See accompanying Notes to Consolidated Financial Statements.

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THE HOME DEPOT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation—The accompanying Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended February 1, 2004, as filed with the Securities and Exchange Commission (File No. 1-8207).

        Stock-Based Compensation—Effective February 3, 2003, the Company adopted the fair value method of recording stock-based compensation expense in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company selected the prospective method of adoption as described in SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure" and accordingly stock-based compensation expense was recognized for stock options granted, modified or settled and expense related to the Employee Stock Purchase Plan ("ESPP") after the beginning of fiscal 2003. The fair value of stock options and ESPP as determined on the date of grant using the Black-Scholes option-pricing model is being expensed over the vesting period of the related stock options and ESPP.

        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 to all stock-based compensation in each period (amounts in millions, except per share data):

Service Revenues

        Net sales include service revenues generated through a variety of installation and home maintenance programs. In these programs, the customer selects and purchases materialsmaterial for a project and the Company provides or arranges professional installation. These programs are offered through Home Depot and Expo Design Center stores and focus primarily on providing products and services to

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our do-it-for-me customers. We also arrange for the provision of flooring, countertop and window coverings installation services to homebuilders through HD Builder Solutions Group, Inc. Under certain programs, when the Company provides or arranges the installation of a project and the subcontractor provides material as part of the

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installation, both the material and labor are included in service revenues. The Company recognizes this revenue when the service for the customer is completed. All payments received prior to the completion of services are recorded as deferred revenue in the accompanying Consolidated Balance Sheets. Net service revenues, including the impact of deferred revenue, were $799$883 million and $562 million$1.7 billion for the three and six months ended May 2,August 1, 2004, respectively, compared to $696 million and May 4,$1.3 billion for the three and six months ended August 3, 2003, respectively.

Valuation Reserves

        As of the end of the firstsecond quarter of fiscal 2004 and the end of fiscal year 2003, the valuation allowances for merchandise inventories and uncollectible accounts receivable were not material.

2.     BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES

        The reconciliation of basic to diluted weighted average common shares for the three and six months ended May 2,August 1, 2004 and May 4,August 3, 2003 was as follows (amounts in millions):

        Stock plans include shares granted under the Company's ESPP'sESPP and stock incentive plans, as well as shares issued for deferred compensation stock plans. Options to purchase 64.563.9 million and 88.467.2 million shares of common stock at May 2,for the three months ended August 1, 2004 and May 4,August 3, 2003, respectively, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. Options to purchase 64.2 million and 77.8 million shares of common stock for the six months ended August 1, 2004 and August 3, 2003, respectively, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

3.     CONSOLIDATION OF VARIABLE INTEREST ENTITYACQUISITIONS

        InThe following acquisitions completed by the firstCompany during the second quarter of fiscal 2004 were accounted for under the Company adopted FASB Interpretation No. 46, "Consolidationpurchase method of Variable Interest Entities" ("FIN 46"). FIN 46 requires consolidationaccounting. Pro forma results of a variable interest entity if a company's variable interest absorbs a majority ofoperations for the entity's expected losses or receives a majority of the entity's expected residual returns, or both.

        The Company leases assets totaling $282 million under an off-balance sheet operating lease agreement that was created under a structured financing arrangement involving two special purpose entities. The Company financed a portion of its new stores, as wellthree and six months ended August 1, 2004 and August 3, 2003 would not be materially different as a distribution centerresult of these acquisitions and two office buildings under the aforementioned structured financing arrangement.therefore are not presented.

        In accordance with FIN 46, the Company was required to consolidate one of the special purpose entities that, before the effective date of FIN 46, met the requirements for non-consolidation. The second special purpose entity that owns the aforementioned assets is not owned by or affiliated with the Company, its management or its officers and pursuant to FIN 46, the Company was not deemed to have a variable interest so therefore, was not required to consolidate this entity.

