Investigation Objection

FOR JESSICA WEISS File No. 08-0017 February 17, 2008 REPORT OF INVESTIGATION xxxxxxxxxx Investigation Objective The Client is an African-American executive who has been offered positions at both Home Depot and Lowe’s. He has hired me to gather financial information about each company during the past year with emphasis in the last quarter as well as cultural information about each of the companies. Investigative Findings I. Home Depot a) The Home Depot, Inc. is the largest worldwide home improvement retailer which sells a wide assortment of building materials, home improvement and lawn and garden products and provides a number of services. b) The Company was founded by Bernie Marcus and Arthur Blank in 1978 in Atlanta, GA. Ken Langone and Pat Farrah aided in fulfilling the founders’ vision of one-stop shopping for the do-it-yourselfer when they opened the first two Home Depot stores, 60,000 square feet each, larger than stores of competitors. The Company headquarters are located at 2455 Paces Ferry Road, N.W., Atlanta, GA, 30339. c) The Company is incorporated in Delaware. It became a public corporation on NASDAQ in 1981 and moved to the New York Stock Exchange in 1 1984. The NYSE symbol is “HD”. It is assigned SIC Code 5211 (Retail - Lumber and Other Building Materials Dealers) and the CIK Code is 0000354950. d) The Home Depot Stock quote as of 2/16/08 was $27.62 per share. For the trailing 52 weeks, the stock has seen a high of $41.85 per share and a low of $23.77 per share. Shares have fallen nearly 20% in the last quarter. As of the end of the Third Quarter 2007, November 23, 2007, Directors and executive officers as a group (28 people) own 64,365,177 shares or 3.26% of class. Of those David H. Batchelder, Director, owns 30,951,761 shares or 1.57% of class. The number of shares of common stock were 1,687,616,597. e) Home Depot’s total revenue for the Fiscal Year 2007 was $90,837,000,000. Gross Profit was $29,783,000,000. Operating Income was $9,673,000,000 and Net Income was $5,761,000,000. f) As of October 28, 2007, Home Depot had total assets of $45,506,000,000 down from $52,263,000,000 in January 28, 2007. The total liabilities as of October 28, 2007 were $28,060,000,000, an increase from $27,233,000,000 in January 28 2007. Total Stockholder Equity was $17,446,000,000. g) Home Depot’s Total Cash Flow from Operating Activities as of October 28, 2007 was $5,162,000,000, Investing Activities was $5,611,000,000 and from Financing Activities was $535,000,000. Cash and Cash Equivalents for the Period were decreased $65,000,000. 2 h) The Company has approximately 364,000 employees. On January 31, 2008, the Company announced it will be cutting 500 jobs at its headquarters (10% of 5,000) due to the slowing US economy. i) The Company opened 25 new stores in the third quarter of fiscal 2007, bringing the total store count to 2, 224. 11% (236) are located in Canada, Mexico or China, which is up 10% (206) from 2006. j) The slowdown of residential construction and home improvement negatively affected the Net Sales for the third quarter and first nine months of fiscal 2007. That market will remain soft into 2008. On February 1, 2008, Deborah L. Weinsig, Citigroup analyst, predicted that Home Depot will become a more formidable competitor in the sector’s changing competitive landscape as it improves merchandising. k) Francis S. Blake is Chairman and Chief Executive Officer of the Company. There are 14 members of the Board of Directors. They are: F. Duane Ackerman (Retired Chairman and CEO Bell/South Corporation), David H. Batchelder (Principal, Relational Investors LLC), Francis Blake, Art Bousbib (President, Otis Elevator Company), Gregory D. Brenneman (Chairman and CEO TumWorks, Inc.), John L. Clendenin (Retired Chairman, President and CEO BellSouth Corporation), Armando Codina (President and CEO, Flagler Development Group), Brian C. Cornell (CEO, Michaels Store, Inc.), Claudio X. Gonzalez (Chairman and CEO, Kimberly-Clark de Mexico, S.A. do C.V.), Milledge A Hart III (Chairman of the Board, Hart Group, Inc.), Bonnie G. Hill (President, B. Hill 3 Enterprises, LLC), Lasban P. Jackson, Jr. (Chairman & CEO, Clear Creek Properties, Inc.), Karen L. Katen (Chairman, Pfizer Foundation) , and Kenneth G. Langone (Chairman of the Board, CEO, and President, Invemed Associates, Inc.). Annual compensation for each is reported in the latest Proxy Statement. l) In the past 5 years, there have been 547 civil right employment cases filed against Home Depot, and 203 such lawsuits have been filed since January 1, 2006. Item 4 of the Proxy Card in the most recent Proxy Statement is a proposal