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THE HOME DEPOT FUTUREBUILDER FOR PUERTO RICO
Statements of Net Assets Available for Benefits
December 31, 2006 and 2005
| | 2006 | | 2005 | |
Assets: | | | | | |
Investments | | $ | 4,948,859 | | $ | 3,867,332 | |
| | | | | |
Net assets available for benefits | | $ | 4,948,859 | | $ | 3,867,332 | |
See accompanying notes to financial statements.
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THE HOME DEPOT FUTUREBUILDER FOR PUERTO RICO
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2006 and 2006
| | 2006 | | 2005 | |
Additions to net assets attributed to: | | | | | |
Investment income: | | | | | |
Net appreciation (depreciation) in fair value of investments | | $ | 157,096 | | $ | (6,544 | ) |
Interest and dividend income | | 69,788 | | 37,732 | |
Total investment income | | 226,884 | | 31,188 | |
Contributions: | | | | | |
Participants | | 756,512 | | 752,476 | |
Employer | | 498,471 | | 481,046 | |
| | 1,254,983 | | 1,233,522 | |
Total additions | | 1,481,867 | | 1,264,710 | |
| | | | | |
Deductions from net assets attributed to: | | | | | |
Benefits paid to participants | | 400,340 | | 239,945 | |
Total deductions | | 400,340 | | 239,945 | |
| | | | | |
Net increase | | 1,081,527 | | 1,024,765 | |
| | | | | |
Net assets available for benefits: | | | | | |
Beginning of year | | 3,867,332 | | 2,842,567 | |
End of year | | $ | 4,948,859 | | $ | 3,867,332 | |
See accompanying notes to financial statements.
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THE HOME DEPOT FUTUREBUILDER FOR PUERTO RICO
Notes to Financial Statemens
December 31, 2006 and 2005
(1) Description of the Plan
The following is a brief description of The Home Depot FutureBuilder for Puerto Rico (the Plan). Participants should refer to the summary plan description for a more complete description of the Plan’s provisions.
(a) General
The Plan is a defined contribution plan covering substantially all associates of Home Depot Puerto Rico, Inc. (the Company), a wholly owned subsidiary of The Home Depot, Inc. (the Parent Company) and associates of Economy Maintenance Supply Company working and residing in Puerto Rico. Associates are eligible to participate in the Plan for purposes of making elective deferrals after completing 90 days of service. Participants are eligible for the Company’s matching contributions, and temporary associates are eligible to make elective deferrals, on the first day of the calendar quarter (January 1, April 1, July 1, and October 1) coincident with or following the completion of 12 months of service and 1,000 hours. The Plan excludes leased associates, nonresident aliens and associates covered by a collective bargaining agreement, unless the terms of the collective bargaining agreement require that the associates be eligible to participate in the Plan. The Plan is intended to qualify under Section 1165 of the Puerto Rico Internal Revenue Code of 1994, as amended. The Plan is subject to certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA), excluding provisions of ERISA applicable only to plans qualified under Section 401(a) of the U.S. Internal Revenue Code. The Plan is administered by the Administrative Committee made up of associates of Home Depot U.S.A., Inc. Banco Popular de Puerto Rico has been appointed the Trustee of the Plan.
(b) Contributions
Participants may contribute up to 10% of annual compensation, on a pretax basis as defined in the Plan, subject to regulatory limitations. Participants may also contribute amounts representing eligible rollover distributions from other retirement plans qualified under Section 1165 of the Puerto Rico Internal Revenue Code of 1994, as amended. The Company provides matching contributions of 150% of the first 1% of eligible compensation contributed by a participant and 50% of the next 2% to 5% of eligible compensation contributed by a participant beginning on the first day of the calendar quarter following the completion of 12 months of service and 1,000 hours. Additional amounts may be contributed at the option of the Company’s Board of Directors.
The default for the Company’s matching contribution if no direction is given, is the participant’s current investment election with respect to elective contributions. If the participant has made no affirmative investment election with respect to elective contributions, the default is the INVESCO Stable Value Trust.
Employee stock ownership contributions were made solely by the Company and at the discretion of the Home Depot Puerto Rico, Inc. Board of Directors (ESOP contributions). The Company made its last ESOP contribution in February 1999.
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(c) Participant Accounts
The Plan maintains a separate account for each participant, to which contributions and investment performance are allocated.
(d) Vesting
A participant becomes 100% vested upon death, attaining age 65 while still employed, total or permanent disability, or if the Plan is terminated.
Participants are immediately vested in their contributions and net value changes thereon. Vesting in the Company’s matching and discretionary contributions and net value changes thereon is based on years of vesting service. A participant is 100% vested after three years of service.
Vesting for the ESOP contributions and earnings or losses thereon is based on years of service, as follows:
Years | | Vesting | |
of service | | Percentage | |
3 | | 20 | % |
4 | | 40 | |
5 | | 60 | |
6 | | 80 | |
7 or more | | 100 | |
(e) Distributions
Upon death, disability, or termination of service for any other reason, hardship, or attaining age 65, participants or beneficiaries may elect to receive a lump-sum payment of their vested account balance at fair value on the date of distribution in the form of cash or securities.