        FIN 46 requires the Company to measure the assets and liabilities at their carrying amounts, which amounts would have been recorded if FIN 46 had been effective at the inception of the transaction. Accordingly, during the first quarter ofMay 2004, the Company acquired all of the common stock of White Cap Industries, Inc., a leading distributor of specialty hardware, tools and materials to construction contractors. This acquisition was part of the Company's strategy to extend its business and the Company's professional customer base with value-added products and services. In June 2004, the Company acquired all of the common stock of Home Mart Mexico, S.A. de C.V., the second largest home improvement retailer in Mexico. This acquisition was part of the Company's strategy to expand into new markets.

        The total aggregate purchase price for acquisitions for the six months ended August 1, 2004 was $712 million. As a result, the Company recorded long-term debtcost in excess of $282 million and long-term notes receivablefair value of $282net assets acquired related to these acquisitions of $525 million on the accompanying Consolidated Balance Sheet. The Company also recorded the interest expense and interest income on the long-term debt and notes receivable, respectively, with no resulting net impact to the Company's net earnings. The Company continues to record the rental payments under the operating lease agreements as selling and store operating expenses in the Consolidated Statements of Earnings. The adoption of FIN 46 had no economic impact on the Company.Sheets.

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THE HOME DEPOT, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
The Home Depot, Inc.:

        We have reviewed the accompanying Consolidated Balance Sheet of The Home Depot, Inc. and subsidiaries as of May 2,August 1, 2004, and the related Consolidated Statements of Earnings, and Comprehensive Income for the three- and six-month periods ended August 1, 2004 and August 3, 2003, and the related Consolidated Statement of Cash Flows for the three-month periodsix-month periods ended May 2, 2004.August 1, 2004 and August 3, 2003. These Consolidated Financial Statements are the responsibility of the Company's management.

        We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

        Based on our review,reviews, we are not aware of any material modifications that should be made to the consolidated financial statementsConsolidated Financial Statements referred to above for them to be in conformity with accounting principlesU.S. generally accepted in the United States of America.accounting principles.

        We have previously audited, in accordance with standards established by the Public Company Accounting Oversight Board (United States), the Consolidated Balance SheetsSheet of The Home Depot, Inc. and subsidiaries as of February 1, 2004, and the related Consolidated Statements of Earnings, Stockholders' Equity and Comprehensive Income, and Cash Flows for each of the years in the three-year period then ended (not presented herein); and in our report dated February 23, 2004, we expressed an unqualified opinion on those consolidated financial statements.Consolidated Financial Statements. In our opinion, the information set forth in the accompanying Consolidated Balance Sheet as of February 1, 2004, is fairly presented, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.

May 17,August 16, 2004

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THE HOME DEPOT, INC. AND SUBSIDIARIES

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

SELECTED CONSOLIDATED STATEMENTS OF EARNINGS DATA AND EXECUTIVE SUMMARY

        We reported net earnings of $1.1$1.5 billion and diluted earnings per share of $0.49, up 25.6%,$0.70 for the firstsecond quarter of fiscal 2004 compared to net earnings of $907 million$1.3 billion and diluted earnings per share of $0.39$0.56 for the second quarter of fiscal 2003. For the first six months of fiscal 2004, we reported net earnings of $2.6 billion and diluted earnings per share of $1.18 compared to net earnings of $2.2 billion and diluted earnings per share of $0.96 for the first quartersix months of fiscal 2003. Excluding the impact of the adoption of Emerging Issues Task Force 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16") as discussed in detail in the following section, "Impact of the Adoption of EITF 02-16",02-16," diluted earnings per share would have been $0.52, or 33.3% higher than last year.$0.71 for the second quarter of fiscal 2004. Net sales for the firstsecond quarter of fiscal 2004 increased 16.2%11.0% over the firstsecond quarter of fiscal 2003 to $17.6$20.0 billion. For the first six months of fiscal 2004, net sales increased 13.3% over the first six months of fiscal 2003 to $37.5 billion. Our growth in net sales for the second quarter and first quartersix months of fiscal 2004 was driven by an increase in comparable store sales of 7.7%4.8% and 6.1%, respectively, as well as sales from stores that have been open for less than one year.year and sales from our newly acquired companies. Our average ticket of $55.11was $54.73 for the firstsecond quarter of fiscal 2004, a second quarter record, and increased 8.2% over the second quarter of fiscal 2003. For the first six months of fiscal 2004, our average ticket was $54.91, an increase of 7.8% over the highest in our company history andcomparable period for fiscal 2003. Average ticket increased in all of our selling departments.departments for both periods.

