Home Depot 2006 Annual Report Download - page 53

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additional stock compensation expense of approximately $40 million as a result of the adoption of
SFAS 123(R). As the majority of stock options granted prior to 2003 are now fully vested, the
Company does not expect SFAS 123(R) to have a material impact on its consolidated financial
condition or results of operations subsequent to fiscal 2006. Results of prior periods have not been
restated.
The per share weighted average fair value of stock options granted during fiscal 2006, 2005 and 2004
was $11.88, $12.83 and $13.57, respectively. The fair value of these options was determined at the date
of grant using the Black-Scholes option-pricing model with the following assumptions:
Fiscal Year Ended
January 28, January 29, January 30,
2007 2006 2005
Risk-free interest rate 4.7% 4.3% 2.6%
Assumed volatility 28.5% 33.7% 41.3%
Assumed dividend yield 1.5% 1.1% 0.8%
Assumed lives of option 5 years 5 years 5 years
The following table illustrates the effect on Net Earnings and Earnings per Share as if the Company
had applied the fair value recognition provisions of SFAS 123(R) to all stock-based compensation in
each period (amounts in millions, except per share data):
Fiscal Year Ended
January 28, January 29, January 30,
2007 2006 2005
Net Earnings, as reported $5,761 $5,838 $5,001
Add: Stock-based compensation expense included
in reported Net Earnings, net of related tax
effects 186 110 79
Deduct: Total stock-based compensation expense
determined under fair value based method for
all awards, net of related tax effects (186) (197) (237)
Pro forma net earnings $5,761 $5,751 $4,843
Earnings per Share:
Basic – as reported $ 2.80 $ 2.73 $ 2.27
Basic – pro forma $ 2.80 $ 2.69 $ 2.19
Diluted – as reported $ 2.79 $ 2.72 $ 2.26
Diluted – pro forma $ 2.79 $ 2.68 $ 2.19
Derivatives
The Company uses derivative financial instruments from time to time in the management of its interest
rate exposure on long-term debt. The Company accounts for its derivative financial instruments in
accordance with SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities.’’ There
were no derivative instruments outstanding as of January 28, 2007.
Comprehensive Income
Comprehensive Income includes Net Earnings adjusted for certain revenues, expenses, gains and losses
that are excluded from Net Earnings under generally accepted accounting principles. Adjustments to
Net Earnings are primarily for foreign currency translation adjustments and interest rate hedges.
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