UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 1994
- - - - OR -
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8207
THE HOME DEPOT, INC.
(Exact name of registrant
as specified in its charter)
Delaware 95-3261426
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2727 Paces Ferry Road Atlanta, Georgia 30339
(Address of principal executive offices) (Zip Code)
(404) 433-8211
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
$.05 par value 452,984,000 Shares, as of November 14, 1994
Page 1 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
October 30, 1994
Page
Part I. Financial Information:
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS -
Three-Month and Nine-Month Periods
Ended October 30, 1994 and October 31,
1993.................................................... 3
CONSOLIDATED CONDENSED BALANCE SHEETS -
As of October 30, 1994 and January 30,
1994..................................................... 4
CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS - Nine-Month Period
Ended October 30, 1994 and October 31,
1993..................................................... 5
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL
STATEMENTS............................................... 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition...............................................8-11
Part II. Other Information:
Item 4. Submission of Matters to a Vote on Security
Holders................................................ 12
Item 6. Exhibits and Reports on 8-
K...................................................... 12
Signature
Page................................................... 13
Index to
Exhibits............................................... 14
Page 2 of 14
PART I. FINANCIAL INFORMATION
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
October 30, October 31, October 30, October 31,
1994 1993 1994 1993
Net Sales $3,240,050 $2,317,372 $9,399,215 $6,951,346
Cost of Merchandise Sold
2,359,482 1,691,186 6,814,073 5,061,626
Gross Profit
880,568 626,186 2,585,142 1,889,720
Operating Expenses:
Selling and Store Operating
575,951 406,160 1,633,950 1,200,741
Pre-opening 13,911 10,024 33,690 20,344
General and Administrative
59,317 45,360 167,101 137,232
Total Operating Expenses
649,179 461,544 1,834,741 1,358,317
Operating Income
231,389 164,642 750,401 531,403
Interest Income (Expense):
Interest Income 7,017 13,862 23,739 46,559
Interest Expense (9,132) (6,716) (27,348) (23,481)
Interest, Net (2,115) 7,146 (3,609) 23,078
Earnings Before Income Taxes
229,274 171,788 746,792 554,481
Income Taxes 88,500 68,370 288,270 209,760
Net Earnings $ 140,774 $ 103,418 $ 458,522 $ 344,721
Earnings Per Common and
Common Equivalent Share (Note 4)
$ .31 $ .23 $ 1.00 $ .76
Dividends Per Share
$ .04 $ .03 $ .11 $ .08
Weighted Average Number of
Common and Common
Equivalent Shares (Note 4)
476,075 452,925 475,567 452,878
See accompanying notes to consolidated condensed financial statements.
Page 3 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands)
October 30, January 30,
1994 1994
ASSETS
Current Assets:
Cash and Cash Equivalents $ 289,148 $ 99,997
Short-Term Investments 50,626 330,976
Accounts Receivable, Net 271,289 198,431
Merchandise Inventories 1,717,806 1,293,477
Other Current Assets 50,142 43,720
Total Current Assets 2,379,011 1,966,601
Property and Equipment, at cost 3,460,262 2,618,428
Less: Accumulated Depreciation and Amortization
(325,194) (247,524)
Net Property and Equipment 3,135,068 2,370,904
Long-Term Investments held Available for Sale
87,781 281,623
Cost in Excess of the Fair Value of Net
Assets Acquired, Net 88,396 19,503
Other 47,435 62,258
$5,737,691 $4,700,889
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 885,141 $ 521,246
Accrued Salaries and Related Expenses 242,589 167,489
Sales Taxes Payable 87,442 57,590
Other Accrued Expenses 249,989 183,901
Income Taxes Payable 24,282 40,303
Current Installments of Long-Term Debt 22,529 2,109
Total Current Liabilities 1,511,972 972,638
Convertible Subordinated Debt 804,990 804,990
Long-Term Debt, Net of Current Installments
71,490 77,272
Other Long-Term Liabilities 5,528 4,062
Deferred Income Taxes 13,678 27,827
Minority Interest 48,783 ---
Stockholders' Equity:
Common Stock - 452,195,000 shares outstanding
at 10/30/94 and 449,364,000 shares outstanding
at 01/30/94 22,609 22,468
Paid-in Capital 1,494,207 1,436,029
Retained Earnings 1,809,428 1,400,575
Cumulative Translation Adjustments (2,264) (121)
Unrealized Holding Loss on Investments (810) ---
3,323,170 2,858,951
Less Notes Receivable from ESOP 41,920 44,851
Total Stockholders' Equity 3,281,250 2,814,100
$5,737,691 $4,700,889
See accompanying notes to consolidated condensed financial statements.
