x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 95-3261426 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
2455 Paces Ferry Road N.W., Atlanta, Georgia | 30339 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
1,564,291,782
NET SALES Cost of Sales GROSS PROFIT Operating Expenses: Selling, General and Administrative Depreciation and Amortization Total Operating Expenses OPERATING INCOME Interest and Other (Income) Expense: Interest and Investment Income Interest Expense Other Interest and Other, net EARNINGS BEFORE PROVISION FOR Provision for Income Taxes NET EARNINGS Weighted Average Common Shares BASIC EARNINGS PER SHARE Diluted Weighted Average Common Shares DILUTED EARNINGS PER SHARE Dividends Declared Per Share ASSETS Current Assets: Cash and Cash Equivalents Receivables, net Merchandise Inventories Other Current Assets Total Current Assets Property and Equipment, at cost Less Accumulated Depreciation and Amortization Net Property and Equipment Goodwill Other Assets Total Assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Total Current Liabilities Long-Term Debt, excluding current installments Other Long-Term Liabilities Deferred Income Taxes Total Liabilities STOCKHOLDERS’ EQUITY Common Stock, par value $0.05; authorized: 10 billion shares; issued: 1.728 billion shares at July 31, 2011 and 1.722 billion shares at January 30, 2011; outstanding: 1.569 billion shares at July 31, 2011 and 1.623 billion shares at January 30, 2011 Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock, at cost, 159 million shares at July 31, 2011 and 99 million shares at January 30, 2011 Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings Reconciliation of Net Earnings to Net Cash Provided by Operating Activities: Depreciation and Amortization Stock-Based Compensation Expense Changes in Assets and Liabilities: Receivables, net Merchandise Inventories Other Current Assets Accounts Payable and Accrued Expenses Deferred Revenue Income Taxes Payable Deferred Income Taxes Other Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures Proceeds from Sales of Property and Equipment Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Long-Term Borrowings, net of discount Repayments of Long-Term Debt Repurchases of Common Stock Proceeds from Sales of Common Stock Cash Dividends Paid to Stockholders Other Financing Activities Net Cash Used in Financing Activities Change in Cash and Cash Equivalents Effect of Exchange Rate Changes on Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Period Cash and Cash Equivalents at End of Period Net Earnings Other Comprehensive Income: Foreign Currency Translation Adjustments Cash Flow Hedges(1) Other Total Other Comprehensive Income Comprehensive Income The Home Depot, Inc. and subsidiaries (the “Company”) operate The Home Depot stores, which are full-service, warehouse-style stores averaging approximately 105,000 square feet in size. The stores stock approximately 30,000 to 40,000 different kinds of building materials, home improvement supplies and lawn and garden products that are sold to do-it-yourself customers, do-it-for-me customers and professional customers. In March 2011, the Company issued In March 2011, the Company entered into an ASR agreement with a third-party financial institution to repurchase In connection with the sale of HD Supply, Inc. (“HD Supply”) on August 30, 2007, the Company guaranteed a Derivative agreements - assets Derivative agreements - liabilities Total Lease obligation costs, net Total for the first six months of fiscal 2011 Lease obligation costs, net Guarantee of HD Supply loan Total for the first six months of fiscal 2010 The reconciliation of basic to diluted weighted average common shares for the three and Weighted average common shares Effect of potentially dilutive securities: Stock plans Diluted weighted average common shares NET SALES GROSS PROFIT Operating Expenses: Selling, General and Administrative Depreciation and Amortization Total Operating Expenses OPERATING INCOME Interest and Other (Income) Expense: Interest and Investment Income Interest Expense Other Interest and Other, net EARNINGS BEFORE PROVISION FOR INCOME TAXES Provision for Income Taxes NET EARNINGS SELECTED SALES DATA Number of Customer Transactions (in millions) Average Ticket Weighted Average Weekly Sales Per Weighted Average Sales per Square Foot Comparable Store Sales Increase (%)(1) , which was partially offset by a change in the mix of products and services sold as well as higher shrink compared to last year. third quarter of fiscal 2011. twelve months ended Expenditures partially offset by Proceeds from Sale of Business, net, related to the sale of a non-core carpet cleaning and cabinet refinishing business in the third quarter of fiscal 2011. Period May 2, 2011 – May 29, 2011(3) May 30, 2011 – June 26, 2011 June 27, 2011 – July 31, 2011 /s/ CAROL B. TOMÉ *3.1 *3.2 12.1 15.1 31.1 31.2 32.1 32.2 101 Page Financial Statements 3 4 5 6 7 10 11 Controls and Procedures16 Legal Proceedings Risk Factors17 Exhibits19 2021Item 1. Financial Statements Item 1. Financial Statements0000000 0000000 0000000 0000000 Three Months Ended Six Months Ended amounts in millions, except per share data July 31,
2011 August 1,
2010 July 31,
2011 August 1,
2010 $20,232 $19,410 $37,055 $36,273 13,356 12,828 24,351 23,897 6,876 6,582 12,704 12,376 4,186 4,127 8,195 8,205 396 406 793 817 4,582 4,533 8,988 9,022 2,294 2,049 3,716 3,354 (3 ) (3 ) (5 ) (7 ) 149 151 290 293 - - - 51 146 148 285 337
