Ten Year Selected Financial and Operating Highlights
The Home Depot, Inc. and Subsidiaries
Amounts in thousands, except where noted
5 Year Annual 10 Year Annual
Compound Compound
Growth Rate Growth Rate 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
Statement of Earnings Data
Net sales 32.3% 36.3% $15,470,358 $12,476,697 $9,238,763 $7,148,436 $5,136,674
Net sales increase - % - - 24.0 35.0 29.2 39.2 34.6
Earnings before taxes 35.7 58.9 1,195,303 979,751 736,871 575,973 396,120
Net earnings 35.0 56.6 731,523 604,501 457,401 362,863 249,150
Net earnings increase - % - - 21.0 32.2 26.1 45.6 52.5
Net earnings per share ($) 27.9 48.3 1.54 1.32 1.01 .82 .60
Net earnings per share
increase - % - - 16.7 30.5 23.2 36.7 33.3
Weighted average number
of shares 5.7 6.5 477,977 475,947 453,037 444,989 415,997
Gross margin - % to sales - - 27.7 27.9 27.7 27.6 28.1
Store selling and
operating - % to sales - - 18.0 17.8 17.6 17.4 18.1
Pre-opening - % to sales - - .4 .4 .4 .4 .3
General and
administrative- %to sales - - 1.7 1.8 2.0 2.1 2.3
Net interest (expense)
income - % to sales - - (.1) (.1) .3 .4 .3
Earnings before taxes
- % to sales - - 7.7 7.8 8.0 8.1 7.7
Net earnings - % to sales - - 4.7 4.8 5.0 5.1 4.8
- ----------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data and Financial Ratios
Total assets 35.0% 34.5% $ 7,354,033 $ 5,778,041 $4,700,889 $3,931,790 $2,510,292
Working capital 33.1 30.0 1,255,487 918,724 993,963 807,028 623,937
Mdse. inventories 33.8 30.5 2,180,318 1,749,312 1,293,477 939,824 662,257
Net property and equipment 38.4 39.4 4,461,024 3,397,237 2,370,904 1,607,984 1,254,774
Long-term debt 6.3 13.7 720,080 983,369 874,048 843,672 270,575
Stockholders' equity 48.8 49.6 4,987,766 3,442,223 2,814,100 2,304,081 1,691,212
Book value per share ($) 40.2 40.4 10.45 7.59 6.26 5.20 4.01
Long-term debt to
equity - % - - 14.4 28.6 31.1 36.6 16.0
Current ratio - - 1.89:1 1.76:1 2.02:1 2.07:1 2.17:1
Inventory turnover - - 5.5x 5.7x 5.9x 6.3x 6.1x
Return on average equity - % - - 17.4 19.3 17.9 18.1 18.5
- ----------------------------------------------------------------------------------------------------------------------------
Statement of Cash Flows Data
Depreciation and
amortization 39.4% 42.6% $ 181,205 $ 129,609 $ 89,839 $ 69,536 $ 52,283
Capital expenditures 26.7 29.4 1,308,375 1,220,180 900,452 437,278 432,198
Cash dividends per share ($) - - .19 .15 .11 .08 .05
- ----------------------------------------------------------------------------------------------------------------------------
Customer and Store Data
Number of states 20.9% 16.0% 31 28 23 19 15
Number of Canadian provinces - - 3 3 - - -
Number of stores 23.9 23.8 423 340 264 214 174
Square footage at year-end 27.3 27.2 44,356 35,133 26,383 20,897 16,480
Change in square footage - % - - 26.3 33.2 26.3 26.8 24.1
Average square footage
per store - - 105 103 100 98 95
Number of customer
transactions 26.9 31.8 370,317 302,181 236,101 189,493 146,221
Average sale per
transaction ($) 4.2 3.3 41.78 41.29 39.13 37.72 35.13
Number of employees 30.3 31.1 80,800 67,300 50,600 38,900 28,000
- ----------------------------------------------------------------------------------------------------------------------------
Other Data
Average total company
weekly sales 32.8% 36.3% $ 297,507 $ 239,936 $ 177,669 $ 137,470 $ 98,782
Weighted average weekly
sales per operating store 6.8 8.7 787 802 764 724 633
Comparable store sales
increase - % (2) - - 3 8 7 15 11
Weighted average sales
per square foot ($) (2) 3.9 5.7 390 404 398 387 348
Net advertising
expense - % to sales - - .5 .5 .5 .5 .7
(1) Fiscal year 1990 consisted of 53 weeks, all other years reported consisted of 52 weeks.
(2) Adjusted to reflect the first 52 weeks of the 53-week fiscal year in 1990.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
THE HOME DEPOT, INC. AND SUBSIDIARIES
The data below reflect selected sales data, the percentage relationship
between sales and major categories in the Consolidated Statement of
Earnings and the percentage change in the dollar amounts of each of the items.