        Our financial condition remains strong as evidenced by our $4.3$3.7 billion in cash and short-term investments at May 2,August 1, 2004. At the end of the firstsecond quarter of fiscal 2004, our debt-to-equity ratio remainsremained one of the lowest in our industry at 7.3%. Our return on invested capital (computed on beginning long-term debt and equity for the trailing four quarters) was 20.4% for the firstsecond quarter of fiscal 2004 compared to 18.2%17.8% for the firstsecond quarter of fiscal 2003, a 220260 basis point improvement. During the firstsecond quarter of fiscal 2004, we opened 3348 new stores, including 20 stores as a result of the Home Mart acquisition, and at May 2,August 1, 2004, we operated 1,7401,788 stores compared to 1,5681,607 at the end of the firstsecond quarter of fiscal 2003.

        We believe the selected sales data, the percentage relationship between net sales and major categories in the Consolidated Statements of Earnings and the percentage change in the dollar amounts of each of the items presented belowas follows is important in evaluating the performance of our business operations. We operate in one business segment and believe the information presented in our

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Management's Discussion and Analysis of Results of Operations and Financial Condition provides an understanding of our business segment, our operations and our financial condition.

Page 10

THE HOME DEPOT, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

(1)

Excludes all subsidiaries operating under The Home Depot Supply brand (Apex Supply Company, HD Supply Inc., Your "other" Warehouse, White Cap Industries, Inc. and HD Builder Solutions Group) since their inclusion may cause distortion of the data presented due to operational differences from our retail stores. The total number of the excluded locations and their total square footage are immaterial to our total number of locations and total square footage.

(2)

Includes net sales at locations open greater than 12 months and net sales of all of the subsidiaries of The Home Depot, Inc. Stores and subsidiaries become comparable on the Monday following the 365^th day of operation.

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IMPACT OF THE ADOPTION OF EITF 02-16

        In January 2004, the Company adopted EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor," which states that certain cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be recorded as a reduction of cost of merchandise sold when recognized in the Consolidated Statements of Earnings. The Company receives consideration in the form of advertising co-op allowances that pursuant to EITF 02-16 must be characterized as a reduction of cost of merchandise sold. Prior to the adoption of EITF 02-16 these advertising co-op

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allowances were offset against advertising expense and resulted in a reduction of selling and store operating expenses. The adoption of EITF 02-16 had no economic impact on the Company.

        The impact of the adoption of EITF 02-16 in the firstsecond quarter of fiscal 2004 resulted in a reduction of cost of merchandise sold of $155$244 million, an increase in selling and store operating expenses of $280$285 million and a reduction of net earnings of $78$27 million. The impact on our diluted earnings per share for the second quarter of fiscal 2004 was a decrease of $0.03.$0.01 per share. We estimate that the impact on our diluted earnings per share for the full fiscal year 2004 will be a decrease of $0.05 per share. We expect to recognizeshare, most of which has already been recognized in the remaining $0.02 per share over the next two quarters of fiscal 2004.first six months.

        The following table reconciles our actual results recorded pursuant to generally accepted accounting principles with the results adjusted to exclude the impact of the adoption of EITF 02-16. The table includes only those line items in the Consolidated Statements of Earnings impacted by the adoption of EITF 02-16. We believe that excluding the impact of EITF 02-16 allows for comparability of our results between periods in order to measure our operating performance. This measure is intended only as supplemental information, and it is not a substitute for net earnings or diluted earnings per share calculated in accordance with generally accepted accounting principles (amounts(dollars in millions, except per share data).