INCOME TAXES 2,148 1,901 3,431 3,017 785 709 1,256 1,100 $ 1,363 $ 1,192 $ 2,175 $ 1,917 1,568 1,653 1,585 1,666 $ 0.87 $ 0.72 $ 1.37 $ 1.15 1,577 1,663 1,595 1,676 $ 0.86 $ 0.72 $ 1.36 $ 1.14 $0.25 $0.23625 $0.50 $0.4725 Three Months Ended Nine Months Ended amounts in millions, except per share data October 30,
2011 October 31,
2010 October 30,
2011 October 31,
2010NET SALES $ 17,326 $ 16,598 $ 54,381 $ 52,871 Cost of Sales 11,365 10,913 35,716 34,810 GROSS PROFIT 5,961 5,685 18,665 18,061 Selling, General and Administrative 3,956 3,837 12,151 12,042 Depreciation and Amortization 390 400 1,183 1,217 Total Operating Expenses 4,346 4,237 13,334 13,259 1,615 1,448 5,331 4,802 Interest and Other (Income) Expense: Interest and Investment Income (4 ) (4 ) (9 ) (11 ) Interest Expense 162 146 452 439 Other — — — 51 Interest and Other, net 158 142 443 479 1,457 1,306 4,888 4,323 Provision for Income Taxes 523 472 1,779 1,572 NET EARNINGS $ 934 $ 834 $ 3,109 $ 2,751 Weighted Average Common Shares 1,540 1,637 1,572 1,657 $ 0.61 $ 0.51 $ 1.98 $ 1.66 Diluted Weighted Average Common Shares 1,548 1,646 1,581 1,667 $ 0.60 $ 0.51 $ 1.97 $ 1.65 Dividends Declared Per Share $ 0.29 $ 0.23625 $ 0.79 $ 0.70875 00000000 00000000 amounts in millions, except share and per share data July 31,
2011 January 30,
2011 $ 2,551 $ 545 1,332 1,085 10,756 10,625 1,218 1,224 15,857 13,479 38,897 38,385 14,099 13,325 24,798 25,060 1,177 1,187 445 399 $42,277 $40,125 $ 5,890 $ 4,717 1,262 1,290 509 368 1,178 1,177 306 13 44 1,042 1,758 1,515 10,947 10,122 10,731 8,707 2,136 2,135 230 272 24,044 21,236 86 86 6,665 6,556 16,372 14,995 603 445 (5,493 ) (3,193 ) 18,233 18,889 $42,277 $40,125 amounts in millions, except share and per share data October 30,
2011 January 30,
2011ASSETS Current Assets: Cash and Cash Equivalents $ 2,234 $ 545 Receivables, net 1,384 1,085 Merchandise Inventories 10,717 10,625 Other Current Assets 1,143 1,224 Total Current Assets 15,478 13,479 Property and Equipment, at cost 38,814 38,385 Less Accumulated Depreciation and Amortization 14,282 13,325 Net Property and Equipment 24,532 25,060 Goodwill 1,072 1,187 Other Assets 417 399 Total Assets $ 41,499 $ 40,125 Current Liabilities: Accounts Payable $ 5,669 $ 4,717 Accrued Salaries and Related Expenses 1,227 1,290 Sales Taxes Payable 466 368 Deferred Revenue 1,153 1,177 Income Taxes Payable 318 13 Current Installments of Long-Term Debt 44 1,042 Other Accrued Expenses 1,709 1,515 Total Current Liabilities 10,586 10,122 Long-Term Debt, excluding current installments 10,739 8,707 Other Long-Term Liabilities 2,205 2,135 Deferred Income Taxes 200 272 Total Liabilities 23,730 21,236 Common Stock, par value $0.05; authorized: 10 billion shares; issued: 1.727 billion shares at October 30, 2011 and 1.722 billion shares at January 30, 2011; outstanding: 1.541 billion shares at October 30, 2011 and 1.623 billion shares at January 30, 2011 86 86 Paid-In Capital 6,698 6,556 Retained Earnings 16,917 14,995 Accumulated Other Comprehensive Income 362 445 Treasury Stock, at cost, 186 million shares at October 30, 2011 and 99 million shares at January 30, 2011 (6,294 ) (3,193 ) Total Stockholders’ Equity 17,769 18,889 Total Liabilities and Stockholders’ Equity $ 41,499 $ 40,125 00000000 00000000 Six Months Ended amounts in millions July 31,
2011 August 1,
2010 $ 2,175 $ 1,917 849 866 108 112 (238 ) (246 ) (65 ) (526 ) (40 ) (47 ) 1,419 1,193 (4 ) (13 ) 308 161 4 (78 ) (29 ) 24 4,487 3,363 (469 ) (407 ) 27 44 (442 ) (363 ) 1,994 - (1,014 ) (17 ) (2,251 ) (1,209 ) 83 52 (798 ) (793 ) (54 ) (63 ) (2,040 ) (2,030 ) 2,005 970 1 4 545 1,421 $ 2,551 $ 2,395 Nine Months Ended amounts in millions October 30,
2011 October 31,
2010CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings $ 3,109 $ 2,751 Reconciliation of Net Earnings to Net Cash Provided by Operating Activities: Depreciation and Amortization 1,265 1,292 Stock-Based Compensation Expense 157 161 Changes in Assets and Liabilities, net of the effects of disposition: Receivables, net (309 ) (319 ) Merchandise Inventories (115 ) (745 ) Other Current Assets (9 ) (10 ) Accounts Payable and Accrued Expenses 1,212 820 Deferred Revenue (24 ) (3 ) Income Taxes Payable 309 90 Deferred Income Taxes 36 (74 ) Other 60 23 Net Cash Provided by Operating Activities 5,691 3,986 Capital Expenditures (820 ) (689 ) Proceeds from Sale of Business, net 101 — Proceeds from Sales of Property and Equipment 36 65 Net Cash Used in Investing Activities (683 ) (624 ) Proceeds from Long-Term Borrowings, net of discount 1,994 998 Repayments of Long-Term Debt (1,021 ) (1,023 ) Repurchases of Common Stock (3,056 ) (1,974 ) Proceeds from Sales of Common Stock 91 56 Cash Dividends Paid to Stockholders (1,187 ) (1,184 ) Other Financing Activities (118 ) (239 ) Net Cash Used in Financing Activities (3,297 ) (3,366 ) 1,711 (4 ) Effect of Exchange Rate Changes on Cash and Cash Equivalents (22 ) 8 Cash and Cash Equivalents at Beginning of Period 545 1,421 Cash and Cash Equivalents at End of Period $ 2,234 $ 1,425 0000000 0000000 0000000 0000000 Three Months Ended Six Months Ended amounts in millions July 31,
2011 August 1,
2010 July 31,
2011 August 1,
2010 $ 1,363 $ 1,192 $ 2,175 $ 1,917 (12) (39) 174 112 2 (75) (1) (82) - - (15) - (10) (114) 158 30 $ 1,353 $ 1,078 $ 2,333 $ 1,947 (1)This component of comprehensive income is reported net of income taxes. Three Months Ended Nine Months Ended amounts in millions October 30,
2011 October 31,
2010 October 30,
2011 October 31,