Percentage
Increase (Decrease)
of Dollar Amounts
Fiscal Year(1) ------------------------
-------------- 1995 1994
1995 1994 1993 vs. 1994 vs. 1993
------------------------------------------------------------------------
Selected Consolidated Statements of
Earnings Data
Net Sales 100.0% 100.0% 100.0% 24.0% 35.0%
- -----------------------------------------------------------------------------------------------------------------
Gross Profit 27.7 27.9 27.7 23.0 36.5
- -----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Selling and Store Operating 18.0 17.8 17.6 25.6 36.4
Pre-Opening 0.4 0.4 0.4 2.0 39.4
General and Administrative 1.7 1.8 2.0 16.9 24.6
- -----------------------------------------------------------------------------------------------------------------
Total Operating Expenses 20.1 20.0 20.0 24.3 35.3
- -----------------------------------------------------------------------------------------------------------------
Operating Income 7.6 7.9 7.7 19.5 39.7
Interest Income (Expense):
Interest and Investment Income 0.1 0.2 0.6 (31.3) (53.2)
Interest Expense - (0.3) (0.3) (88.5) 17.0
- -----------------------------------------------------------------------------------------------------------------
Interest, Net 0.1 (0.1) 0.3 (307.7) (124.7)
- -----------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 7.7 7.8 8.0 22.0 33.0
Income Taxes 3.0 3.0 3.0 23.6 34.3
- -----------------------------------------------------------------------------------------------------------------
Net Earnings 4.7% 4.8% 5.0% 21.0% 32.2%
- -----------------------------------------------------------------------------------------------------------------
Selected Consolidated Sales Data
Number of Transactions 370,317,000 302,181,000 236,101,000 22.5% 28.0%
Average Amount of Sale
Per Transaction $ 41.78 $ 41.29 $ 39.13 1.2 5.5
Weighted Average Weekly Sales
Per Operating Store $787,000 $802,000 $764,000 (1.9) 5.0
Weighted Average Sales
Per Square Foot $ 390.32 $ 404.04 $ 398.18 (3.4) 1.5
- -----------------------------------------------------------------------------------------------------------------
(1)Fiscal years 1995, 1994 and 1993 refer to the fiscal years ended January 28, 1996, January 29, 1995 and
January 30, 1994, respectively.
Results Of Operations
For an understanding of the significant factors that influenced the Company's
performance during the past three fiscal years, the following discussion
should be read in conjunction with the consolidated financial statements
appearing elsewhere in this annual report.
Fiscal Year Ended January 28, 1996 Compared to January 29, 1995
Sales for fiscal year 1995 increased 24% from $12,476,697,000 in fiscal 1994
to $15,470,358,000. This increase was attributable to, among other things,
83 new store openings, five store relocations, a 3% comparable store-for-
store sales increase and full year sales from the 69 new store openings
during fiscal 1994.
Gross profit as a percent of sales was 27.7% for fiscal 1995 compared to
27.9% for fiscal 1994. This lower gross profit percentage resulted primarily
from maintaining competitive pressure in many markets as well as changes in
merchandise mix.
Operating expenses as a percent of sales increased to 20.1% for fiscal 1995
compared to 20.0% in fiscal 1994. Selling and store operating expenses as
a percent of sales increased to 18.0% in fiscal 1995 compared to 17.8% in
fiscal 1994. This increase was attributable to, among other things, higher
store payroll expenses due to higher average hourly wage rates resulting from
a greater percentage of long-term associates versus new hires and higher
credit card costs due to a greater percentage of credit sales. The increase
in selling and store operating expenses as a percent of sales was partially
offset by lower general and administrative expenses as a percent of sales due
to continued emphasis on controlling costs.
Interest and investment income as a percent of sales decreased to 0.1% in
fiscal 1995 compared to 0.2% during fiscal 1994. This decrease was attributable
to a lower investment base due to the utilization of funds for capital
expansion, partially offset by higher yields. Interest expense as a percent
of sales decreased to 0.0% for fiscal 1995 compared to 0.3% for fiscal 1994.
This decrease was attributable to the conversion to common stock of the 4-1/2%
Convertible Subordinated Notes on March 31, 1995 and higher capitalized
interest.
The Company's combined Federal and state effective income tax rate was 38.8%
for fiscal 1995 compared to 38.3% for fiscal 1994. This increase was
attributable to lower tax-advantaged investments, a higher effective state
income tax rate and the expiration of targeted job tax credits.
Net earnings as a percent of sales was 4.7% for fiscal 1995 compared to 4.8%
for fiscal 1994, reflecting lower gross profits, higher operating expenses and
a higher effective income tax rate, partially offset by lower interest expense,
as described above. Earnings per share was $1.54 for fiscal 1995 compared to
$1.32 for fiscal 1994.
Fiscal Year Ended January 29, 1995 Compared to January 30, 1994
Sales for fiscal year 1994 increased 35.0% from $9,238,763,000 in fiscal 1993
to $12,476,697,000. This increase was attributable to, among other things,
69 new store openings, nine store relocations, the acquisition of a 75%
partnership interest in seven Canadian stores then known as Aikenhead's Home
Improvement Warehouse, an 8% comparable store-for-store sales increase and full
year sales from the 50 new store openings during fiscal 1993.
Gross profit as a percent of sales was 27.9% for fiscal 1994 compared to
27.7% for fiscal 1993. This higher gross profit percentage resulted primarily
from changes in merchandise mix including more decor products and upgraded
seasonal merchandise at higher margins, as well as decreased sales penetrations
in lumber which carries lower margins.
Operating expenses as a percent of sales were 20.0% for both fiscal 1994 and
fiscal 1993. Selling and store operating expenses as a percent of sales
increased to 17.8% in fiscal 1994 compared to 17.6% in fiscal 1993. This
increase was attributable to, among other things, additional costs associated
with nine store relocations during fiscal 1994 compared to six store
relocations during fiscal 1993. The increase in selling and store operating
expenses as a percent of sales was offset by lower general and administrative
expenses as a percent of sales due to cost control measures and economies from
higher sales volumes.