from shareholders asking the company to prepare a Diversity Report available to investors. They cite that the cost to shareholders for settling discrimination lawsuits has exceeded $100 million in the last 10 years. The most significant settlement was $87 million in 1997; however, in 2004 the Company agreed to pay another $5.5 million to settle EEOC charges of class-wide gender, race and national origin discrimination at its more than 30 Colorado stores. The response of the Company is the shareholders have rejected the proposal five times and over the last 5 years the company has continued to add programs and safeguards above and beyond Consent Decrees in 1998. Further, the Company states that as one of America’s largest employers, there is likely to be some dissatisfaction among certain associates. m) The Home Depot Foundation was established in 2002. It partners with suppliers to provide two major areas of giving: Affordable Housing Built Responsibly and Healthy Community Trees. Last year Home Depot 4 provided 9,000 affordable units, planted 300,000 community trees, gave $9.1 million to liveable communities, and gave $4.8 million to match charitable contributions of Home Depot associates. Home Depot has pledged $100 million in the next ten years toward these efforts. II. Lowe’s a) Lowe’s Companies, Inc. is the second largest home improvement retailer worldwide with specific emphasis on do-it-yourself customers, do-it-forme customers who utilize their installation services and commercial business customers. They offer a complete line of products and services for home decorating, maintenance, repair, remodeling, and property maintenance. b) The Company was founded by H. Carl Buchan in 1946. Buchan, part owner of North Wilkesboro Hardware Company, envisioned a chain of hardware stores. He bought out his brother-in-law, James Lowe, to concentrate on selling only hardware, appliances and hard-to-find building materials. By eliminating wholesalers and dealing directly with manufacturers, Lowe’s established its reputation for low price. In 1982, Lowe’s reported serving a new type of customer: do-it-yourself homeowners seeking to improve value of their properties. The modern Lowe’s bagan in 1994 when store expansion consisted of only large stores with greater than 85,000 square feet of selling space. The company is 5 currently headquartered at 1000 Lowe’s Blvd., Mooresville, NC 28117. The telephone number is (704) 758-1000. c) The Company is incorporated in North Carolina. It is traded on the New York Stock Exchange under the symbol “LOW”. It is assigned SIC Code is 5211 (Lumber and Other Building Materials Dealers ) and its CIK Code is 000060667. d) Lowe’s stock quote as of February 16, 2008 was $$23.33 a share. For the trailing 52 weeks, the stock was seen as a high of $35.74 per share and a low of $19.94 per share. The number of shares of common stock outstanding as of November 30, 2007 is 1,462,603,002. e) Lowe’s total revenue for 2007 was $46,927,000,000. Gross Profit was $16,198,000,000, Operating Income was $5,152,000,000 and Net Income was $3,105,000,000. f) As of November 2, 2007, Lowe’s had Total Assets of $30,189,000,000 and Total Liabilities of $14,135,000,000. Total Stockholder Equity for the same period was $16,054,000,000. g) Lowe’s Cash Flow from Operating Activities for the nine month period ended November 2, 2007 was $3,785,000,000, from Investing Activities was ($2,849,000,000), from Financing Activities was ($964,000,000). Cash and Cash Equivalents at end of period was $336,000,000. h) Lowe’s has approximately 210,000 employees, 75% of which are full time positions. 6 i) AS of February 2, 2007, Lowe’s operated 1385 stores in 49 states (not VT). 151 new stores opened in the past year. In 2007 they opened their first stores in Canada. j) The market is challenged by slowing home sales, lower home prices and tightening of credit standards which affect consumer spending on bigticket items. Recovery is not expected to occur in early 2008. On February 1, 2008, Deborah L. Weinswig, Citigroup analyst, downgraded Lowe’s to “Hold” from “Buy”. k) Robert A. Niblock is the company Chairman and CEO. His base salary is $950,000. His total compensation was $ 6,600,370. Were he to be terminated without cause today he would receive a total of $35,064,527. There are 11 members of the Board of Directors including Mr. Niblock. They are: David W. Bernauer (Non-executive chairman of the board of directors of Walgreen Co.), Leonard L. Berry (Professor, Texas A&M University), Dawn E. Hudson (President and CEO, Pepsi-Cola North America), Robert A. Ingram (Vice Chair Pharmaceuticals, GlaxoSmithKline), Robert