2010Net Earnings $ 934 $ 834 $ 3,109 $ 2,751 Other Comprehensive (Loss) Income: Foreign Currency Translation Adjustments (245 ) 33 (71 ) 145 Cash Flow Hedges, net of tax 3 (50 ) 2 (132 ) Other 1 — (14 ) — Total Other Comprehensive (Loss) Income (241 ) (17 ) (83 ) 13 Comprehensive Income $ 693 $ 817 $ 3,026 $ 2,764 (Unaudited)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BusinessJuly 31,October 30, 2011 and January 30, 2011, the valuation allowances for Merchandise Inventories and uncollectible Receivables were not material.2. LONG-TERM DEBT 2. LONG-TERM DEBT$1.0$1.0 billion of 4.40% Senior Notes due April 1, 2021 at a discount of $2$2 million and $1.0$1.0 billion of 5.95% Senior Notes due April 1, 2041 at a discount of $4$4 million (together, the “March 2011 issuance”). Interest on these Senior Notes is due semi-annually on April 1 and October 1 of each year, beginning October 1, 2011. The net proceeds of the March 2011 issuance were used to repurchase $1.0$1.0 billion of the Company’s common stock through an Accelerated Share Repurchase (“ASR”) agreement, and the balance of the net proceeds were used to repay the Company’s 5.20% Senior Notes that matured March 1, 2011 in the aggregate principal amount of $1.0 billion.$1.0 billion. The $6$6 million discount associated with the March 2011 issuance is being amortized over the term of the Senior Notes using the effective interest rate method. Issuance costs were approximately $15$15 million and are being amortized over the term of the Senior Notes.orand (2) the sum of the present values of the remaining scheduled payments of principal and interest to maturity. Additionally, if a Change in Control Triggering Event occurs, as defined by the terms of the March 2011 issuance, holders of the March 2011 issuance have the right to require the Company to redeem those notes at 101% of the aggregate principal amount of the notes plus accrued interest up to the redemption date. The Company is generally not limited under the indenture governing the Senior Notes in its ability to incur additional indebtedness or required to maintain financial ratios or specified levels of net worth or liquidity. Further, while the indenture governing the Senior Notes contains various restrictive covenants, none is expected to impact the Company’s liquidity or capital resources.$500$500 million, which was accounted for as a cash flow hedge, to hedge interest rate fluctuations in anticipation of the March 2011 issuance. Upon the March 2011 issuance, the Company settled this forward starting interest rate swap agreement for an immaterial amount.3. ACCELERATED SHARE REPURCHASE THE HOME DEPOT, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)3. ACCELERATED SHARE REPURCHASE$1.0$1.0 billion of the Company’s common stock. Under the agreement, the Company paid $1.0$1.0 billion to the financial institution, using a portion of the proceeds from the March 2011 issuance, and received an initial delivery of approximately 21 million shares in the first quarter of fiscal 2011. The transaction was completed in the second quarter of fiscal 2011, with the Company receiving an additional 6 million shares. The $1.0$1.0 billion of shares repurchased are included in Treasury Stock in the accompanying Consolidated Balance Sheets as of July 31, 2011.October 30, 2011. The final number of shares delivered upon settlement of the agreement was determined with reference to the average price of the Company’s common stock over the term of the ASR agreement.4. DEBT GUARANTEE EXTENSION 4. DEBT GUARANTEE EXTENSION$1.0$1.0 billion senior secured amortizing term loan of HD Supply. The Company is responsible for up to $1.0$1.0 billion and any unpaid interest in the event of nonpayment by HD Supply. As reported in the quarterly report on Form 10-Q of HD Supply for the period ended May 1,July 31, 2011, the outstanding balance of this term loan as of May 1,July 31, 2011 was $935 million.$933 million. The guaranteed loan is collateralized by certain assets of HD Supply. The original expiration date of the guarantee was August 30, 2012.2012. On March 19, 2010, the Company amended the guarantee to extend the expiration date to April 1, 2014.2014. The fair value of the guarantee at August 30, 2007 was $16$16 million and was recorded as a liability of the Company in Other Long-Term Liabilities. The extension of the guarantee increased the fair value of the guarantee to $67$67 million, resulting in a $51$51 million charge to Interest and Other, net, for the first quarter and first sixnine months of fiscal 2010.5. FAIR VALUE MEASUREMENTS5. FAIR VALUE MEASUREMENTS —Level 1 – Observable inputs that reflect quoted prices in active markets —Level 2 –Inputs other than quoted prices in active markets that are either directly or indirectly observable —Level 3 –Unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions July 31,October 30, 2011 and January 30, 2011 were as follows (amounts in millions):000,000 000,000 000,000 000,000 000,000 000,000 Fair Value at July 31, 2011 Using Fair Value at January 30, 2011 Using Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 $– $ 85 $– $– $ 47 $– – (56) – – (40) – $– $ 29 $– $– $ 7 $– Fair Value at October 30, 2011 Using Fair Value at January 30, 2011 Using Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Derivative agreements - assets $ — $ 98 $ — $ — $ 47 $ — Derivative agreements - liabilities — (38 ) — — (40 ) — Total $ — $ 60 $ — $ — $ 7 $ — THE HOME DEPOT, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)sixnine months ended JulyOctober 30, 2011 and October 31, 2011 and August 1, 2010 were as follows (amounts in millions): Fair Value Measured During
the Six Months Ended
July 31, 2011 - Level 3 Gains
(Losses) $(139) $7 $7 Fair Value Measured During
the Six Months Ended
August 1, 2010 - Level 3 Gains