Interest and investment income as a percent of sales decreased to 0.2% in
fiscal 1994 compared to 0.6% during fiscal 1993. This decrease was
attributable to a reduction of investment principal due to utilization of
funds for capital expansion, as well as lower yields due to shorter maturities
on the investment portfolio. Interest expense as a percent of sales was 0.3%
for both fiscal 1994 and fiscal 1993. Higher interest expense from additional
capital leases was partially offset by higher capitalized interest resulting
from constructing more owned stores than in the previous year.
The Company's combined Federal and state effective income tax rate was 38.3%
for fiscal 1994 compared to 38.2% in fiscal 1993, before cumulative effect of
change in accounting principle. This increase was attributable to lower
tax-advantaged investments. The Company implemented SFAS 109 "Accounting for
Income Taxes" during fiscal 1993 which reduced the combined Federal and state
effective income tax rate to 37.9% in fiscal 1993.
Net earnings as a percent of sales was 4.8% for fiscal 1994 compared to 5.0%
for fiscal 1993, reflecting lower interest income and a higher effective
income tax rate, partially offset by higher gross profits, as described above.
Earnings per share was $1.32 for fiscal 1994 compared to $1.01 during fiscal
1993.
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.
The Company plans to open approximately 90 to 95 new stores and relocate six
existing stores during fiscal 1996. It is anticipated that approximately 80%
of these locations will be owned and the balance will be leased. The Company
also plans to open approximately 123 stores, including relocations, in fiscal
1997. Although some of these locations may be newly leased, it is expected
that most will be obtained during fiscal 1996 through the purchase of
pre-existing leasehold interests, the acquisition of land parcels and the
construction or purchase of buildings. While the cost of new stores to be
constructed and owned by the Company varies widely, principally due to land
costs, new store costs are currently estimated to average approximately
$12,900,000 per location. In addition, the Company may purchase leasehold
interests at varying amounts depending on the value of such properties. The
cost to remodel and fixture stores to be leased is expected to average
approximately $3,000,000 per store. In addition, each new store will require
approximately $3,200,000 to finance inventories, net of vendor financing.
During fiscal 1995, the Company expanded its commercial paper program up to
a maximum of $800,000,000 of which $620,000,000 was outstanding as of
January 28, 1996. In connection with the program, the Company has a back-up
credit facility with a consortium of banks for up to $800,000,000. The
facility expires in December 2000. The facility contains various restrictive
covenants, none of which is expected to impact the Company's liquidity or
capital resources.
As of January 28, 1996, the Company had $108,025,000 in cash and cash
equivalents and short-term investments as well as $25,436,000 in long-term
investments. Management believes that its current cash position, the proceeds
from short-term and long-term investments, internally generated funds, its
commercial paper program, 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.
Recent Accounting Pronouncements
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) was issued. SFAS 123
encourages companies to adopt a fair value based method of accounting for
stock-based compensation plans in place of the intrinsic value based method
provided for by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25). Companies which continue to apply the
provisions of APB 25 must make pro forma disclosures in the notes to their
financial statements of net income and earnings per share as if the fair
value based method of accounting defined in SFAS 123 had been applied.
The Company plans to adopt SFAS 123 in fiscal year 1996 on a pro forma
disclosure basis.
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" (SFAS 121) was issued. SFAS 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used, or to
be disposed of. The Company does not believe the adoption of SFAS 121 in
fiscal year 1996 will have a significant impact on the Company's financial
condition or results of operations.
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.
Consolidated Statements of Earnings
THE HOME DEPOT, INC. AND SUBSIDIARIES
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
Fiscal Year Ended
-------------------------------------------
January 28, January 29, January 30,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
Net Sales $15,470,358 $12,476,697 $9,238,763
Cost of Merchandise Sold 11,184,772 8,991,204 6,685,384
- ----------------------------------------------------------------------------------------------------
Gross Profit 4,285,586 3,485,493 2,553,379
- ----------------------------------------------------------------------------------------------------
Operating Expenses:
Selling and Store Operating 2,783,926 2,216,540 1,624,920
Pre-Opening 52,342 51,307 36,816
General and Administrative 269,464 230,456 184,954
- ----------------------------------------------------------------------------------------------------
Total Operating Expenses 3,105,732 2,498,303 1,846,690
- ----------------------------------------------------------------------------------------------------
Operating Income 1,179,854 987,190 706,689
- ----------------------------------------------------------------------------------------------------
Interest Income (Expense):
Interest and Investment Income 19,597 28,510 60,896
Interest Expense (note 2) (4,148) (35,949) (30,714)
- ----------------------------------------------------------------------------------------------------
Interest, Net 15,449 (7,439) 30,182
- ----------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 1,195,303 979,751 736,871
Income Taxes (note 3) 463,780 375,250 279,470
- ----------------------------------------------------------------------------------------------------