FORWARD-LOOKING STATEMENTS

        Certain statements herein of The Home Depot's expectations, herein, including but not limited to, statements regarding our estimates and expectionsexpectations for sales and earnings growth, new store openings, impact of cannibalization, implementation of store initiatives, net earnings performance and the effect of adopting certain accounting standards the impact of acquisitions, future cash balances and capital expenditures constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations. These risks and uncertainties include, but are not limited to, fluctuations in and the overall condition of the U.S. economy, stability of costs and availability of sourcing channels, conditions affecting new store development, our ability to integrate the businesses we acquire, the risk that the cost savings and any revenue synergies from acquisitions may not be fully realized or may take longer to realize than expected, our ability to implement new technologies and processes, our ability to attract, train and retain highly-qualified associates, unanticipated weather conditions, the impact of competition,

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and regulatory and litigation matters. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

        Net sales for the firstsecond quarter of fiscal 2004 increased 16.2%11.0% to $17.6$20.0 billion from $15.1$18.0 billion for the firstsecond quarter of fiscal 2003. For the first six months of fiscal 2004, sales increased 13.3% to $37.5 billion from $33.1 billion for the comparable period in fiscal 2003. Net sales growth for the second quarter and the first six months of fiscal 2004 was driven by an increase in comparable store sales of 7.7%4.8% and 6.1%, respectively, as well as sales from stores open for less than one year.year and sales from our newly acquired companies. Our average ticket for the second quarter of fiscal 2004 increased 8.2% to $54.73 and increased 7.8% to $54.91 for the first six months of fiscal 2004. For the second quarter and first six months of fiscal 2004 average ticket increased in all selling departments. We plan to open a total of 185 new stores

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during fiscal 2004 and expect sales growth of 10% to 12% driven by comparable store sales, new store openings, andcertain stores opened during fiscal 2003.2003 and sales from our newly acquired companies.

        The increase in comparable store sales for the second quarter and first quartersix months of fiscal 2004 reflects a number of factors. Comparable store sales for the firstsecond quarter of fiscal 2004 were positive in 109 of the 11 selling departments and average ticket increasedfor the first six months of fiscal 2004 comparable store sales were positive in all10 of 11 selling departments. Our average ticket increased 7.4% to $55.11. Lumber was aand building materials were particularly strong category,categories for the second quarter and first six months of fiscal 2004, driven primarily by commodity price inflation. Additionally, weWe had strong sales growth for both periods in our kitchen and bath categories led by appliance sales. Our new Designplace^SM showrooms continue to drive strong performance in cabinets, countertops and sinks. Finally,Additionally, we reported solid sales performance in millwork and plumbing as customers responded to our differentiated assortment and strong values.

        Our comparable store sales growth in the first quarter of 2004 reflects the impact of cannibalization.

In order to meet our customer service objectives, we strategically open stores near market areas served by existing stores ("cannibalize") to enhance service levels, gain incremental sales and increase market penetration. Our new stores cannibalized approximately 15% of our existing stores as of the firstsecond quarter of fiscal 2004 and we estimate that store cannibalization reduced the firstsecond quarter of fiscal 2004 comparable store sales by 2.5%approximately 2.0%. Additionally, we believe that our sales performance has been, and could continue to be, negatively impacted by the level of competition that we encounter in various markets. However, due to the highly-fragmentedhighly fragmented U.S. home improvement industry, in which we estimate our market share is approximately 11%, measuring the impact on our sales by our competitors is extremely difficult.

        The growth in net sales for the second quarter and first quartersix months of fiscal 2004 reflects growth in net service revenues, which increased 42%26.7% to $799$883 million from $562$696 million for the second quarter of fiscal 2004 and increased 33.7% to $1.7 billion from $1.3 billion for the first quartersix months of fiscal 2003. The growth in service revenues in both periods was driven by strength in a number of areas including countertops, HVAC, kitchens, windows, roofingcarpet, countertops and siding.windows.

        In the firstsecond quarter of fiscal 2004, we continued the implementation or expansion of a number of in-store initiatives. We believe these initiatives will enhance our customers' shopping experience as they are fully implemented in our stores.experience. The professional business customer ("Pro") initiative adds programs to our stores like job lot order quantities of merchandise and a dedicated sales desk for our Pro customer base. The Appliance initiative offers customers an assortment of in-stock name brand appliances, including General Electric® and Maytag®, and offers the ability to special order over 2,300 additional related products through computer kiosks located in our stores. Additionally, we continue to implement ourOur Designplace^SM initiative. This initiative offers our design and décor

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customers personalized service from specially-trained associates and provides distinctive merchandise in an attractive setting. We also continued the expansion of ourOur Tool Rental Centers. These centers,Centers, which are located inside our stores, provide a cost efficient way for our do-it-yourself and Pro customers to rent tools to complete home improvement projects.