(Losses) $(177) $ (8) $ (67) (51) $(59) Fair Value Measured During the Nine Months Ended Gains October 30, 2011 - Level 3 (Losses) Lease obligation costs, net $ (145 ) $ (7 ) Total for the first nine months of fiscal 2011 $ (7 ) Fair Value Measured During the Nine Months Ended Gains October 31, 2010 - Level 3 (Losses) Lease obligation costs, net $ (169 ) $ (10 ) Guarantee of HD Supply loan $ (67 ) (51 ) Total for the first nine months of fiscal 2010 $ (61 ) sixnine months of fiscal 2011 and 2010 were not material.an assessmentassessments on the recoverability of Goodwill for one of its reporting unitsand indefinite-lived intangible assets in the first sixnine months of fiscal 2011. The fair values of the Company's reporting units and indefinite-lived intangible assets were estimated using the present value of the Company’sexpected future discounted cash flows through unobservable inputs or, for one reporting unit was based onsubsequently sold, the potentialestimated selling price of the reporting unit. The impairment chargeImpairment charges related to this Goodwill assessment wasand indefinite-lived intangible assets were not material.$11.2$11.7 billion and $9.8$9.8 billion at July 31,October 30, 2011 and January 30, 2011, respectively, compared to a carrying value of $10.3$10.3 billion and $9.3$9.3 billion at July 31,October 30, 2011 and January 30, 2011, respectively.6. BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES 6. BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARESsixnine months ended JulyOctober 30, 2011 and October 31, 2011 and August 1, 2010 was as follows (amounts in millions): Three Months Ended Six Months Ended July 31,
2011 August 1,
2010 July 31,
2011 August 1,
2010 1,568 1,653 1,585 1,666 9 10 10 10 1,577 1,663 1,595 1,676 Three Months Ended Nine Months Ended October 30,
2011 October 31,
2010 October 30,
2011 October 31,
2010Weighted average common shares 1,540 1,637 1,572 1,657 Effect of potentially dilutive securities: Stock plans 8 9 9 10 Diluted weighted average common shares 1,548 1,646 1,581 1,667 3031 million and 4241 million shares of common stock for the three months ended JulyOctober 30, 2011 and October 31, 2011 and August 1, 2010, respectively, and options to purchase 2627 million and 40 million shares of common stock for the sixnine months ended JulyOctober 30, 2011 and October 31, 2011 and August 1, 2010, respectively, were excluded from the computation of Diluted Earnings per Share because their effect would have been anti-dilutive.July 31,October 30, 2011, the related Consolidated Statements of Earnings and Comprehensive Income for the three-month and six-monthnine-month periods ended JulyOctober 30, 2011 and October 31, 2011 and August 1, 2010, and the related Consolidated Statements of Cash Flows for the six-monthnine-month periods ended JulyOctober 30, 2011 and October 31, 2011 and August 1, 2010.2010. These Consolidated Financial Statements are the responsibility of the Company’s management. /s/ August 31,Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations place undue reliancerely on our forward-looking statements. These statements are not guarantees of future performance and are subject to future events, risks and uncertainties – many of which are beyond our control or are currently unknown to us – as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended January 30, 2011 as filed with the Securities and Exchange Commission (“SEC”) on March 24, 2011 (“Form 10-K”) and in Item 1A of Part II and elsewhere in this report. You should read such information in conjunction with our Consolidated Financial Statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. There also may be other factors that we cannot anticipate or that are not described in this report, generally because we do not currently perceive them to be material. Such factors could cause results to differ materially from our expectations.secondthird quarter of fiscal 2011, we reported Net Earnings of $1.4 billion$934 million and Diluted Earnings per Share of $0.86$0.60 compared to Net Earnings of $1.2 billion$834 million and Diluted Earnings per Share of $0.72$0.51 for the secondthird quarter of fiscal 2010.2010. For the first sixnine months of fiscal 2011, we reported Net Earnings of $2.2$3.1 billion and Diluted Earnings per Share of $1.36$1.97 compared to Net Earnings of $1.9$2.8 billion and Diluted Earnings per Share of $1.14$1.65 for the first sixnine months of fiscal 2010.2010. 4.2%4.4% to $20.2$17.3 billion for the secondthird quarter of fiscal 2011 from $19.4$16.6 billion for the secondthird quarter of fiscal 2010.2010. For the first sixnine months of fiscal 2011, Net Sales increased 2.2%2.9% to $37.1$54.4 billion from $36.3$52.9 billion for the first sixnine months of fiscal 2010.2010. Our comparable store sales increased 4.3%4.2% in the secondthird quarter of fiscal 2011, driven primarily by a 3.3%3.0% increase in our comparable store average ticket. Comparable store sales for our U.S. stores increased 3.5%3.8% in the secondthird quarter of fiscal 2011.2011.sixnine months of fiscal 2011, we continued to focus on the following four key initiatives:The roll out of our Customers FIRST training to all store associates and support staff has brought simplification and focus across the business and is part of our ongoing commitment to improve customer service levels in our stores. In the secondthird quarter of fiscal 2011, we pilotedrolled out a new scheduling system for our associates that will eliminate approximately 30 hours per store per week of manualand a new centralized return to vendor process. Both the new scheduling activity. Withsystem and the time saved on scheduling activity, we cannew return to vendor process are allowing us to increase the time allocated to customer facing activity. We plan