Net Earnings $ 731,523 $ 604,501 $ 457,401
- ----------------------------------------------------------------------------------------------------
Earnings Per Common and Common Equivalent Share $ 1.54 $ 1.32 $ 1.01
- ----------------------------------------------------------------------------------------------------
Weighted Average Number of Common
and Common Equivalent Shares 477,977 475,947 453,037
- ----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
THE HOME DEPOT, INC. AND SUBSIDIARIES
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
January 28, January 29,
1996 1995
- -----------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and Cash Equivalents $ 53,269 $ 1,154
Short-Term Investments, including current
maturities of long-term investments (note 7) 54,756 56,712
Receivables, Net 325,384 272,225
Merchandise Inventories 2,180,318 1,749,312
Other Current Assets 58,242 53,560
- -----------------------------------------------------------------------------------------------------
Total Current Assets 2,671,969 2,132,963
- -----------------------------------------------------------------------------------------------------
Property and Equipment, at cost:
Land 1,510,619 1,167,063
Buildings 1,885,742 1,311,806
Furniture, Fixtures and Equipment 857,082 634,173
Leasehold Improvements 314,933 273,015
Construction in Progress 308,365 289,157
Capital Leases (notes 2 and 5) 92,154 72,054
- -----------------------------------------------------------------------------------------------------
4,968,895 3,747,268
Less Accumulated Depreciation and Amortization 507,871 350,031
- -----------------------------------------------------------------------------------------------------
Net Property and Equipment 4,461,024 3,397,237
Long-Term Investments (note 7) 25,436 98,022
Notes Receivable 54,715 32,528
Cost in Excess of the Fair Value of Net Assets Acquired,
net of accumulated amortization of $10,536 at
January 28, 1996 and $8,064 at January 29, 1995 87,238 88,513
Other 53,651 28,778
- -----------------------------------------------------------------------------------------------------
$7,354,033 $5,778,041
- -----------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 824,808 $ 681,291
Accrued Salaries and Related Expenses 198,208 192,151
Sales Taxes Payable 113,066 101,011
Other Accrued Expenses 242,859 208,377
Income Taxes Payable 35,214 8,717
Current Installments of Long-Term Debt (notes 2, 5 and 6) 2,327 22,692
- -----------------------------------------------------------------------------------------------------
Total Current Liabilities 1,416,482 1,214,239
- -----------------------------------------------------------------------------------------------------
Long-Term Debt, excluding current
installments (notes 2, 5 and 6) 720,080 983,369
Other Long-Term Liabilities 115,917 67,953
Deferred Income Taxes (note 3) 37,225 19,258
Minority Interest (note 9) 76,563 50,999
Stockholders' Equity (notes 2 and 4):
Common Stock, par value $0.05. Authorized: 1,000,000,000
shares; issued and outstanding -
477,106,000 shares at January 28, 1996 and 453,365,000
shares at January 29, 1995 23,855 22,668
Paid-in Capital 2,407,815 1,526,463
Retained Earnings 2,579,059 1,937,284
Cumulative Translation Adjustments (6,131) (10,887)
Unrealized Loss on Investments, Net (47) (1,495)
- -----------------------------------------------------------------------------------------------------
5,004,551 3,474,033
Less: Notes Receivable From ESOP (note 6) 16,539 31,810
Shares Held in Employee Benefit Trust 246 -
- -----------------------------------------------------------------------------------------------------
Total Stockholders' Equity 4,987,766 3,442,223
- -----------------------------------------------------------------------------------------------------
Commitments and Contingencies (notes 5, 8 and 9)
$7,354,033 $5,778,041
- -----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity
THE HOME DEPOT, INC. AND SUBSIDIARIES
FISCAL YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
AMOUNTS IN THOUSANDS, EXCEPT PERSHARE DATA
Cumula- Unreal-
tive ized Shares
Transla- Loss on Held in Total
Common Stock tion Invest- Notes Employee Stock-
------------- Paid-in Retained Adjust- ments, Receivable Benefit holders
Shares Amount Capital Earnings ments Net from ESOP Trust Equity
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1993 443,585 $22,179 $1,339,821 $ 993,517 $ - $ - $(51,436) $ - $2,304,081
Shares Sold Under Employee Stock
Purchase and Option Plans,
Net of Retirements (note 4) 5,779 289 76,500 - - - - - 76,789
Tax Effect of Sale of Option Shares
by Employees - - 19,708 - - - - - 19,708
Cumulative Translation Adjustments - - - - (121) - - - (121)
Repayments of Notes Receivable
from ESOP (note 6) - - - - - - 6,585 - 6,585
Net Earnings - - - 457,401 - - - - 457,401
Cash Dividends ($.11 per share) - - - (50,343) - - - - (50,343)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1994 449,364 $22,468 $1,436,029 $1,400,575 $ (121) $ - $(44,851) $ - $2,814,100
- ---------------------------------------------------------------------------------------------------------------------------------
Shares Sold Under Employee Stock
Purchase and Option Plans,
Net of Retirements (note 4) 4,001 200 77,720 - - - - - 77,920
Tax Effect of Sale of Option Shares
by Employees - - 12,709 - - - - - 12,709
Cumulative Translation Adjustments - - - - (10,766) - - - (10,766)
Repayments of Notes Receivable
from ESOP (note 6) - - - - - - 13,041 - 13,041
Conversion of 4H% Convertible
Subordinated Notes, Net (note 2) - - 5 - - - - - 5
Unrealized Loss on Investments,
Net (note 7) - - - - - (1,495) - - (1,495)
Net Earnings - - - 604,501 - - - - 604,501
Cash Dividends ($.15 per share) - - - (67,792) - - - - (67,792)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 29, 1995 453,365 $22,668 $1,526,463 $1,937,284 $(10,887) $(1,495) $(31,810) $ - $3,442,223
- ---------------------------------------------------------------------------------------------------------------------------------
Shares Sold Under Employee Stock