L. Johnson (Founder and Chairman of RLJ Companies , previous founder and chairman of Black Entertainment Network), Richard K. Lochridge (President, Lochridge and Company), Peter C. Browning (Dean of McColl Graduate School of Business at Queens University of Charlotte 2002-2005, Lead Director, Nucor Corporation 2006-2007), Marshall O. Larsen (Chairman of Goodrich Corporation), Stephen F. Page (retired Vice Chairman and CFO, United 7 Technologies), and O. Temple Sloan, Jr. (Chairman CEO, General Parts International). Annual compensation for board members ranges from $190,000 to $215,000. l) In the past two years, there have been 19 civil rights employment cases filed against Lowe’s. m) Lowe’s Charitable and Educational Foundation was founded in 1957. In 2006, it awarded more than $15 million to diverse organizations and schools across the United States. In addition, Lowe’s provides funding to Lowe’s Toolbox for Education, Habitat for Humanity, American Red Cross, Home Safety Council, Lowe’s Heroes, Outdoor Classroom Grant Program, SkillsUSA, and Lowe’s Scholarships. Conclusions Home Depot and Lowe’s are both home improvement retailers and the top competitors for each. Home Depot is the larger company with 2,224 stores and 364,000 employees while Lowe’s has 1385 stores and 210,000 employees. The downturn in the economy resulted in a bad third quarter for each company in 2007. Home Depot announced they will be letting go 500 employees at their headquarters in Atlanta. Home Depot stock is a little higher than Lowe’s stock at $27.52 per share as opposed to $23.33 per share. And the financial analyst at Citigroup thought Home Depot will ultimately recover as the better competitor. 8 On the cultural front, Home Depot has had, and continues to have, diversity issues. In the most recent Proxy Statement, shareholders proposed disclosure of employment diversity. Home Depot asked shareholders to reject the proposal. The Company stated that it has made many improvements on this front since the Consent Decrees in 1998, further in such a large organization there will always be dissatisfaction among some employees, yet in the past two years, there have been over 200 civil rights employment lawsuits filed. There have been only 19 such lawsuits against Lowe’s in the past two years. In addition, a prominent African-American, Robert Johnson, sits on the Board of Directors of Lowe’s. As for corporate giving, Home Depot created the Home Depot Foundation in 2002 to build affordable and environmentally responsible homes and planting community trees, among other activities. They have pledged $100 million over the next ten years for the planting of trees all across the U.S. Lowe’s established the Lowe’s Charitable and Educational Foundation in 1957. They give about $15 million a year to a variety of organizations and schools across the U.S. 9 Selected Bibliography The Home Depot, Inc., Investor Relations Home Page (www.homedepot.com), February 8, 2008. Lowe’s Companies, Inc., Investor Relations Home Page (www.lowes.com), February 10,2008. U.S. Securities and Exchange Commission, The Home Depot Corporation - Form 10-K (1/28/2007) (www.sec.gov/browser-edgar), February 11, 2008. U.S. Securities and Exchange Commission, The Home Depot Corporation – Form 10-Q (10/28/2007) (www.sec.gov/browser-edgar), February 11, 2008. U.S. Securities and Exchange Commission, The Home Depot Corporation – Schedule 14A (4/13/2007) (www.sec.gov/browser-edgar), February 11, 2008. U.S. Securities and Exchange Commission, Lowe’s Companies, Inc. – Form 10-K (2/2/2007) (www.sec.gov/browser-edgar), February 11, 2008. U.S. Securities and Exchange Commission, Lowe’s Companies, Inc. – Form 10-Q (11/2/2007) (www.sec.gov/browser-edgar), February 11, 2008. U.S. Securities and Exchange Commission, Lowe’s Companies, Inc. – Schedule 14A (4/12/2007) (www.sec.gov/browser-edgar), February 11, 2008. Hoovers, Online Report – The Home Depot Corporation, (2007), (www.hoovers.com/home-depot) February 8, 2008. Hoovers, Online Report – Lowe’s Companies, Inc. (2007), (www.hoovers.com/lowe’s) February 8, 2008 Westlaw Query – PTN(“HOME DEPOT”) & KNOS (110.05 110.20 110.25 190.35) & FLD(AFT 01/01/2006) Westlaw Query – PTN(“LOWES COMPANY”) & KNOS(110.05 110.20 110.25 190.35) & FLD(AFT 01/01/2006). “Home Depot, Lowe’s Fall on Note”, Yahoo! Finance, February 1, 2008 (http://biz.yahoo.com/ap/080201/lowe_s_mover.html) “Lowe’s profit slumps after tough quarter”, CNNMoney.com, November 19,2007 (http://cnnmoney.printthis.clickability.com). 10 “Home Depot to cut 500 jobs on weak economy”, CNNMoney.com, January 31, 2008 (http://cnnmoney.printthis.clickability.com). 11