to have this rolled out throughouthours in our stores at the U.S. by the end of fiscal 2011.same time that we are improving overall labor productivity.In an effortAs part of a multi-phased project to improve our special order performance, we arecompleted digitizing our vendor catalogs and expect to complete this process in the third quarter of fiscal 2011. ThisWhen completed, the new system will make the special order process both simpler and more accurate for our associates and will provide the foundation for a new special order sales dashboard that will give our merchants greater visibility into special order pricing and performance.associates.continuehaveimprove deliverythe RDCs and service to U.S. storeshave seen benefits in capacity, efficiency and ataccuracy. By the same time leverage the cost of moving goods. During the second quarterend of fiscal 2011,2012, we settledexpect 18 of the 19 RDCs will be mechanized. In terms of building shareholder value, during the first nine months of fiscal 2011, we repurchased a total of 87 million shares through open market purchases and our $1.0 billion Accelerated Share Repurchase (“ASR”("ASR") agreement. We received a total of 27 million shares under the ASR agreement in the first six months of fiscal 2011, including 6 million shares upon settlement of the ASR agreement in the second quarter of fiscal 2011. Also during the first six months of fiscalIn addition, on November 15, 2011 we repurchased an additional 36 million shares ofannounced a 16% increase in our common stock through the open market.quarterly cash dividend to 29 cents per share.Store. We had over 100 stores with Buy On-Line, Pick-up in Store, as of the end of the second quarter of fiscal 2011, and the roll out to our U.S. stores should be completewhich was completed in the third quarter of fiscal 2011. We are also upgrading our online platform and expect to complete the upgrade by the end of fiscal 2011.destroyed by a tornadodue to flooding damage during the secondthird quarter of fiscal 2011, for a total store count of 2,2452,246 at the end of the secondthird quarter of fiscal 2011.2011. As of the end of the secondthird quarter of fiscal 2011, a total of 273274 of these stores, or 12.2%, were located in Canada, Mexico and China compared to 268 stores, or 11.9%, as of the end of the secondthird quarter of fiscal 2010.2010.$4.5$5.7 billion of cash flow from operations in the first sixnine months of fiscal 2011.2011. We used a portion of this cash flow to fund $1.3$2.1 billion of share repurchases in addition to shares purchased under the ASR agreement, pay $798 million$1.2 billion of dividends, and fund $469$820 million in capital expenditures.secondthird quarter of fiscal 2011, our long-term debt-to-equity ratio was 58.9% comparedincreased to 39.7%60.4% from 45.8% at the end of the secondthird quarter of fiscal 2010.2010 driven primarily by higher debt levels in the current year. Our return on invested capital (computed on net operating profit after tax for the trailing twelve months and the average of beginning and ending long-term debt and equity) was 13.5%14.1% for the secondthird quarter of fiscal 2011 compared to 11.5%12.0% for the secondthird quarter of fiscal 2010.2010. % of Net Sales Three Months Ended Six Months Ended % Increase (Decrease)
in Dollar Amounts July 31,
2011 August 1,
2010 July 31,
2011 August 1,
2010 Three
Months Six
Months 100.0% 100.0% 100.0% 100.0% 4.2% 2.2% 34.0 33.9 34.3 34.1 4.5 2.7 20.7 21.3 22.1 22.6 1.4 (0.1) 2.0 2.1 2.1 2.3 (2.5) (2.9) 22.6 23.4 24.3 24.9 1.1 (0.4) 11.3 10.6 10.0 9.2 12.0 10.8 - - - - - (28.6) 0.7 0.8 0.8 0.8 (1.3) (1.0) - - - 0.1 - (100.0) 0.7 0.8 0.8 0.9 (1.4) (15.4) 10.6 9.8 9.3 8.3 13.0 13.7 3.9 3.7 3.4 3.0 10.7 14.2 6.7% 6.1% 5.9% 5.3% 14.3% 13.5% 373 369 689 692 1.1% (0.4)% $ 54.04 $ 52.30 $ 53.72 $ 52.41 3.3% 2.5%
Operating Store (in thousands) $ 690 $ 662 $ 634 $ 621 4.2% 2.1% $ 342.70 $ 328.27 $ 314.89 $ 307.94 4.4% 2.3% 4.3% 1.7% 2.0% 3.2% N/A N/A % of Net Sales Three Months Ended Nine Months Ended October 30, 2011 October 31, 2010 October 30, 2011 October 31, 2010 Three Months Nine Months NET SALES 100.0 % 100.0 % 100.0 % 100.0 % 4.4 % 2.9 % 34.4 34.3 34.3 34.2 4.9 3.3 Operating Expenses: Selling, General and Administrative 22.8 23.1 22.3 22.8 3.1 0.9 Depreciation and Amortization 2.3 2.4 2.2 2.3 (2.5 ) (2.8 ) Total Operating Expenses 25.1 25.5 24.5 25.1 2.6 0.6 9.3 8.7 9.8 9.1 11.5 11.0 Interest and Other (Income) Expense: Interest and Investment Income — — — — — (18.2 ) Interest Expense 0.9 0.9 0.8 0.8 11.0 3.0 Other — — — 0.1 — (100.0 ) Interest and Other, net 0.9 0.9 0.8 0.9 11.3 (7.5 ) EARNINGS BEFORE PROVISION FOR INCOME TAXES 8.4 7.9 9.0 8.2 11.6 13.1 Provision for Income Taxes 3.0 2.8 3.3 3.0 10.8 13.2 NET EARNINGS 5.4 % 5.0 % 5.7 % 5.2 % 12.0 % 13.0 % Number of Customer Transactions (in millions) 325.3 321.6 1,014.5 1,013.3 1.2 % 0.1 % Average Ticket $ 53.03 $ 51.47 $ 53.50 $ 52.11 3.0 % 2.7 % Weighted Average Weekly Sales Per Operating Store (in thousands) $ 590 $ 567 $ 620 $ 603 4.1 % 2.8 % Weighted Average Sales per Square Foot $ 293.26 $ 281.16 $ 308.17 $ 299.01 4.3 % 3.1 % 4.2 % 1.4 % 2.7 % 2.6 % N/A N/A (1) secondthird quarter of fiscal 2011increased 4.2%4.4% to $20.2$17.3 billion from $19.4$16.6 billion for the secondthird quarter of fiscal 2010.2010. For the first sixnine months of fiscal 2011, Net Sales increased 2.2%2.9% to $37.1$54.4 billion from $36.3$52.9 billion for the comparable period in fiscal 2010.2010. The increase in Net Sales for the secondthird quarter and first sixnine months of fiscal 2011 reflects the impact of positive comparable store sales. Total comparable store