Purchase and Option Plans,
Net of Retirements (note 4) 2,967 148 68,310 - - - - - 68,458
Tax Effect of Sale of Option Shares
by Employees - - 9,728 - - - - - 9,728
Cumulative Translation Adjustments - - - - 4,756 - - - 4,756
Repayments of Notes Receivable
from ESOP (note 6) - - - - - - 15,271 - 15,271
Conversion of 4H% Convertible
Subordinated Notes,
Net (note 2) 20,774 1,039 803,314 - - - - - 804,353
Unrealized Gain on Investments, Net - - - - - 1,448 - - 1,448
Shares Purchased by
Employee Benefit Trust - - - - - - - (246) (246)
Net Earnings - - - 731,523 - - - - 731,523
Cash Dividends ($.19 per share) - - - (89,748) - - - - (89,748)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 28, 1996 477,106 $23,855 $2,407,815 $2,579,059 $(6,131) $ (47) $(16,539) $(246) $4,987,766
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
THE HOME DEPOT, INC. AND SUBSIDIARIES
AMOUNTS IN THOUSANDS
Fiscal Year Ended
-------------------------------------------
January 28, January 29, January 30,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Cash Provided From Operations:
Net Earnings $ 731,523 $ 604,501 $ 457,401
Reconciliation of Net Earnings to Net Cash
Provided by Operations:
Depreciation and Amortization 181,205 129,609 89,839
Deferred Income Tax Expense (Benefit) 17,976 (2,468) 12,578
Increase in Receivables, Net (69,907) (69,023) (36,658)
Increase in Merchandise Inventories (429,270) (405,197) (353,653)
Increase in Accounts Payable and Accrued Expenses 215,633 280,056 200,977
Increase (Decrease) in Income Taxes Payable 36,159 (11,126) 36,143
Other 29,661 (10,870) (10,120)
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Operations 712,980 515,482 396,507
- ---------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital Expenditures, Net of $30,271, $31,183
and $36,294 of non-cash capital expenditures
in fiscal 1995, 1994 and 1993, respectively (1,278,104) (1,100,654) (864,158)
Acquisition of Canadian Partnership Interest - (161,548) -
Proceeds from Sales of Property and Equipment 29,357 49,718 35,070
Sales and Maturities of Short-Term Investments, Net 56,856 96,007 14,903
Purchase of Long-Term Investments - (94,442) (840,361)
Proceeds from Maturities of Long-Term Investments 6,288 50,251 269,988
Proceeds from Sale of Long-Term Investments 13,566 403,738 929,598
Advances Secured by Real Estate, Net (4,955) 2,650 5,681
Net Cash Used in Investing Activities (1,176,992) (754,280) (449,279)
Cash Flows From Financing Activities:
Proceeds from Commercial Paper 520,000 100,000 -
Repayments of Notes Receivable from ESOP 15,271 13,041 6,585
Principal Repayments of Long-Term Debt (22,817) (2,175) (2,006)
Proceeds from Sale of Common Stock, Net 68,458 77,926 76,789
Cash Dividends Paid to Stockholders (89,748) (67,792) (50,343)
Minority Interest Contributions to Partnership 24,577 19,031 -
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 515,741 140,031 31,025
- ---------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 386 (76) -
Increase (Decrease) in Cash and Cash Equivalents 52,115 (98,843) (21,747)
Cash and Cash Equivalents at Beginning of Year 1,154 99,997 121,744
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 53,269 $ 1,154 $ 99,997
- ---------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Payments Made For:
Interest (net of interest capitalized) $ 21,685 $ 30,537 $ 28,778
Income Taxes $ 407,643 $ 393,915 $ 228,968
- ---------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTE One Summary of Significant Accounting Policies
The Home Depot operates full-service, warehouse-style stores averaging
approximately 105,000 square feet in size. The stores stock approximately
40,000 to 50,000 different kinds of building materials, home improvement
supplies and lawn and garden products which are sold primarily to
do-it-yourselfers, but also to home improvement, construction, and building
maintenance professionals. At the end of fiscal 1995, The Home Depot operated
404 stores in 31 states in the United States and 19 stores in three Canadian
provinces. Included in the Company's Consolidated Balance Sheet at January 28,
1996 are $293,971,000 of net assets of the Canadian operations.
Fiscal Year - The Company's fiscal year is a 52- or 53-week period ending on
the Sunday nearest to January 31. Fiscal years 1995, 1994 and 1993, which
ended January 28, 1996, January 29, 1995 and January 30, 1994 respectively,
consisted of 52 weeks.
Basis of Presentation - The consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and majority owned
partnership. All significant intercompany transactions have been eliminated in
consolidation.
Cash Equivalents - The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. The
Company's cash and cash equivalents are primarily cash equivalents carried at
fair market value and consist of preferred stocks, commercial paper, money
market funds and U.S. government agency securities.
Investments - Effective January 31, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 (SFAS No. 115) "Accounting for Certain
Investments in Debt & Equity Securities" which was effective for fiscal years
beginning after December 15, 1993. The Company classifies its investments into
one of three categories: trading, held to maturity, or available for sale.
Trading securities, which are bought and held primarily for the purpose of
selling them in the near term, are recorded at fair value with gains and
losses included in earnings. Held to maturity securities, which are securities
that the Company has the ability and the intent to hold until maturity, are
recorded at amortized cost and adjusted for amortization or accretion of
premiums or discounts. The Company's short-term and long-term investments,
consisting primarily of debt securities, have been designated as being held
available for sale, and accordingly, are reported at fair value. Unrealized
gains and losses on securities classified as available for sale are reported
as a separate component of stockholders' equity until realized. The cost of
investments sold is determined using the specific identification method.