Page 4 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
October 30, 1994 October 31, 1993
Cash Provided from Operations:
Net Earnings $ 458,522 $ 344,721
Reconciliation of Net Earnings to Net Cash
Provided by Operations:
Depreciation and Amortization 94,175 65,014
Increase in Accounts Payable
and Accrued Expenses 506,249 283,214
Increase in Merchandise Inventories
(371,012) (240,551)
(Decrease) Increase in Income Taxes Payable
(5,874) 29,550
Increase in Receivables, Net (60,439) (23,728)
Other, Net 8,426 (16,547)
Total 171,525 96,952
Net Cash Provided by Operations
630,047 441,673
Cash Flows From Investing Activities:
Capital Expenditures (801,104) (592,102)
Initial Acquisition of Canadian Partnership Interest
(161,548) ---
Sale (Purchase) of Short-Term Investments, Net
92,068 (128,735)
Purchase of Long-Term Investments (67,710) (673,319)
Proceeds from Maturities of Long-Term Investments
44,846 250,394
Proceeds from Sale of Long-Term Investments
403,738 706,296
Proceeds from Sale of Property and Equipment
41,266 23,511
Repayments of Advances
Secured by Real Estate, Net 6,425 (1,683)
Net Cash Used in Investing Activities
(442,019) (415,638)
Cash Flows From Financing Activities:
Proceeds from Sales of
Common Stock, Net 48,172 48,209
Cash Received from ESOP 2,931 3,207
Principal Repayments of Long-Term Debt (310) (1,073)
Cash Dividends Paid to Stockholders (49,670) (36,878)
Net Cash Provided by Financing Activities
1,123 13,465
Increase in Cash and
Cash Equivalents 189,151 39,500
Cash and Cash Equivalents,
Beginning of Period 99,997 121,744
Cash and Cash Equivalents,
End of Period $ 289,148 $ 161,244
See accompanying notes to consolidated condensed financial statements.
Page 5 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies:
Basis of Presentation
The accompanying consolidated condensed 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 reoccurring 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
January 30, 1994 as filed with the Securities and Exchange
Commission (File No. 1-8207).
2. Acquisition of Interest in Canadian Company
Effective February 28, 1994, the Company entered into a
partnership and, as a result, acquired 75% of Aikenhead's
Home Improvement Warehouse, now known as The Home Depot
Canada, which was operating seven warehouse-style home
improvement stores at the time of the acquisition in
Toronto, London and Kitchener, Ontario, Canada. Subsequent
to the acquisition, the partnership has opened five stores
which include one store each in Edmonton and Calgary,
Alberta and Toronto, Ontario and two stores in Vancouver,
British Columbia.
At any time after the sixth anniversary of the
purchase, the Company has the option to purchase, or the
other partner has the right to cause the Company to
purchase, the remaining 25% of The Home Depot Canada. The
option price is based on the lesser of fair market value or
a value to be determined by an agreed-upon formula as of
the option exercise date.
The purchase price paid for the 75% interest in The
Home Depot Canada was approximately $162,000,000 and is
being accounted for by the purchase method of accounting.
The excess purchase price over the estimated fair value of
the net assets as of the acquisition date has been recorded
as goodwill and will be amortized over 40 years.
3. Accounting for Investments
In the first quarter of fiscal 1994, the Company
implemented Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). This standard addresses the
accounting and reporting for investments in equity
securities that have readily determinable fair values and
for all investments in debt securities. Under SFAS 115,
the Company is required to classify its debt and marketable
equity securities in one of three categories: trading,
available for sale, or held to maturity. Trading
securities are bought and held primarily for the purpose of
selling them in the near term. Held to maturity securities
are securities that the Company has the ability and intent
to hold until maturity. All other securities not included
in trading or held to maturity are classified as available
for sale.