sales increased 4.3%4.2% for the secondthird quarter of fiscal 2011 compared to an increase of 1.7%1.4% for the secondthird quarter of fiscal 2010.2010. For the first sixnine months of fiscal 2011, total comparable store sales increased 2.0%2.7% compared to an increase of 3.2%2.6% for the same period of fiscal 2010.2010.secondthird quarter and first sixnine months of fiscal 2011 reflects reflect a number of factors. Our performance in the secondthird quarter of fiscal 2011 was driven by our seasonal businessstorm related sales arising from Hurricane Irene and outdoor projects, repair business from the harshearly winter and spring storms, andweather, as well as strength in our core departments. The majority of our departments posted positive comparable store sales for the secondthird quarter and first sixnine months of fiscal 2011, and comparable store average ticket increased 3.3%3.0% and 2.5%2.6% for the secondthird quarter and first sixnine months of fiscal 2011, respectively. Comparable store sales for our Tools, Electrical, Indoor Garden, Building Materials, Electrical, Kitchen/Bath, Indoor Garden, Outdoor GardenPlumbing and ToolsHardware product categories were above the Company average and comparable store sales for Hardware was at the Company average for the secondthird quarter of fiscal 2011.2011. Comparable store sales for our Paint, PlumbingFlooring, Lighting and FlooringKitchen product categories were positive but less than the Company average for the secondthird quarter of fiscal 2011.2011. Comparable store sales in Lighting were flat whilefor our Lumber, Outdoor Garden, Bath and Millwork product categories were negative for the secondthird quarter of 2011.2011. 4.5%4.9% to $6.9$6.0 billion for the secondthird quarter of fiscal 2011 from $6.6$5.7 billion for the secondthird quarter of fiscal 2010.2010. Gross Profit increased 2.7%3.3% to $12.7$18.7 billion for the first sixnine months of fiscal 2011 from $12.4$18.1 billion for the first sixnine months of fiscal 2010.2010. Gross Profit as a percent of Net Sales increased 8 15 basis points to 34.0%34.4% for the secondthird quarter of fiscal 2011 compared to 33.9%34.3% for the secondthird quarter of fiscal 2010.2010. For the first sixnine months of fiscal 2011, Gross Profit as a percent of Net Sales was 34.3% compared with 34.1%34.2% for the comparable period of fiscal 2010, an increase of 16 basis points. The increase in gross profit margin in the secondthird quarter and first sixnine months of fiscal 2011 was driven by benefits arising from our merchandising portfolio approach and our supply chain transformation in the U.S. 1.4%3.1% to $4.2$4.0 billion for the secondthird quarter of fiscal 2011 from $4.1$3.8 billion for the secondthird quarter of fiscal 2010, and was $8.2increased0.9% to $12.2 billion for the first sixnine months of both fiscal 2011 and 2010. from $12.0 billion for the first nine months of fiscal 2010. As a percent of Net Sales, SG&A was 20.7%22.8% for the secondthird quarter of fiscal 2011 compared to 21.3%23.1% for the secondthird quarter of fiscal 2010.2010. For the first sixnine months of fiscal 2011, SG&A as a percent of Net Sales was 22.1%22.3% compared to 22.6%22.8% for the same period last year. The decrease in SG&A as a percent of Net Sales for the secondthird quarter and first sixnine months of fiscal 2011 reflects expense leverage in the positive comparable store sales environment partially offset by expenses related to natural disasters. Additionally, SG&A for the first nine months of fiscal 2011 was negatively impacted by a $32 million impairment charge in the second quarter of fiscal 2011 for a non-core carpet cleaning and cabinet refinishing business that was subsequently sold in the Company intends to sell.$396$390 million for the secondthird quarter of fiscal 2011 from $406$400 million for the secondthird quarter of fiscal 2010. For the first six months of fiscal 2011,2010. Depreciation and Amortization decreased 2.9% to $793 million from $817 millionwas $1.2 billion for the same periodfirst nine months of both fiscal 2010.2011 and 2010. Depreciation and Amortization as a percent of Net Sales was 2.0%2.3% for the secondthird quarter of fiscal 2011 compared to 2.1%2.4% for the secondthird quarter of fiscal 2010, and was 2.1%2.2% for the first sixnine months of fiscal 2011 compared to 2.3% for the same period in fiscal 2010.2010. The decrease in Depreciation and Amortization as a percent of Net Sales for the third quarter and first nine months of fiscal 2011 was a function of an increased number of fully depreciated assets. 12.0%11.5% to $2.3$1.6 billion for the secondthird quarter of fiscal 2011 from $2.0$1.4 billion for the secondthird quarter of fiscal 2010.2010. Operating Income increased 10.8%11.0% to $3.7$5.3 billion for the first sixnine months of fiscal 2011 from $3.4$4.8 billion for the first sixnine months of fiscal 2010.2010.secondthird quarter of fiscal 2011, we recognized $146$158 million of Interest and Other, net, compared to $148$142 million in the secondthird quarter of fiscal 2010.2010. We recognized $285$443 million of Interest and Other, net, in the first sixnine months of fiscal 2011 compared to $337$479 million for the same period last year. Interest and Other, net, as a percent of Net Sales was 0.7%0.9% for the secondthird quarter of both fiscal 2011 compared to 0.8% for the second quarter of fiscal 2010. and 2010. For the first sixnine months of fiscal 2011, Interest and Other, net, as a percent of Net Sales was 0.8% compared to 0.9% for the same period last year. Interest and Other, net, for the first sixnine months of fiscal 2010 reflects a $51 million pretax charge taken in the first quarter of fiscal 2010 related to the extension of our guarantee of a senior secured loan of HD Supply, Inc.36.6%36.4% for the first sixnine months of both fiscal 2011 compared to 36.5% for the comparable period of fiscal 2010. and 2010.