Estimated market values of investments are based on quoted market prices on
the last business day of the fiscal year. A decline in the market value of any
available for sale or held to maturity security below cost that is deemed
other than temporary is charged to earnings resulting in the establishment of
a new cost basis for the security.
In fiscal year 1993, the Company valued its short-term investments, consisting
of primarily debt securities, at amortized cost which approximated market.
Certain long-term investments designated as available for sale were recorded
at lower of amortized cost or market. The Company's remaining investments
classified as held to maturity were valued at amortized cost.
Merchandise Inventories - Inventories are stated at the lower of cost
(first-in, first-out) or market, as determined by the retail inventory method.
Income Taxes - The Company provides for Federal and state income taxes
currently payable as well as for those deferred because of timing differences
between reporting income and expenses for financial statement purposes and
income and expenses for tax purposes. Targeted jobs tax credits were recorded
as a reduction of income taxes.
Effective February 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes" and reported the cumulative effect of that change in the method of
accounting for income taxes in the consolidated statement of earnings for the
first fiscal quarter of 1993, which ended
May 2, 1993. SFAS 109 requires an
asset and liability approach in accounting for income taxes and, therefore,
required a change from the deferred method the Company previously used. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized as income or expense in the period that
includes the enactment date.
Depreciation and Amortization - The Company's buildings, furniture, fixtures
and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets. Improvements to leased premises are
amortized on the straight-line method over the life of the lease or the useful
life of the improvement, whichever is shorter. The Company's property and
equipment is depreciated using the following estimated useful lives:
Life
- ---------------------------------------------------
Buildings 10-45 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 8-30 years
The cost in excess of the fair value of net assets acquired is being amortized
on a straight-line basis over 40 years. The cost of purchased software and
associated consulting fees is amortized on a straight-line basis over periods
ranging from three to five years.
Notes Receivable - Notes receivable which are issued to real estate developers
in connection with development and construction of stores and underlying real
estate are recorded at cost, less an allowance for impaired notes receivable
when necessary.
Store Pre-Opening Costs - Non-capital expenditures associated with opening new
stores are charged to expense as incurred.
Store Closing Costs - When a store is relocated or closed, estimated
unrecoverable costs are charged to expense. Such costs include the estimated
loss on sale of land and building, the book value of abandoned fixtures,
equipment, leasehold improvements and a provision for the present value of
future lease obligations, less estimated sub-rental income.
Earnings Per Common and Common Equivalent 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 represent options to purchase shares granted
under the Company's employee stock option and stock purchase plans.
The Company's 41/2% Convertible Subordinated Notes (the "41/2% Notes"), issued
in 1992, were common stock equivalents prior to their conversion in March
1995. For the 1995 and 1994 fiscal years the Notes were dilutive and are
assumed to be converted as of the beginning of the 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, by weighted average common and common equivalent shares.
The weighted average number of common and common equivalent shares include
shares issuable under the Company's stock plans and the 20,774,000 shares
issued upon conversion of the Notes. In fiscal year 1993, the 41/2% Notes were
dilutive but had no impact on earnings per share.
Cost in Excess of the Fair Value of Net Assets Acquired - Goodwill, which
represents the excess of purchase price over fair value of net assets
acquired, is amortized on a straight-line basis over a 40 year period. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining useful
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured
based on projected discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds.
Employee Stock Ownership Plan - For all shares purchased by the Employee Stock
Ownership Plan (ESOP) prior to December 31, 1992, the Company's contributions
to the ESOP are determined based on the ESOP's cost of the shares released to
the employees. For shares purchased after December 31, 1992, the Company's
contributions to the ESOP will be determined based on the fair value of the
shares released to the employees as of the release date.
Foreign Currency Translation - The local currency has been used as the
functional currency in Canada. The assets and liabilities denominated in
foreign currency are translated into U.S. dollars at the current rate of
exchange existing at year-end and revenues and expenses are translated at the
average monthly exchange rates. The translation gains and losses are included
as a separate component of stockholders' equity. Transaction gains and losses
included in income are not material.
Use of Estimates - Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
Reclassifications - Certain balances in prior fiscal years have been
reclassified to conform with the presentation adopted in the current fiscal
year.
NOTE Two Long-Term Debt
The Company's long-term debt consists of the following (in thousands):
January 28, 1996 January 29, 1995
- ----------------------------------------------------------------------------------------
4-1/2% Convertible Subordinated Notes,
converted into shares of common stock
of the Company at a conversion price
of $38.75 per share during March 1995. $ - $ 804,985
Commercial Paper, with a weighted average
interest rate of 5.67% at January 28, 1996
and 5.9% at January 29, 1995. 620,000 100,000
Capital Lease obligations payable in varying
installments through January 31, 2018
(see note 5). 82,513 63,225
7.95% Unsecured Note, repaid on September 1,
1995, incurred in connection with the
establishment of a leveraged Employee Stock
Ownership Plan and Trust (see note 6). - 20,000
Variable Rate Industrial Revenue Bonds, secured
by letters of credit or land, interest
rates averaging 3.7% during fiscal 1995,
payable in varying installments through 1999,
$3,000 payable on December 1, 2010 and
$5,200 payable on September 1, 2011. 9,367 9,966
Installment Notes Payable, interest imputed at
rates between 8.0% and 11.5%, payable in
varying installments through 2014. 10,089 7,419
Other 438 466
- ----------------------------------------------------------------------------------------
Total long-term debt 722,407 1,006,061
Less current installments 2,327 22,692
- ----------------------------------------------------------------------------------------
Long-term debt, excluding current installments $720,080 $ 983,369
- ----------------------------------------------------------------------------------------
During fiscal 1995, holders of the Company's 4H% Notes converted a total
principal amount of $804,985,000 into 20,774,000 shares of the Company's
common stock. As a result of this transaction, the total principal amount
converted, net of unamortized expenses of the original debt issue, was
credited to common stock at par and additional paid-in capital in the amount
of $804,353,000. All of the 4H% Notes were redeemed for shares.
