appreciation Right that is not immediately and fully exercisable, any Restricted Shares or Restricted Stock Units as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, any Deferred Shares as to which the Deferral Period is not complete, any Performance Shares or Performance Units that have not been fully earned, any Shares that are subject to any transfer restriction pursuant to Section 11.3, or any Other Stock-Based Award that is not vested, the Committee may in its sole discretion take any action that it deems to be equitable under the circumstances or in the best interests of the Company, including, without limitation, waiving or modifying any limitation or requirement with respect to any Award under this Plan. Notwithstanding any provisions of this Section 15, the Committee's exercise of its discretion under this Section shall not cause any Award to lose its status as a Qualified Performance-Based Award under Code Section 162(m) or for any Award that constitutes Non-Exempt Deferred Compensation, as defined in Section 22.4, to be subject to accelerated taxation and/or tax penalties under Code Section 409A.
16.     Foreign Participants . In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for Awards to Participants who are foreign nationals, or who are employed by or perform services for the Company or any Subsidiary outside of the United States of America, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose, provided that no such supplements, amendments, restatements or alternative versions shall include any provisions that are inconsistent with the terms of this Plan, as then in effect, unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company.

7


17.     Grants to Non-Employee Directors . Awards to Non-Employee Directors shall be made pursuant to a policy or program approved by the Committee from time to time, and other than Awards made pursuant to such policy or program, there shall be no discretionary grants made to Non-Employee Directors.
18.     Amendments and Other Matters .
18.1     Plan Amendments . This Plan may be amended from time to time by the Board, but no such amendment shall increase any of the limitations specified in Section 3, other than to reflect an adjustment made in accordance with Section 12, without the further approval of the stockholders of the Company. The Board may condition any amendment on the approval of the stockholders of the Company if such approval is necessary or deemed advisable with respect to the applicable listing or other requirements of any securities exchange or other applicable laws, policies or regulations.
18.2     Award Deferrals . The Committee may permit Participants to elect to defer the issuance of Shares or the settlement of Awards in cash under the Plan pursuant to such rules, procedures or programs as it may establish for purposes of this Plan and to the extent that such deferral shall not subject any Award to accelerated taxation and/or tax penalties under Code Section 409A. In the case of an award of Restricted Shares, the deferral may be effected by the Participant's agreement to forego or exchange his or her award of Restricted Shares and receive an award of Deferred Shares. The Committee also may provide that deferred settlements include the payment or crediting of interest on the deferral amounts, or the payment or crediting of dividend equivalents where the deferral amounts are denominated in Shares.
18.3     Conditional Awards . The Committee may condition the grant of any award or combination of Awards under the Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Company or any Subsidiary to the Participant.
18.4     Repricing Prohibited . Except as otherwise provided in Article 12, without the prior approval of the stockholders of the Company: (i) the Option Price or Base Price of an Option or Stock Appreciation Right may not be reduced, directly or indirectly, (ii) an Option or Stock Appreciation Right may not be cancelled in exchange for cash, other Awards, or Options or Stock Appreciation Rights with an Option Price or Base Price that is less than the Option Price or Base Price of the original Option or Stock Appreciation Right, or otherwise, and (iii) the Company may not repurchase an Option or Stock Appreciation Right for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares underlying the Option or Stock Appreciation Right is lower than the Option Price or Base Price per share of the Option or Stock Appreciation Right.
18.5     No Employment Right . This Plan shall not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary and shall not interfere in any way with any right that the Company or any Subsidiary would otherwise have to terminate any Participant's employment or other service at any time. In consideration of any Award granted under this Plan, the Participant agrees that all Awards are subject to applicable clawback policies that shall be adopted by the Committee from time to time.
18.6     Tax Qualification . To the extent that any provision of this Plan would prevent any Option that was intended to qualify under particular provisions of the Code from so qualifying, such provision of this Plan shall be null and void with respect to such Option, provided that such provision shall remain in effect with respect to other Options, and there shall be no further effect on any provision of this Plan.
18.7     Share Trading Restrictions . All Shares issuable under the Plan are subject to any stop-transfer order and other restrictions as the Committee deems necessary or advisable to comply with federal, state or foreign securities laws, rules and regulations and the rules of any securities exchange on which the Shares are listed, quoted or traded.
19.     Effective Date . This Amended and Restated 2005 Omnibus Stock Incentive Plan is effective February 28, 2013 upon its approval by the Board; provided, however, that (i) the amendments to Section 2.21 and Section 20 and (ii) ratification of the eligible participants under Section 2.20 and award limits in Section 3.4 are effective May 23, 2013 upon stockholder approval.
20.     Termination . This Plan shall terminate on May 23, 2023 or the tenth anniversary of the date upon which it is approved by the stockholders of the Company, and no Award shall be granted after that date.
21.     Limitations Period . 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 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 or deemed denial or be forever barred.