$0.86$0.60 and $1.36$1.97 for the secondthird quarter and first sixnine months of fiscal 2011, respectively, compared to $0.72$0.51 and $1.14$1.65 for the secondthird quarter and first sixnine months of fiscal 2010, respectively. Diluted Earnings per Sharesecondthird quarter and first sixnine months of fiscal 2011 reflect $0.04$0.03 and $0.06,$0.10, respectively, of benefit from repurchases of our common stock in the last 12 months.sixnine months of fiscal 2011, Net Cash Provided by Operating Activities was $4.5$5.7 billion compared to $3.4$4.0 billion for the same period of fiscal 2010.2010. This increase was primarily a result of an increase in Net Earnings, changes in inventory levels and other net working capital items.sixnine months of fiscal 2011 was $442$683 million compared to $363$624 million for the same period of fiscal 2010.2010. This change was primarily due to increased Capital Expenditures.sixnine months of both fiscal 2011 and 2010 was $2.0 billion.$3.3 billion compared to $3.4 billion for the same period of fiscal 2010. In March 2011, we issued $1.0 billion of 4.40% Senior Notes due April 1, 2021 at a discount of $2 million and $1.0 billion of 5.95% Senior Notes due April 1, 2041 at a discount of $4 million (together, the “March 2011 issuance”). Interest on these Senior Notes is due semi-annually on April 1 and October 1 of each year, beginning October 1, 2011. The net proceeds of the March 2011 issuance were used to repurchase $1.0 billion of our common stock, and the balance of the net proceeds were used to repay our 5.20% Senior Notes that matured March 1, 2011 in the aggregate principal amount of $1.0 billion.in the first quarter of fiscal 2011 we paid $1.0 billion to the financial institution and received an initial deliverya total of approximately 2127 million shares. The transaction was completed inshares during the second quarterfirst nine months of fiscal 2011, at which time we received an additional 6 million shares.2011. Also during the first sixnine months of fiscal 2011, we repurchased an additional 3660 million shares of our common stock for $1.3$2.1 billion through the open market. As of the end of the secondthird quarter of fiscal 2011 $7.6, $6.8 billion remained under our share repurchase authorization.July 31,October 30, 2011, there were no borrowings outstanding under the commercial paper programs or the related credit facility. The credit facility expires in July 2013 and contains various restrictive covenants. As of July 31,October 30, 2011, we were in compliance with all of the covenants, and they are not expected to impact our liquidity or capital resources.July 31,October 30, 2011, we had $2.6$2.2 billion in Cash and Cash Equivalents. We believe that our current cash position, access to the debt capital markets and cash flow generated from operations should be sufficient to enable us to complete our capital expenditure programs and fund dividend payments, share repurchases and any required long-term debt payments through the next several fiscal years. In addition, we have funds available from our commercial paper programs and the ability to obtain alternative sources of financing.Item 3. Quantitative and Qualitative Disclosures about Market RiskItem 3. Quantitative and Qualitative Disclosures about Market Risk Item 4. Controls and ProceduresItem 4. Controls and Procedures Act)Act of 1934, as amended) 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 SEC 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.July 31,October 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.Item 1. Legal ProceedingsThe following information updates, and should be read in conjunction with, Item 3, “Legal Proceedings,” of the Company’s Form 10-K. Except as set forth below, there are no other material changes during the second quarter of fiscal 2011 to our disclosure in Item 3 of our Form 10-K.As reported on page 12 of our Form 10-K, in September 2010, the Company was contacted by district attorneys in three counties in California within the South Coast Air Quality Management District (the “SCAQMD”) and the City of Los Angeles regarding allegations that the Company sold products in those counties with VOC (volatile organic compound) levels in excess of amounts permitted by SCAQMD rules. In June 2011, two related complaints were filed in the Superior Court of California – County of Los Angeles against the Company. The first action was brought by the SCAQMD and alleges that the Company sold products with higher-than-permitted VOC levels. This action seeks $30 million in civil penalties and injunctive relief. The second action was brought by the Los Angeles City Attorney and the district attorneys of each of Orange, Riverside and San Bernadino counties and alleges that the Company engaged in unfair business practices and false advertising when selling these products. This action seeks unspecified civil penalties and injunctive relief. Although the Company cannot predict the outcomes of these matters, it does not expect either to have a material adverse effect on its consolidated financial condition or results of operations.Item 1A. Risk Factors Item 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 2. Unregistered Sales of Equity Securities and Use of Proceeds (a) secondthird quarter of fiscal 2011, the Company issued 13,693591 deferred stock units under The Home Depot, Inc. NonEmployee Directors’ Deferred Stock Compensation Plan pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. The deferred stock units were credited to the accounts of such nonemployee directors during the secondthird quarter of fiscal 2011 who elected to receive board retainers in the form of deferred stock units instead of cash. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in this plan.During the second quarter of fiscal 2011, the Company credited 1,309 deferred stock units to participant accounts under The Home Depot FutureBuilder Restoration Plan pursuant to an exemption from the registration requirements of the Securities Act of 1933 for involuntary, non-contributory plans. The deferred stock units convert to shares of common stock on a one-for-one basis following the termination of services as described in this plan.(b) (c) secondthird quarter of fiscal 2011, the Company has repurchased shares of its common stock having a value of approximately $32.4$33.2 billion. The number and average price of shares purchased in each fiscal month of the secondthird quarter of fiscal 2011 are set forth in the table below: Total
Number of
Shares
Purchased(1) Average
Price Paid
Per Share(1) Total Number of
Shares Purchased as
Part of Publicly
Announced Program(2) Dollar Value of
Shares that May Yet
Be Purchased Under
the Program(2) 5,918,674 $37.50 5,871,532 $8,610,015,354 11,908,399 $34.57 11,660,426 $8,206,994,680 16,560,889 $36.22 16,481,770 $7,610,015,369 Period August 1, 2011 – August 28, 2011 3,004,456 $ 33.27 2,920,884 $ 7,512,829,690 August 29, 2011 – September 25, 2011 9,506,656 $ 33.26 9,362,884 $ 7,201,393,593 September 26, 2011 – October 30, 2011 11,315,059 $ 34.60 11,312,054 $ 6,810,021,267 (1) These amounts include repurchases pursuant to the Company’s 1997 and 2005 Omnibus Stock Incentive Plans (the “Plans”). Under the Plans, participants may exercise stock options by surrendering shares of common stock that the participants already own as payment of the exercise price. Participants in the Plans may also surrender shares as payment of applicable tax withholding on the vesting of restricted stock and deferred share awards. Shares so surrendered by participants in the Plans are repurchased pursuant to the terms of the Plans and applicable award agreement and not pursuant to publicly announced share repurchase programs. (2) secondthird quarter of fiscal 2011, the Board had approved purchases up to $40.0 billion. The program does not have a prescribed expiration date.(3)In the first quarter of fiscal 2011, the Company paid $1.0 billion under an ASR agreement and received an initial delivery of 21 million shares. The transaction was completed in the second quarter of fiscal 2011, with the Company receiving an additional 6 million shares to settle the agreement. The Average Price Paid Per Share was calculated with reference to the average stock price of the Company’s common stock over the term of the ASR agreement. See Note 3 to the Consolidated Financial Statements included in this report.Item 6. Exhibits Securities and Exchange Commission,SEC, as indicated by the references in brackets. All other exhibits are filed or furnished herewith.*3.1 [Form 10-Q filed on September 1, 2011, Exhibit 3.1] *3.2 12.1 Statement of Computation of Ratio of Earnings to Fixed Charges. 15.1 Letter of KPMG LLP, Acknowledgement of Independent Registered Public Accounting Firm, dated August 31,November 28, 2011. 31.1 Certification of the Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Chief Financial Officer and Executive Vice President – Corporate Services pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. 32.1 Certification of Chairman and Chief Executive Officer furnished 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 Chief Financial Officer and Executive Vice President – Corporate Services furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,October 30, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnishedfiled electronically herewith: (i) the Consolidated Statements of Earnings; (ii) the Consolidated Balance Sheets; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Comprehensive Income; and (v) the Notes to the Consolidated Financial Statements.THE HOME DEPOT, INC. (Registrant) By:THE HOME DEPOT, INC. (Registrant) By: /s/ FRANCIS S. BLAKE Francis S. Blake Chairman and Chief Executive Officer Carol B. Tomé Chief Financial Officer and Executive Vice President – Corporate Services November 28, 2011 (Date) August 30, 2011 (Date)Exhibit Description ExhibitDescriptionExhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the Securities and Exchange Commission,SEC, as indicated by the references in brackets. All other exhibits are filed or furnished herewith. Statement of Computation of Ratio of Earnings to Fixed Charges. Letter of KPMG LLP, Acknowledgement of Independent Registered Public Accounting Firm, dated August 31,November 28, 2011. Certification of the Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. Certification of the Chief Financial Officer and Executive Vice President – Corporate Services pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. Certification of Chairman and Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer and Executive Vice President – Corporate Services furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,October 30, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnishedfiled electronically herewith: (i) the Consolidated Statements of Earnings; (ii) the Consolidated Balance Sheets; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Comprehensive Income; and (v) the Notes to the Consolidated Financial Statements.21