In January 1995, the Company established a $300,000,000 Commercial Paper
program supported by a back-up credit facility with a maximum aggregate
principal amount outstanding of $300,000,000. In December 1995, the Company
amended the Commercial Paper program and the back-up credit facility to
increase the maximum amount available to $800,000,000. The back-up credit
facility expires December 20, 2000. The Commercial Paper borrowings are
classified as long-term as it is the Company's intention to refinance them on
a long-term basis. Covenants related to the back-up credit facility place
limitations on total Company indebtedness, subsidiary indebtedness and on
liens. As of January 28, 1996, the Company was in compliance with all
restrictive covenants.
The restrictive covenants related to letter of credit agreements securing the
industrial revenue bonds are no more restrictive than those referenced or
described above.
Interest expense in the accompanying consolidated statements of earnings is
net of interest capitalized of $20,767,000 in fiscal 1995, $17,559,000 in
fiscal 1994 and $13,912,000 in fiscal 1993.
Maturities of long-term debt are $2,327,000 for fiscal 1996, $1,698,000 for
fiscal 1997, $5,030,000 for fiscal 1998, $6,116,000 for fiscal 1999 and
$621,848,000 for fiscal 2000.
The estimated fair value of commercial paper borrowings approximate their
carrying value. The estimated fair value of all other long-term borrowings was
approximately $129,340,000 as compared to its carrying value of $102,407,000.
These fair values were estimated using a discounted cash flow analysis based
on the Company's incremental borrowing rate for similar liabilities.
NOTE Three Income Taxes
As discussed in Note 1, the Company adopted SFAS 109 as of February 1, 1993.
The cumulative effect of this change in accounting for income taxes, which
resulted in a tax benefit of $2,130,000, was determined as of February 1,
1993, and has been reflected in the consolidated statement of earnings for the
fiscal year ended January 30, 1994.
The provision for income taxes from operations consists of the following (in
thousands):
Fiscal Year Ended
---------------------------------------------------------
January 28, 1996 January 29, 1995 January 30, 1994
Current:
Federal $391,111 $330,232 $236,888
State 54,693 47,486 32,134
- -----------------------------------------------------------------------------
445,804 377,718 269,022
- -----------------------------------------------------------------------------
Deferred:
Federal 15,021 (1,875) 10,212
State 2,955 (593) 2,366
- -----------------------------------------------------------------------------
17,976 (2,468) 12,578
- -----------------------------------------------------------------------------
Total $463,780 $375,250 $281,600
- -----------------------------------------------------------------------------
The Company's combined Federal and state effective tax rate from operations
for fiscal years 1995, 1994 and 1993, net of offsets generated by targeted
jobs tax credits, were approximately 38.8%, 38.3% and 38.2%, respectively. The
1995, 1994 and 1993 fiscal year effective tax rates include the effect of the
corporate Federal tax rate increase from 34% to 35% enacted into law during
the Company's 1993 fiscal year. A reconciliation of income tax expense from
operations at the Federal statutory rate of 35% to actual tax expense from
operations for the applicable fiscal years follows (in thousands):
Fiscal Year Ended
---------------------------------------------------------
January 28, 1996 January 29, 1995 January 30, 1994
- -----------------------------------------------------------------------------
Income taxes at
Federal statutory
rate $418,356 $342,913 $257,905
State income taxes,
net of Federal income
tax benefit 37,471 30,480 22,425
Other, net 7,953 1,857 1,270
- -----------------------------------------------------------------------------
Total $463,780 $375,250 $281,600
- -----------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of January
28, 1996 and January 29, 1995 are as follows (in thousands):
Fiscal Year Ended
----------------------------------------
January 28, 1996 January 29, 1995
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Accrued self-insurance liabilities $ 54,489 $ 40,906
Other accrued liabilities 36,359 28,061
- ---------------------------------------------------------------------------------
Net deferred tax assets 90,848 68,967
- ---------------------------------------------------------------------------------
Deferred Tax Liabilities:
Accelerated depreciation (110,342) (77,061)
Other (17,731) (11,164)
- ---------------------------------------------------------------------------------
Total gross deferred liabilities (128,073) (88,225)
Net deferred tax liability $ (37,225) $(19,258)
- ---------------------------------------------------------------------------------
No valuation allowance was recorded against the deferred tax assets at January
28, 1996, January 29, 1995 or January 30, 1994. The Company's management
believes the existing net deductible temporary differences comprising the
total gross deferred tax assets will reverse during periods in which the
Company generates net taxable income.
NOTE Four Employee Stock Plans
The Company has stock option plans that provide for the granting of incentive
and non-qualified options to purchase the Company's common stock to selected
key associates, officers and directors.
Under the Employee Incentive Stock Option Plan of 1981, options for 43,362,139
shares, net of cancellations (of which 42,726,972 had been exercised), have
been granted at $.16 to $18.83 per share as of January 28, 1996. Such options
may be exercised at the rate of 25% per year commencing with the first
anniversary date of the grant and expire after five years. The Plan expired on
June 1, 1991 and the shares available for grant were carried over to the 1991
Omnibus Stock Option Plan.