Trading securities are recorded at fair value with
unrealized gains and losses included in earnings. Held to
maturity securities are recorded at amortized cost,
adjusted for amortization or accretion of premiums or
discounts. Unrealized gains and losses on securities
available for sale are excluded from earnings and are
reported as a separate component of stockholders' equity
until realized.
SFAS 115 has not had a significant impact on the
Company's results of operations.
Page 6 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
4. Earnings Per Share
Earnings per common and common equivalent share are based
on the weighted average number of shares and equivalent
shares outstanding. Common equivalent shares used in the
calculation of earnings per share for the three and nine
month periods ended October 30, 1994 represent options to
purchase shares granted under the Company's employee stock
option and stock purchase plans.
The Company's 4.5% Convertible Subordinated Notes
("Notes"), due February 15, 1997, which were issued in
1992, are common stock equivalents. The Notes may be
redeemed at the election of the Company, as a whole or in
part, at any time on or after March 3, 1995 at the
applicable redemption price. The Notes are convertible
into common stock at a current conversion price of $38.75
per share, subject to adjustment in certain events. For
the three and nine month periods ended October 30, 1994,
the Notes were dilutive and are assumed to be converted as
of the beginning of the respective accounting periods for
purposes of calculating earnings per share. Earnings per
share is calculated by dividing net earnings, adjusted for
tax effected net interest and issue costs on the Notes,
amounting to $5,606,000 and $15,946,000 for the three and
nine month periods ended October 30, 1994, respectively, by
weighted average shares. Weighted average number of common
and common equivalent shares include shares issuable under
the stock plans mentioned above and the 20,774,000 shares
issuable upon conversion of the Notes.
For the three and nine month periods ended October 31,
1993 the Notes were not dilutive and therefore were
excluded from the earnings per share calculation.
5. Reclassifications
Certain balances in prior fiscal years have been
reclassified to conform with the presentation adopted in
the current fiscal year.
Page 7 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The data below reflect selected sales data and the percentage relationship
between sales and major categories in the Consolidated Statements of Earnings
and the percentage change in the dollar amounts of each of the items.
Percentage
Increase/Decrease
3 Months Ended 9 Months Ended in Dollar
Oct 30, Oct 31, Oct 30, Oct 31, Amounts
1994 1993 1994 1993 3 Mos 9 Mos
Selected Consolidated
Statements of Earnings Data
Net Sales 100.0% 100.0% 100.0% 100.0% 39.8% 35.2%
Gross Profit 27.2 27.0 27.5 27.2 40.6 36.8
Operating Expenses:
Selling and Store
Operating 17.8 17.5 17.4 17.3 41.8 36.1
Pre-Opening .4 .4 .3 .3 38.8 65.6
General and Administrative
1.8 2.0 1.8 2.0 30.8 21.8
Total Operating Expenses
20.0 19.9 19.5 19.6 40.7 35.1
Operating Income
7.2 7.1 8.0 7.6 40.5 41.2
Interest Income (Expense):
Interest Income
.2 .6 .3 .7 (49.4) (49.0)
Interest Expense
(.3) (.3) (.3) (.3) 36.0 16.5
Interest, Net
(.1) .3 0.0 .4 N/A N/A
Earnings Before Income Tax
7.1 7.4 8.0 8.0 33.5 34.7
Income Taxes 2.7 2.9 3.1 3.0 29.4 37.4
Net Earnings
4.4% 4.5% 4.9% 5.0% 36.1% 33.0%
Selected Consolidated Sales Data
Number of Customer Transactions
77,162,000 58,947,000 226,793,000 177,057,000 30.9% 28.1%
Average Amount of Sales Per Transaction
$ 41.99 $ 39.31 $ 41.44 $ 39.26 6.8 5.6
Weighted Average
Weekly Sales Per Operating Store
$817,000 $764,000 $828,000 $789,000 6.9 4.9
Weighted Average Sales Per Square Foot
$ 414 $ 401 $ 420 $ 414 3.2 1.4
Page 8 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 1994 increased 40% to
$3,240,050,000 compared to sales of $2,317,372,000 for the third
quarter of fiscal 1993. For the first nine months of fiscal
1994 sales increased 35% to $9,399,215,000 compared to sales of
$6,951,346,000 for the comparable period of fiscal 1993. This
sales increase was attributable to new stores (313 at the end of
the third quarter of fiscal 1994 compared to 242 at the end of
the third quarter of fiscal 1993) and a comparable store-for-
store sales increase of 9% for the third quarter of fiscal 1994.