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        The following table provides the number of stores with these initiatives:

        Gross profit increased 19.4%18.8% to $5.8$6.7 billion for the firstsecond quarter of fiscal 2004 from $4.8$5.6 billion for the second quarter of fiscal 2003. Gross profit increased 19.1% to $12.4 billion for the first quartersix months of fiscal 2004 from $10.4 billion for the first six months of fiscal 2003. Gross profit as a percentage of net sales was 32.9%33.4% for the firstsecond quarter of fiscal 2004 compared to 32.0%31.2% for the second quarter of fiscal 2003. For the first quartersix months of fiscal 2004, gross profit as a percentage of sales was 33.1% compared with 31.5% for the comparable period of fiscal 2003. Due to the adoption of EITF 02-16, our cost of merchandise sold was reduced by $155 million of co-op advertising allowances inof $244 million and $399 million for the second quarter and first quartersix months of fiscal 2004.2004, respectively. Excluding the impact of the adoption of EITF 02-16, our gross margin would have been 32.0%, flat32.2% for the second quarter of fiscal 2004 and 32.1% for the first six months of fiscal 2004. The gross profit rate increase for both periods, excluding the impact of EITF 02-16, was primarily attributable to last year, reflecting some gross margin pressure arising fromlower shrink than we experienced in the comparable periods of fiscal 2003 and a higher penetrationchange in the mix of lower margin commodity categories, but more significantly,merchandise sold, partially offset by our strategic decision to reinvest gross margin benefits into growing our private label credit program. This program provides long-term benefits including higher average tickets and customer loyalty. InDuring the second quarter and first quarter,six months of fiscal 2004, we offered several deferred interest credit programs to our customers who responded very favorably to our offer. The cost of these programs was offset by gross margin benefits in other areas. InFor the second quarter and first quartersix months of fiscal 2004, we experienced a 28% increase inpenetration of our private label credit sales was 23.4% and 24.1%, respectively, an increase compared to penetration of 20.7% and 21.5% for the first quartersame periods of fiscal 2003.2003, respectively.

        Selling and store operating expenses increased 19.8%18.7% to $3.7$3.9 billion for the firstsecond quarter of fiscal 2004 from $3.1$3.2 billion for the second quarter of fiscal 2003. For the first six months of fiscal 2004, selling and store operating expenses increased 19.2% to $7.6 billion from $6.4 billion for the first quartersix months of fiscal 2003. As a percentage of net sales, selling and store operating expenses were 21.2%19.3% for the firstsecond quarter of fiscal 2004 compared to 20.6%18.1% for the same period in fiscal 2003. As a percentage of net sales, selling and store operating expenses were 20.2% for the first six months of fiscal 2004 compared to 19.2% for the same period in fiscal 2003. The increase in selling and store operating expenses for the second quarter and first quartersix months of fiscal 2004 was primarily attributable to $280$285 million and $565 million, respectively, of advertising expense related to the adoption of EITF 02-16. Excluding the impact of EITF 02-16, selling and store operating expenses increased 10.8%9.9% to $3.4$3.6 billion, or 17.9% of net sales for the second quarter of fiscal 2004 and were 19.6%increased 10.4% to $7.0 billion or 18.7% of sales.net sales for the first six months of 2004. The reduction in selling and store operating expenses as a percentage of net sales for both periods, excluding the impact of EITF 02-16, was due to an increase in labor productivity as sales per labor hour increased 6.9%,and increased penetration of our private label credit card, which carries a lower discount rate than other forms of credit, like bank cards, and the leverage of relatively fixed occupancy costs as a result of our strong sales performance.partially offset by increases in benefit costs.