8


22.     Code Section 409A .
22.1     General . To the extent applicable, it is intended that the Plan comply with or be exempt from the requirements of Code Section 409A and any related regulations or other guidance promulgated thereunder. Accordingly, to the maximum extent permitted, the Plan shall be interpreted and administered to be in compliance with Code Section 409A, and if any provision of the Plan or any term or condition of any Award would otherwise conflict with this intent, the provision, term or condition will be interpreted or deemed amended so as to avoid this conflict. Any reservation of rights or any discretion reserved to the Committee or the Company regarding the timing of a payment of any Award subject to Code Section 409A will only be as broad as is permitted by Code Section 409A.
22.2     Separation from Service and Separate Payments . Notwithstanding anything herein or in any Award Agreement to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Code Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided to a Participant during the six-month period immediately following the Participant's separation from service (within the meaning of Code Section 409A) shall instead be paid on the first business day after the date that is six (6) months following the Participant's separation from service (or death, if earlier). In addition, if the Participant is entitled to a series of installment payments, each amount to be paid to a Participant pursuant to the Plan or any Award Agreement shall be construed as a separate identified payment for purposes of Code Section 409A.
22.3     Other . Service providers of any Subsidiary of the Company may be granted Options or Stock Appreciation Rights only if the Subsidiary qualifies as an “eligible issuer of service recipient stock” within the meaning of §1.409A-1(b)(5)(iii)(E) of the regulations under Code Section 409A. Notwithstanding the foregoing provisions of this Section 22, the tax treatment of the payments or benefits provided under the Plan or any Award is not warranted or guaranteed. Neither the Company, its Subsidiaries nor any of their respective directors, officers, employees or advisors (other than in his or her capacity as a Participant) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant or other taxpayer as a result of the Plan or any Award.
22.4     Definitional Restrictions . Notwithstanding anything in the Plan or in any Award Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Code Section 409A (“Non-Exempt Deferred Compensation”) would otherwise be payable or distributable under the Plan or any Award Agreement by reason of the occurrence of a change in control, or the Participant's disability or separation from service, such Non-Exempt Deferred Compensation will not be payable or distributable to the Participant, unless the circumstances giving rise to such change in control, disability or separation from service meet any description or definition of “change in control event”, “disability” or “separation from service”, as the case may be, in Code Section 409A and the applicable regulations.
22.5     Timing of Release of Claims . Whenever an Award conditions a payment or benefit on the Participant's execution and non-revocation of a release of claims, such release must be executed and all revocation periods shall have expired within 60 days after the date of termination of the Participant's employment, failing which such payment or benefit shall be forfeited. If such payment or benefit is exempt from Code Section 409A, the Company may elect to make or commence payment at any time during such 60-day period. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, (i) if such 60-day period begins and ends in a single calendar year, the Company may make or commence payment at any time during such period at its discretion, and (ii) if such 60-day period begins in one calendar year and ends in the next calendar year, the payment shall be made or commence during the second such calendar year (or any later date specified for such payment under the applicable Award), even if such signing and non-revocation of the release occur during the first such calendar year included within such 60-day period. In other words, a Participant is not permitted to influence the calendar year of payment based on the timing of signing the release.
22.6     Permitted Acceleration . The Company shall have the sole authority to make any accelerated distribution permissible under Treas. Reg. Section 1.409A-3(j)(4) to Participants of deferred amounts, provided that such distribution(s) meets the requirements of Treas. Reg. Section 1.409A.
23.     Governing Law . The validity, construction and effect of this Plan and any Award hereunder will be determined in accordance with (i) the Delaware General Corporation Law, and (ii) to the extent applicable, other laws (including those governing contracts) of the State of Georgia.