The percentage increase in comparable store sales would have
been 11% for the quarter after excluding all sales from the ten
stores in southern Florida that were significantly affected in
fiscal 1993 by Hurricane Andrew. For the first nine months of
fiscal 1994, comparable store-for-store sales increased 7%, but
would have been 9% without the ten southern Florida stores
referred to above.
Gross profit as a percent of sales was 27.2% for the third
quarter of fiscal 1994 compared to 27.0% for the comparable
period of fiscal 1993. For the first nine months of fiscal
1994, gross profit as a percent of sales was 27.5% compared to
27.2% for the comparable period of fiscal 1993. These increases
were attributable to, among other things, changes in merchandise
mix.
Operating expenses as a percent of sales increased to 20.0% for
the third quarter of fiscal 1994 compared to 19.9% for the
comparable period of fiscal 1993. For the first nine months of
fiscal 1994, operating expenses as a percent of sales decreased
to 19.5% from 19.6% for the comparable period of fiscal 1993.
Selling and store operating expenses as a percent of sales
increased to 17.8% and 17.4% for the third quarter and first
nine months of fiscal 1994, respectively, compared to 17.5% and
17.3% for the third quarter and first nine months of fiscal
1993, respectively. For the quarter, this increase was
primarily attributable to costs related to store relocations and
also an expansion of the Company's advertising programs. For
the nine months, the increase was attributable to seven store
relocations in fiscal 1994 compared to three relocations in the
comparable period of fiscal 1993. Pre-opening expenses as a
percent of sales were 0.4% and 0.3% for both the third quarter
and first nine months of fiscal 1994 and fiscal 1993,
respectively. General and administrative expenses as a percent
of sales decreased to 1.8% for both the third quarter and first
nine months of fiscal 1994 compared to 2.0% for both the
comparable periods of fiscal 1993. These decreases were
attributable to economies from increased sales volume and
continued focus on cost controls.
Interest income as a percent of sales decreased to 0.2% and 0.3%
for the third quarter and first nine months of fiscal 1994,
respectively, from 0.6% and 0.7% for the third quarter and first
nine months of fiscal 1993, respectively. This decrease was
attributable to a lower investment base and lower effective
yields due to shorter maturities. Interest expense as a percent
of sales was 0.3% for both the third quarter and first nine
months of fiscal 1994 and fiscal 1993.
Page 9 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
RESULTS OF OPERATIONS--(Continued)
The Company's combined Federal and state effective income tax
rate decreased to 38.6% for the third quarter of fiscal 1994
compared to 39.8% for the same period of fiscal 1993 due to the
retroactive implementation of the Omnibus Budget Reconciliation
Act of 1993. For the first nine months of fiscal 1994, the
Company's combined Federal and state effective income tax rate
increased to 38.6% from 37.8% for the same period of fiscal
1993. This increase was attributable to the reason noted above
as well as lower tax advantaged investments. Statement of
Financial Accounting Standards No. 109 "Accounting for Income
Taxes" was implemented in first quarter of fiscal 1993 which
reduced the Federal and state effective rate to 37.8% for the
first nine months of fiscal 1993, but for the adoption of SFAS
No. 109, the combined Federal and state effective rate would
have been 38.2% for the same period.
Net earnings as a percent of sales was 4.4% for the third
quarter of fiscal 1994 compared to 4.5% for the same period of
fiscal 1993. This decrease was attributable to lower net
interest income and higher operating expenses, offset partially
by higher gross profits and lower taxes, as described above.