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        General and administrative expenses increased 9.2%19.9% to $296$350 million for the firstsecond quarter of fiscal 2004 from $271$292 million for the firstsecond quarter of fiscal 2003. For the first six months of fiscal 2004, general and administrative expenses increased 14.7% to $646 million from $563 million for the same period in fiscal 2003. General and administrative expenses as a percentage of net sales were 1.7%1.8% for the firstsecond quarter of fiscal 2004 and 1.8%1.6% for the firstsecond quarter of fiscal 2003. As a percentage of net sales, general and administrative expenses were 1.7% for the first six months of both fiscal 2004 and fiscal 2003. The decreaseincrease as a percentage of net sales for the firstsecond quarter of fiscal 2004 was primarily due to incentive compensation plan expense and the leverageexpensing of expenses as a result of our strong sales performance.stock-based compensation.

        For the firstsecond quarter of fiscal 2004, we recognized $4$3 million of net interest expense compared to $6$1 million for the firstsecond quarter of fiscal 2003. Interest expense decreased 22.2% to $14 million forFor both the first quartersix months of fiscal 2004 from $18 million for the first quarter of fiscal 2003. Interest and investment income decreased 16.7% to $10 million for the first quarter of fiscal 2004 from $12 million for the first quarter of fiscal 2003, primarily due to a lower average cash balance and a lowerwe recognized $7 million of net interest rate environment.expense.

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        Our combined federal, foreign and state effective income tax rate decreased to 37.0% for the second quarter and first quartersix months of fiscal 2004 from 37.1% for the comparable periodperiods of fiscal 2003. The lower effective income tax rate was primarily due to increased utilization of state tax benefits.

        Diluted earnings per share was $0.49$0.70 and $1.18 for the second quarter and first quartersix months of fiscal 2004, respectively, compared to $0.39$0.56 and $0.96 for the second quarter and first quartersix months of fiscal 2003. Excluding the2003, respectively. The impact of the adoption of EITF 02-16 on our diluted earnings per share would havefor the second quarter of fiscal 2004 was a decrease of $0.01 per share. We estimate that the impact on our diluted earnings per share for the full fiscal year 2004 will be a decrease of $0.05 per share, most of which has already been $0.52, or 33.3% higher than last year.recognized in the first six months. Diluted earnings per share was favorably impacted infor the second quarter and first quartersix months of fiscal 2004 as a result of the repurchase of shares of our common stock in fiscal 2003 and 2004. Since August 2002, we have repurchased 141.3183.8 million shares of our common stock for a total of $4.5$6.0 billion. As of May 2, 2004, approximately $478 million remained under our previously authorized Share Repurchase Program. In addition, in MayAugust 2004, our Board of Directors authorized an increase of $1 billion in our authorized Share Repurchase Program, bringing the total remaining authorization to $1.5 billion.Program. For fiscal year 2004, we expectour guidance for diluted earnings per share growth of 10%is now 14% to 14% and, excluding the impact of EITF 02-16, we project diluted earnings per share growth of 13% to 16%17%.

LIQUIDITY AND CAPITAL RESOURCES

        Cash flow generated from operations provides a significant source of liquidity. During the first quartersix months of fiscal 2004, net cash provided by operating activities increased to $3.1$5.7 billion compared to $2.8$4.6 billion for the same period of fiscal 2003. The increase was due to stronger net earnings and improvement in our cash conversion cycle, or the number of days it takes to convert working capital into cash.

        Net cash used in investing activities for the first quartersix months of fiscal 2004 was $613 million$2.2 billion compared to $575 million$1.4 billion for the same period of fiscal 2003. The increase in net cash used in investing activities was dueprimarily the result of $712 million used to purchase White Cap Industries, Inc. ("White Cap") and Home Mart Mexico, S.A. de C.V. ("Home Mart") (see Note 3 in the Notes to Consolidated Financial Statements). The increase also reflects lower proceeds from the sale of property and equipment as well as lower proceeds from maturities of investments in the first quartersix months of fiscal 2004 compared to the same period of fiscal 2003. The increase in net cash used in investing activities was partially offset by a decrease in capital expenditures to $680 million$1.5 billion for the first quartersix months of fiscal 2004 compared to $756 million$1.7 billion for the same period last year. Capital expenditures related to store construction decreased during the first quartersix months of fiscal 2004 compared to the same quarterperiod last year due to the timing of expenditures related to new stores. We expect total capital expenditures to be approximately $3.7 billion in fiscal 2004, which includes investments in new stores, store modernization, technology and other initiatives.