(f) Participant Loans
Participants may borrow from their accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their total vested account balance. Loan terms range from one to four years. The loans bear interest at a rate commensurate with local prevailing rates.
(g) Forfeited Accounts
Forfeited nonvested account balances are used to pay Plan expenses or reduce future employer contributions. In 2006 and 2005, employer contributions were reduced by forfeitures of $14,897 and $22,287, respectively.
(h) Administrative Expenses
Certain administrative expenses of the Plan are paid by the Company. These costs include legal, accounting and certain administrative fees. Expenses paid by the Plan include all other administrative costs not paid by the Company.
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(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Plan in preparing its financial statements.
(a) Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting.
(b) Investment Valuation and Income Recognition
Shares of registered investment companies are valued at quoted market prices, which represents the net asset value of shares held by the Plan at year-end. The INVESCO Stable Value Trust contains certain investment contracts for which there is no active trading market, and as such are carried at their contract value as determined by the AMVESCAP National Trust Company, which approximates fair value. All other investments in units of collective trusts are valued at the respective net asset values as reported by such trusts. The Parent Company common stock is valued at its quoted market price as obtained from the New York Stock Exchange. Securities transactions are accounted for on the trade date.
Participant loans are carried at cost which approximates fair value.
The Plan’s investments include funds, which invest in various types of investment securities and in various companies within various markets. Investment securities are exposed to several risks, such as interest rate, market, credit, and individual country and currency risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the Plan’s financial statements and supplemental schedule.
(c) Payment of Benefits
Benefits are recorded when paid.
(d) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Administrative Committee of the Plan to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(e) Fair Value of Financial Instruments
The Plan’s investments are stated at fair value. In addition, the carrying amount of receivables and liabilities is a reasonable approximation of the fair value due to the short-term nature of these instruments.
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(f) Recent Accounting Pronouncements
As of December 31, 2006, the Plan adopted Financial Accounting Standards Board (FASB) Staff Position FSP AAG INV-1 and Statement of Position No. 94-4-1, “Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans” (the FSP). The FSP requires that the Statements of Net Assets Available for Benefits present the fair value of the Plan’s investments, as well as the adjustment from fair value to contract value, for the fully benefit-responsive investment contracts. The Company determined that the impact of the adoption of this pronouncement was not material to the financial statements.
(3) Puerto Rico Income Taxes
The Puerto Rico Department of the Treasury has determined and informed the Company by letters dated January 4, 1999 and April 13, 2005, that the Plan is designed in accordance with applicable sections of the Puerto Rico Internal Revenue Code of 1994 (IRC). The Plan has been amended since receiving the last determination letter. However, the Administrative Committee of the Plan believes the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
(4) Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and terminate the Plan. In the event the Plan is terminated, participants will become 100% vested in their accounts.
(5) Investments
The Plan’s investments are held by The Northern Trust Company. A description of the assets of the Plan follows:
· The Home Depot, Inc. Common Stock – Fund invests in common stock of The Home Depot, Inc.
· Barclays Global Investors (BGI) Equity Index Stock Fund – Fund is a collective trust that invests in the common stocks included in Standard & Poor’s 500 Index.
· Dodge & Cox Stock Fund – Fund invests in a registered investment company that invests in common stocks of companies that the fund’s managers believe to be temporarily undervalued by the stock market but have favorable long-term growth prospects.
· BGI Balanced Fund – Fund is a synthetic fund that invests approximately 60% of assets in the BGI S&P 500 Index Fund (which invests in equity securities – stocks) with the remainder of the fund in BGI U.S. Debt Index Fund (which invests in fixed income securities – bonds).
· Artisan Mid-Cap Fund – Fund is a separate account that invests in common stocks of mid-sized companies that display strong growth prospects.
· T. Rowe Price Small-Cap Stock Fund – Fund invests in a registered investment company that invests in common stocks of smaller, faster-growing companies that are believed to offer strong potential earnings growth or are undervalued.
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· Templeton Foreign Fund – Fund invests in a registered investment company that invests in stocks and debt obligations of companies and governments outside the United States.
· INVESCO Stable Value Trust – Fund is a collective trust that primarily invests in short-term debt obligations that mature within one to three years.
· INVESCO Fundamental Core Balanced Trust – Fund is a collective trust that invests in a combination of equity and fixed income securities. Effective July 1, 2005, the Investment Committee for the Plan replaced this Trust with the BGI Balanced Fund.