*** *** *** *** *** *** *** *** *** *** ***


9


Exhibit 12.1
THE HOME DEPOT, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in millions, except ratio data)
 
 
 
 
Fiscal Year (1)
 
Three Months Ended
 
 
 
 
 
 
 
 
 
 
 
May 5, 2013
 
2012
 
2011
 
2010
 
2009
 
2008
Earnings From Continuing Operations Before Income Taxes
$
1,933

 
$
7,221

 
$
6,068

 
$
5,273

 
$
3,982

 
$
3,590

Less: Capitalized Interest
(1
)
 
(3
)
 
(3
)
 
(3
)
 
(4
)
 
(20
)
Add:
 
 
 
 
 
 
 
 
 
 
 
Portion of Rental Expense under operating leases deemed to be the equivalent of interest
74

 
298

 
280

 
278

 
277

 
286

Interest Expense
165

 
635

 
609

 
533

 
680

 
644

Adjusted Earnings
$
2,171

 
$
8,151

 
$
6,954

 
$
6,081

 
$
4,935

 
$
4,500

Fixed Charges:
 
 
 
 
 
 
 
 
 
 
 
Interest Expense
$
165

 
$
635

 
$
609

 
$
533

 
$
680

 
$
644

Portion of Rental Expense under operating leases deemed to be the equivalent of interest
74

 
298

 
280

 
278

 
277

 
286

Total Fixed Charges
$
239

 
$
933

 
$
889

 
$
811

 
$
957

 
$
930

Ratio of Earnings to Fixed Charges (2)
9.1x

 
8.7x

 
7.8x

 
7.5x

 
5.2x

 
4.8x

 
(1)
Fiscal years 2012, 2011, 2010, 2009 and 2008 refer to the fiscal years ended February 3, 2013, January 29, 2012, January 30, 2011, January 31, 2010 and February 1, 2009, respectively. Fiscal year 2012 includes 53 weeks; all other fiscal years reported include 52 weeks.

(2)
For purposes of computing the ratios of earnings to fixed charges, “earnings” consist of earnings from continuing operations before income taxes plus fixed charges, excluding capitalized interest. “Fixed charges” consist of interest incurred on indebtedness including capitalized interest, amortization of debt expenses and the portion of rental expense under operating leases deemed to be the equivalent of interest. The ratios of earnings to fixed charges are calculated as follows:
(earnings from continuing operations before income taxes)+(fixed charges)-(capitalized interest)
(fixed charges)




Exhibit 15.1
ACKNOWLEDGEMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
The Home Depot, Inc.:
We acknowledge our awareness of the incorporation by reference of our report dated May 29, 2013 , related to our review of interim financial information, included within the Quarterly Report on Form 10-Q of The Home Depot, Inc. for the three -month period ended May 5, 2013 , in the following Registration Statements:
Description
Registration
Statement Number
 
 
Form S-3
 
Depot Direct stock purchase program
333-178933
Debt securities
333-183621
 
 
Form S-8
 
The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan
333-61733
The Home Depot Canada Registered Retirement Savings Plan
333-38946
The Home Depot, Inc. Restated and Amended Employee Stock Purchase Plan
333-151849
The Home Depot, Inc. Amended and Restated Employee Stock Purchase Plan
333-182374
The Home Depot, Inc. Non-Qualified Stock Option and Deferred Stock Units Plan and Agreement
333-56722
The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan
333-125331
The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan
333-153171
The Home Depot FutureBuilder and The Home Depot FutureBuilder for Puerto Rico
333-125332
Pursuant to Rule 436 under the Securities Act of 1933 (“the Act”), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.
/s/ KPMG LLP
Atlanta, Georgia
May 29, 2013




Exhibit 31.1
CERTIFICATION
I, Francis S. Blake, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of The Home Depot, Inc.;

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

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

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 28, 2013
 
/s/ Francis S. Blake      
Francis S. Blake
Chairman and Chief Executive Officer




Exhibit 31.2
CERTIFICATION
I, Carol B. Tomé, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of The Home Depot, Inc.;

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

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

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 28, 2013
 
/s/ Carol B. Tomé        
Carol B. Tomé
Chief Financial Officer and
Executive Vice President – Corporate Services




Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Home Depot, Inc. (the “Company”) on Form 10-Q (“Form 10-Q”) for the period ended May 5, 2013 as filed with the Securities and Exchange Commission, I, Francis S. Blake, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
(1)
The Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Francis S. Blake
Francis S. Blake
Chairman and Chief Executive Officer
May 28, 2013




Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Home Depot, Inc. (the “Company”) on Form 10-Q (“Form 10-Q”) for the period ended May 5, 2013 as filed with the Securities and Exchange Commission, I, Carol B. Tomé, Chief Financial Officer and Executive Vice President—Corporate Services of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
(1)
The Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Carol B. Tomé        
Carol B. Tomé
Chief Financial Officer and
Executive Vice President - Corporate Services
May 28, 2013