Home Depot 2009 Annual Report Download - page 54

state and local and other foreign audits covering tax years 2002 to 2008. At this time, the Company does not
expect the results from any income tax audit to have a material impact on the Company’s financial statements.
The Company believes that certain adjustments under examination in certain states will be agreed upon within
the next twelve months. The Company has classified approximately $23 million of the reserve for unrecognized
tax benefits as a short-term liability in the accompanying Consolidated Balance Sheets. Final settlement of
these audit issues may result in payments that are more or less than these amounts, but the Company does not
anticipate the resolution of these matters will result in a material change to its consolidated financial position or
results of operations.
7. EMPLOYEE STOCK PLANS
The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan (“2005 Plan”) and The Home Depot, Inc. 1997
Omnibus Stock Incentive Plan (“1997 Plan” and collectively with the 2005 Plan, the “Plans”) provide that
incentive and 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. Under the 2005 Plan, the maximum number of shares of the Company’s common stock authorized
for issuance is 255 million shares, with any award other than a stock option reducing the number of shares
available for issuance by 2.11 shares. As of January 31, 2010, there were 188 million shares available for future
grants under the 2005 Plan. No additional equity awards may be issued from the 1997 Plan after the adoption of
the 2005 Plan on May 26, 2005.
Under the terms of the Plans, incentive stock options and non-qualified stock options must have an exercise
price at or above the fair market value of the Company’s stock on the date of the grant. Typically, incentive
stock options and non-qualified stock options vest at the rate of 25% per year commencing on the first or
second anniversary date of the grant and expire on the tenth anniversary date of the grant. Certain of the
non-qualified stock options also include performance options which vest on the later of the first anniversary
date of the grant and the date the closing price of the Company’s common stock has been 25% greater than the
exercise price of the options for 30 consecutive trading days. Additionally, certain stock options may become
non-forfeitable upon age 60, provided the associate has had five years of continuous service. The Company
recognized $19 million, $47 million and $61 million of stock-based compensation expense in fiscal 2009, 2008
and 2007, respectively, related to stock options.
Restrictions on the restricted stock issued under the Plans generally lapse according to one of the following
schedules: (1) the restrictions on the restricted stock lapse over various periods up to five years, (2) the
restrictions on 25% of the restricted stock lapse upon the third and sixth anniversaries of the date of issuance
with the remaining 50% of the restricted stock lapsing upon the associate’s attainment of age 62, or (3) the
restrictions on 25% of the restricted stock lapse upon the third and sixth anniversaries of the date of issuance
with the remaining 50% of the restricted stock lapsing upon the earlier of the associate’s attainment of age 60 or
the tenth anniversary date. The Company has also granted performance shares under the Plans, the payout of
which is dependent on either (1) the Company’s total shareholder return percentile ranking compared to the
performance of individual companies included in the S&P 500 index at the end of the three-year performance
cycle, or (2) the Company’s performance against target average return on invested capital and operating profit
over a three-year performance cycle. Additionally, certain awards may become non-forfeitable upon the
attainment of age 60, provided the associate has had five years of continuous service. The fair value of the
restricted stock and performance shares is expensed over the period during which the restrictions lapse. The
Company recorded stock-based compensation expense related to restricted stock and performance shares of
$158 million, $109 million and $122 million in fiscal 2009, 2008 and 2007, respectively.
In fiscal 2009, 2008 and 2007, there were an aggregate of 666 thousand, 641 thousand and 593 thousand
deferred shares, respectively, granted under the Plans. For associates, each deferred share entitles the individual
to one share of common stock to be received up to five years after the grant date of the deferred shares, subject
to certain deferral rights of the associate. Additionally, certain awards may become non-forfeitable upon age 60,
provided the associate has had five years of continuous service. The Company recorded stock-based
48