The fair value of individual investments that represent 5% or more of the Plan’s net assets at December 31, 2006 and 2005 are as follows:
| | 2006 | | 2005 | |
The Home Depot, Inc. Common Stock | | $ | 2,195,375 | | $ | 1,880,905 | |
INVESCO Stable Value Trust | | 1,036,304 | | 825,047 | |
BGI Equity Index Stock Fund | | 322,988 | | 217,261 | |
Participant loans | | 670,706 | | 446,779 | |
| | | | | | | |
During 2006 and 2005, the Plan’s investments appreciated (depreciated) in fair value as follows:
| | 2006 | | 2005 | |
Net appreciation (depreciation) in fair value: | | | | | |
The Home Depot, Inc. Common Stock | | $ | (109 | ) | $ | (75,283 | ) |
Collective trust funds | | 96,268 | | 43,075 | |
Registered investment funds | | 60,937 | | 25,664 | |
Net appreciation (depreciation) in fair value | | $ | 157,096 | | $ | (6,544 | ) |
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(6) Investment in Master Trust
The assets of the Plan are invested in a Master Trust. At December 31, 2006 and 2005, the Plan’s interest in the net assets of the Master Trust was less than 1%, with The Home Depot FutureBuilder holding the remaining interest.
Summarized financial information of the Master Trust as of December 31, 2006 and 2005 is as follows:
| | 2006 | | 2005 | |
Assets: | | | | | |
Investments | | $ | 2,689,532,794 | | $ | 2,399,869,862 | |
Receivables: | | | | | |
Participant contributions receivable | | 24,625 | | 123,579 | |
Employer contributions receivable | | 1,960,935 | | 2,073,290 | |
Receivable from broker | | 710,435 | | — | |
Other receivables | | 1,282,998 | | 983,857 | |
Total receivables | | 3,978,993 | | 3,180,726 | |
Total assets | | 2,693,511,787 | | 2,403,050,588 | |
Liabilities: | | | | | |
Accrued liabilities | | 655,895 | | 513,083 | |
Payable to broker | | — | | 161,213 | |
Total liabilities | | 655,895 | | 674,296 | |
Net assets available for benefits | | $ | 2,692,855,892 | | $ | 2,402,376,292 | |
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Net assets, investment income and administrative expenses related to the Master Trust are allocated to the individual plans based upon actual activity for each of the plans. Investment income for the Master Trust for the years ended December 31, 2006 and 2005 is as follows:
| | 2006 | | 2005 | |
Investment income: | | | | | |
Appreciation (depreciation) in fair value of investments: | | | | | |
The Home Depot, Inc. Common Stock | | $ | (18,768,599 | ) | $ | (76,053,489 | ) |
Collective trust funds | | 60,526,339 | | 27,899,586 | |
Registered investment funds | | 68,475,308 | | 21,918,432 | |
Net appreciation (depreciation) in fair value of investments | | 110,233,048 | | (26,235,471 | ) |
Dividends and interest income | | 47,218,560 | | 31,579,583 | |
Total investment income | | $ | 157,451,608 | | $ | 5,344,112 | |
(7) Related Party-Transactions
Certain Plan investments include shares of common stock issued by the Parent Company. At December 31, 2006 and 2005, the Plan held a combined total of 54,666 and 46,465 shares valued at approximately $40.16 and $40.48 per share, respectively. Additionally dividends received by the Plan include dividends paid by the Parent Company. These transactions constitute party-in-interest transactions, since the Parent Company is a member of a controlled group that includes the Plan Sponsor.
(8) Plan Amendments and Other Plan Changes
Effective January 1, 2005, the Administrative Committee of the Plan adopted an amendment to lower the limit on mandatory cash-out distributions from $5,000 to $1,000.
Effective July 1, 2005, the Investment Committee of the Plan replaced the INVESCO Fundamental Core Balanced Fund with the BGI Balanced Fund.
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THE HOME DEPOT FUTUREBUILDER FOR PUERTO RICO
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
December 31, 2006
Identity of issue | | Description of investment | | Current
value | |
* The Home Depot, Inc. Common Stock | | 54,666 | | shares of common stock | | $ | 2,195,375 | |
INVESCO Stable Value Trust | | 1,036,304 | | units of collective trust | | 1,036,304 | |
BGI Equity Index Stock Fund | | 7,339 | | units of collective trust | | 322,988 | |
Artisan Mid-Cap Fund | | 4,737 | | units of collective trust | | 144,274 | |
BGI AGG BD U.S. Debt Fund | | 8,466 | | units of collective trust | | 114,882 | |
Templeton Foreign Fund | | 15,811 | | shares of registered investment company | | 215,658 | |
Dodge & Cox Stock Fund | | 890 | | shares of registered investment company | | 136,510 | |
T. Rowe Price Small-Cap Stock Fund | | 3,293 | | shares of registered investment company | | 112,162 | |
Participant loans | | | | loans with interest rates ranging from
5.0% to 9.0% and maturity dates
through December 31, 2009 | | 670,706 | |
| | | | | | $ | 4,948,859 | |
*Indicates party-in-interest to the Plan.
See accompanying report of independent registered public accounting firm.
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