        During the first quartersix months of fiscal 2004, net cash used in financing activities was $1$2.7 billion compared with $130$215 million for the same period of fiscal 2003. The increase in net cash used in financing activities was primarily due to the repurchase of $916 million$2.4 billion of our common stock during the first quartersix months of fiscal 2004. We did not repurchase any2004 compared with $24 million for the same period of our common stock fiscal 2003. In addition,

Page 15

during the first quartersix months of fiscal 2003.

        In May 2004, we acquired White Cap Industries, Inc. ("White Cap"). The acquisitioncash dividends paid to stockholders increased $70 million to $346 million from $276 million for the first six months of White Cap is part of our strategy to expand our professional customer base with value added products and services. In June 2004, we acquired Home Mart Mexico, S. de R.L. de C.V. ("Home Mart"). Home Mart is a home improvement retailer in Mexico that builds upon our store strength in North America. The acquisition price for these two companies will not materially impact our cash position and we still expect our fiscal 2004 ending cash and short-term investments balance to be in the range of $3.0 billion to $3.2 billion. Pro forma results of operations would not be materially different as a result of the acquisition of White Cap and Home Mart and, therefore, are not presented.2003.

        We have a commercial paper program that allowedallows for borrowings up to a maximum of $1$1.25 billion. As of May 2,August 1, 2004, there were no borrowingswas nothing outstanding under the program. On May 28, 2004, we issued a new offering memorandum which increased the maximum capacity under the commercial paper program to $1.25 billion. In connection with the program, we have a back-up credit facility with a

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consortium of banks for borrowings up to $800 million.$1 billion. The credit facility which was scheduled to expire in September 2004, contains various restrictive covenants, none of which are expected to impact our liquidity andor capital resources. On May 28, 2004, we renewed this backup credit facility, increasing the capacity to $1 billion and extending the term to May 2009.

        As of the end of the firstsecond quarter of fiscal 2004, our total debt-to-equity ratio was 7.3% compared to 6.4%6.1% at the end of the firstsecond quarter of fiscal 2003. The increase in our total debt-to-equity ratio was primarily due to the consolidation of a variable interest entity in accordance with the revised version of Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 4646") which increased long-term debt by $282 million during the first quarter of fiscal 2004 (see Note 3 in the Notes to Consolidated Financial Statements).2004.

        As of May 2,August 1, 2004, we had $4.3$3.7 billion in cash and short-term investments.cash. We believe that our current cash position and cash flow generated from operations should be sufficient to enable us to complete our capital expenditure programs and any required long-term debt payments through the next several fiscal years. In addition, we have funds available from the $1.25 billion commercial paper program and the ability to obtain alternative sources of financing if required.

Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk

        Our exposure to market risks results primarily from fluctuations in interest rates. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report on Form 10-K for the year ended February 1, 2004.

Item 4. Controls and Procedures

        The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

        The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective.

        There have not been any changes in the Company's internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the fiscal quarter ended May 2,August 1, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal controlcontrols over financial reporting. During the second quarter of fiscal 2004, the Company successfully implemented new financial systems. These systems, while improving productivity, did not materially impact the Company's internal controls over financial reporting.

