Home Depot 2002 Annual Report Download - page 38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE HOME DEPOT, INC. AND SUBSIDIARIES
A reconciliation of income tax expense at the federal statutory
rate of 35% to actual tax expense for the applicable fiscal years
is as follows (in millions):
Fiscal Year Ended
February 2, February 3, January 28,
2003 2002 2001
Income taxes at federal
statutory rate $2,055 $1,735 $1,476
State income taxes, net
of federal income
tax benefit 156 172 146
Foreign rate differences (1) 4 5
Other, net (2) 2 9
Tot a l $2,208 $1,913 $1,636
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of February 2, 2003, and February 3, 2002, were
as follows (in millions):
February 2, February 3,
2003 2002
Deferred Tax Assets:
Accrued self-insurance liabilities $ 305 $ 220
Other accrued liabilities 92 138
Net loss on disposition of business 31 31
Total gross deferred tax assets 428 389
Valuation allowance (31) (31)
Deferred tax assets, net of
valuation allowance 397 358
Deferred Tax Liabilities:
Accelerated depreciation (571) (492)
Accelerated inventory deduction (149) –
Other (39) (55)
Total gross deferred tax liabilities (759) (547)
Net deferred tax liability $(362) $(189)
A valuation allowance existed as of February 2, 2003,
and February 3, 2002, due to the uncertainty of capital loss
utilization. Management believes the existing net deductible
temporary differences comprising the deferred tax assets will
reverse during periods in which the Company generates net
taxable income.
4EMPLOYEE STOCK PLANS
The 1997 Omnibus Stock Incentive Plan (“1997 Plan”) pro-
vides that incentive stock options, non-qualified stock options,
stock appreciation rights, restricted shares, performance
shares, performance units and deferred shares may be issued
to selected associates, officers and directors of the Company.
The maximum number of shares of the Company’s common
stock authorized for issuance under the 1997 Plan includes
the number of shares carried over from prior plans and the
number of shares authorized but unissued in the prior year,
plus one-half percent of the total number of outstanding shares
as of the first day of each fiscal year. As of February 2, 2003,
there were 108 million shares available for future grants
under the 1997 Plan.
Under the 1997 Plan, as of February 2, 2003, the
Company had granted incentive and non-qualified stock
options for 167 million shares, net of cancellations (of which
86 million had been exercised). Incentive stock options and
non-qualified options typically vest at the rate of 25% per year
commencing on the first anniversary date of the grant and
expire on the tenth anniversary date of the grant.
Under the 1997 Plan, as of February 2, 2003, 2 million
shares of restricted stock had been issued net of cancellations
(the restrictions on 4,600 shares have lapsed). Generally, the
restrictions on 25% of the restricted shares lapse upon the third
and sixth year anniversaries of the date of issuance with the
remaining 50% of the restricted shares lapsing upon the asso-
ciate’s attainment of age 62. The fair value of the restricted
shares is expensed over the period during which the restric-
tions lapse. The Company recorded compensation expense
related to restricted stock of $3 million in both fiscal 2002 and
2001 and $455,000 in fiscal 2000.
As of February 2, 2003, there were 2.5 million non-qualified
stock options and 1.4 million deferred stock units outstanding
under non-qualified stock option and deferred stock unit plans
that are not part of the 1997 Plan. The 2.5 million non-qualified
stock options have an exercise price of $40.75 per share and
were granted in fiscal 2000. During fiscal years 2002, 2001
and 2000, the Company granted 0, 629,000 and 750,000
deferred stock units, respectively, to several key officers vesting
at various dates. Each deferred stock unit entitles the officer to
one share of common stock to be received up to five years after
the vesting date of the deferred stock unit, subject to certain
deferral rights of the officer. The fair value of the deferred stock
units on the grant dates was $27 million and $31 million for
deferred units granted in fiscal 2001 and 2000, respectively.
These amounts are being amortized over the vesting periods.
36 THE HOME DEPOT, INC. 2002 ANNUAL REPORT