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The Financial Analysis Of Home Depot

2945 words - 12 pages

The Financial Analysis of The Home Depot

By: The CPT Consulting Group
10-3-11

CPT Consulting Group

Table of Contents

I. Introduction
II. Board of Directors and Corporate Governance
III. WACC and Capital Structure
IV. Degree of Operating leverage
V. Dividends
VI. Conclusions
VII. Appendix

I. Introduction

The Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank. The home depot Inc., collectively with its subsidiaries, operates as a home improvement retailer. The company sells a wide variety of building materials, home improvement products, and lawn and garden products for the do-it-your-self customer, the do-it-for-me ...view middle of the document...

 

II. Board of Directors and Corporate Governance
The Corporate Governance Risk Indicator (GRI) is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), and Shareholder Rights (Low Risk) as provided on the Home Depot corporate website. The Board of directors consists of 10 members, 9 of which are independent. Frank Blake is considered to be non- independent because he serves as both the Chairman of the Board and the CEO of the company. The Board is comprised of directors from various backgrounds and professions in order to maximize perspectives and ensure a wealth of experiences to inform its decisions. The Board has four regular meetings each year and such special meetings as are deemed necessary. Directors are expected to attend all Board meetings and meetings of the Committees of the Board on which they serve. Directors are also expected to attend the annual meeting of shareholders, absent extraordinary circumstances. The lists of the Board of Directors are as follows:
* F. Duane Ackerman
* Frank Blake
* Ari Bousbib
* Gregory D. Brenneman
* J. Frank Brown
* Albert Carey
* Armando Codina
* Bonnie G. Hill
* Karen L. Katen
* Ronald L. Sargent
Under the Corporate Governance Guidelines, The Home Depot does not have a position on poison pills. This company does not have such a plan or an intention of implementing an anti-take-over measure, because the board of directors feels that a hostile takeover of a company of their size would be unlikely.
The philosophy of The Home Depot with respect to the Board of Directors compensation is to align the interests of non-employee directors with the shareholders. Each Director during the fiscal year 2010, received an annual retainer of $280,000, paid as follows:
* $230,000 in the form of deferred shares granted under the 2005 Omnibus Plan; and
* $50,000 in the form of cash or deferred stock units under the Directors Plan, at the election of the Director.
Director compensation is paid over a 12 month period beginning with each annual meeting of shareholders. Directors who become Board members after the annual meeting are pro-rated as follows: 100% for appointments before the six month anniversary of the annual meeting, 50% after six months but no later than the nine month anniversary of the annual meeting, and 25% after the nine month anniversary of the annual meeting. Each non-employee director who serves as Chair of the Board committee receives $10,000, except for the chair of the Audit Committee, who receives $15,000. The Lead Director receives $80,000 in the form of cash or deferred stock units. As shown in Appendix A is the compensation paid to or earned during Fiscal year 2010 by the non-employee directors. Appendix B is a list of the non-employee directors during Fiscal year 2010 with outstanding equity. Appendix C is the list of the four standing committees established by the Board of Directors and who serve on each of the...

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