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THE HOME DEPOT, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

Item 2. Changes in Securities

(e)

Issuer Purchases

        The Company's common stock repurchase program was initially announced on July 15, 2002. As of Equity Securities






Duringthe beginning of the second fiscal 2002, 2003 andquarter of 2004, the Board had approved purchases up to $5 billion. On May 26, 2004, the Company has repurchased shares of its outstanding common stock having a value of approximately $4.5 billion pursuant to authorizations to purchase up to $5 billion approved byannounced that the Board of Directors.Directors had authorized an additional $1 billion in common stock repurchases for a total authorization of $6 billion. The numberprogram does not have a prescribed expiration date. On August 6, 2004, the Company announced that the Board of Directors had authorized an additional $1 billion in common stock repurchases, for a total authorization of $7 billion. The table below sets forth the Company's monthly purchases during the second fiscal quarter of 2004:

Period		Total Number of Shares Purchased		Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
May 3, 2004 - May 30, 2004 ("May 2004")		17,306,200		$	34.41		158,596,377		$	882,000,218
May 31, 2004 - June 27, 2004 ("June 2004")		12,122,600		$	35.52		170,718,977		$	451,211,970
June 28, 2004 - August 1, 2004 ("July 2004")		13,084,025		$	34.46		183,803,002		$	53,233

        In addition to these repurchases, pursuant to the Company's 1997 Omnibus Stock Incentive Plan (the "Plan"), participants may exercise stock options by surrendering shares purchasedof The Home Depot common stock that the participants already own as payment of the exercise price. Plan participants may also surrender shares of The Home Depot common stock as payment of applicable tax withholding on the vesting of restricted stock awards. Shares so surrendered by participants in the Plan are repurchased pursuant to the terms of the Plan and applicable award agreement and not pursuant to publicly announced share repurchase programs. For the quarter ended August 1, 2004, the following shares of The Home Depot common stock were surrendered by participants in the Plan: May 2004 - 15,989 shares at an average price paid per share in each fiscal month of the first quarter$34.86; June 2004 - 16,970 shares at an average price per share of fiscal$35.76; July 2004 are set forth in the table below:

Item 4. Submission of Matters to a Vote of Security Holders

        At theThe Company's Annual Meeting of Stockholders was held on May 27, 2004,2004. The results of the stockholders electedmatters voted upon at the following nominees tomeeting, including the election of the Board of Directors, to serve a one-year term. The votes cast were as follows:was reported in the Company's Quarterly Report on Form 10-Q for the quarterly period ended May 2, 2004, which was filed with the SEC on June 4, 2004. This previously filed information is incorporated by reference herein.

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The stockholders ratified the appointment of KPMG LLP as Independent Auditors of the Company for fiscal 2004. Votes cast were as follows:

The stockholders rejected a stockholder proposal regarding outside director term limits. Votes cast were as follows:

The stockholders approved a stockholder proposal regarding poison pill implementation. Votes cast were as follows:

The stockholders rejected a stockholder proposal regarding performance goals as a prerequisite to vesting of restricted stock and deferred stock units. Votes cast were as follows:

The stockholders rejected a stockholder proposal regarding implementation of International Labor Organization global human rights standards. Votes cast were as follows:

The stockholders approved a stockholder proposal regarding future severance agreements. Votes cast were as follows:

The stockholders rejected a stockholder proposal regarding the method of voting for directors. Votes cast were as follows:

Page 18 of 21

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits



10.1

Credit Agreement dated May 28, 2004 (the "Credit Agreement") by and among The Home Depot, Inc., JPMorgan Chase Bank as Administrative Agent, Wachovia Bank, N.A., Citibank, N.A., and Wells Fargo Bank, National Association as Co-Syndication Agents, and banks party thereto.



10.2

Commercial Paper Dealer Agreement between J.P. Morgan Securities Inc., as Dealer, and The Home Depot, Inc. dated May 28, 2004.



15.1

Letter of KPMG LLP, Acknowledgement of Independent Registered Public Accounting Firm, dated May 17, 2004.



31.1

Certification of the Chairman, President and Chief Executive Officer pursuant to Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.



31.2

Certification of the Executive Vice President and Chief Financial Officer pursuant to Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.



32.1

Certification of Chairman, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



32.2

Certification of Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)

Reports on 8-K






The Company filed a Current Report on Form 8-K on February 24,May 18, 2004 furnishing a press release announcing financial results for the yearquarter ended February 1,May 2, 2004.

Page 19 of 2118

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Page 20 of 2119

THE HOME DEPOT, INC. AND SUBSIDIARIES

INDEX TO EXHIBITS

Page 21 of 2120