For the first nine months of both fiscal 1994, net earnings as
a percent sales was 4.9% compared to 5.0% for the comparable
period of fiscal 1993. This decrease was attributable to lower
net interest income and higher income taxes, offset partially by
higher gross profits and lower operating expenses, as described
above.
Earnings per share was $.31 and $1.00 for the third quarter and
first nine months of fiscal 1994, compared to $.23 and $.76 for
the third quarter and first nine months of fiscal 1993,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from store operations provides the Company
with a significant source of liquidity. Additionally, a
significant portion of the Company's inventory is financed under
vendor credit terms.
During the first nine months of fiscal 1994, the Company opened
43 stores, acquired seven stores in Canada, relocated seven of
its existing stores and closed one store. During the remainder
of fiscal 1994, the Company plans to open approximately 27
additional new stores and relocate two existing stores. Of the
70 new stores and nine relocations planned for fiscal 1994, it
is expected that 72 will be owned and seven will be leased. The
Company currently plans to open approximately 85 new stores and
may relocate nine stores during fiscal 1995. Although some of
these locations will be leased directly, it is expected that
many may be obtained through the purchase of pre-existing
leasehold interests, the acquisition of land parcels and the
construction or purchase of buildings during fiscal 1994. While
the cost of new stores to be constructed and owned by the
Company varies widely, principally due to land costs, new store
costs (including land, building and fixtures) are currently
estimated to average approximately $12,600,000 per location.
The Company may purchase leasehold interests at varying amounts
depending upon the value of such properties. The cost to
remodel (including leasehold interests) and fixture stores to be
leased is expected to average approximately $4,000,000 per
store. In addition, each new store will require approximately
$2,500,000 to finance inventories, net of vendor financing.
Page 10 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES--(Continued)
In addition, the Company paid approximately $162,000,000 on
February 28, 1994 in conjunction with the acquisition of a 75%
interest in Aikenhead's Home Improvement Warehouse (now known as
The Home Depot Canada) in Canada. After six years, the Company
has the option to purchase, or the other partner has the right
to cause the Company to purchase, the remaining 25% of The Home
Depot Canada. At the time of acquisition, Aikenhead's was
operating seven stores and the Company currently operates 12
stores in Canada all under the name, "The Home Depot."
The Company expects to commence a $300,000,000 commercial paper
program prior to the end of the 1994 fiscal year. The program
is backed by a $300,000,000 credit agreement entered into by a
consortium of five banks. As of October 30, 1994, the Company
had $339,774,000 in cash and short-term investments as well as
$87,781,000 in long-term investments. Management believes that
its current cash position, the proceeds from short-term and
long-term investments, commercial paper program, internally
generated funds, and/or the ability to obtain alternate sources
of financing should enable the Company to complete its capital
expenditure programs, including store expansion and renovation,
through the next several fiscal years.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise
effect of inflation on its operations, it does not believe
inflation has had a material effect on sales or results of
operations.
Page 11 of 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
During the third quarter of fiscal 1994, no matters
were submitted to a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 $300,000 Credit Agreement dated as of
November 2, 1994 among The Home Depot,
Inc., the Banks Listed Therein and
Wachovia Bank of Georgia, N.A., as
Agent (without exhibits)
11.1 Computation of Earnings per Common and
Common Equivalent Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended October 30, 1994.
Page 12 of 14
SIGNATURES
Pursuant to the requirements 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.
THE HOME DEPOT, INC.
(Registrant)
By: /s/ Arthur M. Blank
Arthur M. Blank
President
/s/ Ronald M. Brill
Ronald M. Brill
Executive Vice President
Chief Financial Officer
(Date)
Page 13 of 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit Description
10 $300,000,000 Credit Agreement dated as of
November 2, 1994 among The Home Depot, Inc., the
Banks Listed Therein and Wachovia Bank of Georgia,
N.A., as Agent (without exhibits)
11.1 Computation of Earnings per Common and Common
Equivalent Share
27 Financial Data Schedule
Page 14 of 14