Under the Non-Qualified Stock Option Plan of 1984, options for 679,124 shares,
net of cancellations (of which 597,409 had been exercised), have been granted
at $1.53 to $9.86 per share as of January 28, 1996. Such options may be
exercised at varying rates commencing on the first anniversary date of the
grant and expire on the tenth anniversary date of the grant. The Plan expired
on June 1, 1991 and the shares available for grant were carried over to the
1991 Omnibus Stock Option Plan.
The provisions of the 1991 Omnibus Stock Option Plan, which became effective
June 1, 1991, authorize a maximum number of shares available for grant equal
to the cumulative number of shares available the previous year plus one
percent of the number of shares of common stock issued and outstanding at the
beginning of each fiscal year the plan is in effect. Under the 1991 Omnibus
Stock Option Plan, options for 10,070,801 shares, net of cancellations (of
which 798,149 had been exercised), have been granted at $24.50 to $48.94 per
share. As of January 28, 1996, the maximum number of shares available under
this plan for future grants was 38,399,223.
The following summarizes shares outstanding under the plans at January 28,
1996, January 29, 1995, and January 30, 1994 and changes during the fiscal
years then ended (in thousands of shares):
Number Average
of Shares Option Price
- ---------------------------------------------------------------------------------
Outstanding at January 31, 1993 12,455 $14.89
Granted 1,831 44.51
Exercised (4,307) 7.42
Cancelled (332) 24.92
- ---------------------------------------------------------------------------------
Outstanding at January 30, 1994 9,647 23.50
Granted 1,981 39.29
Exercised (2,631) 10.66
Cancelled (306) 35.35
- ---------------------------------------------------------------------------------
Outstanding at January 29, 1995 8,691 30.57
Granted 7,208 40.37
Exercised (1,921) 15.73
Cancelled (3,988) 43.43
- ---------------------------------------------------------------------------------
Outstanding at January 28, 1996 9,990 $35.37
- ---------------------------------------------------------------------------------
Exercisable 3,206 $31.22
- ---------------------------------------------------------------------------------
In addition, the Company had 6,287,906 shares available for future grants
under the Employee Stock Purchase Plan at January 28, 1996. This plan enables
the Company to grant substantially all full-time associates options to
purchase up to 22,137,500 shares of common stock, of which 15,849,594 shares
have been exercised from inception of the plan, at a price equal to 85% of the
stock's fair market value at the date of grant. Shares purchased may not
exceed the lesser of 20% of the associate's annual compensation, as defined,
or $25,000 of common stock at its fair market value (determined at the time
such option is granted) for any one calendar year. Associates pay for the
shares ratably over a period of one year (the purchase period) through payroll
deductions, and cannot exercise their option to purchase any of the shares
until the conclusion of the purchase period. In the event an associate elects
not to exercise such options, the full amount withheld is refundable. During
fiscal 1995, options for 1,087,554 shares were exercised at an average price
of $36.88 per share. At January 28, 1996, 885,053 options were outstanding,
net of cancellations, at an average price of $34.03 per share.
NOTE Five Leases
The Company leases certain retail locations, office space, warehouse and
distribution space, equipment and vehicles. While the majority of the leases
are operating leases, certain retail locations are leased under capital
leases. As leases expire, it can be expected that in the normal course of
business, leases will be renewed or replaced.
During 1995, the Company entered into two operating lease agreements in which
the Company will lease an import distribution facility, including its related
equipment, and an office building for store support associates. The initial
lease terms are five and seven years, respectively, with five five-year
renewal options for the distribution facility and one five-year renewal option
for the office building.
Both leases provide for substantial residual value guarantees and include
purchase options at the higher of the cost or fair market value for the assets
under the import distribution facility lease and at cost for the office
building. The maximum amount of the residual value guarantees relative to the
assets under these leases is projected to be $128,420,000. Once the leased
assets are placed into service, the Company will estimate its liability under
the residual value guarantees and will record additional rent expense on a
straight-line basis over the remaining lease terms.
Total rent expense, net of minor sublease income for the fiscal years ended
January 28, 1996, January 29, 1995 and January 30, 1994 amounted to
$199,710,000, $164,381,000 and $137,252,000, respectively. Real estate taxes,
insurance, maintenance and operating expenses applicable to the leased
property are obligations of the Company under the
building leases. Certain of
the store leases provide for contingent rentals based on percentages of sales
in excess of specified minimums. Contingent rentals for fiscal years ended
January 28, 1996, January 29, 1995 and January 30, 1994 were approximately
$9,068,000, $9,744,000 and $8,370,000, respectively.
The approximate future minimum lease payments under capital and operating
leases at January 28, 1996 are as follows (in thousands):
Fiscal Year Capital Leases Operating Leases
- ------------------------------------------------------------------------
1996 $ 13,246 $ 219,334
1997 13,246 220,023
1998 13,252 203,188
1999 13,320 192,166
2000 13,637 176,894
Thereafter 200,368 2,216,857
- ------------------------------------------------------------------------
267,069 $3,228,462
----------
Less: Imputed interest (184,556)
- ----------------------------------------------------
Net present value of capital
lease obligations 82,513
- ----------------------------------------------------
Less: Current installments (993)
- ----------------------------------------------------
Long-term, excluding current
installments $ 81,520
- ----------------------------------------------------
On the Consolidated Balance Sheet the short-term and long-term obligations for
capital leases are included in Current Installments of Long-term Debt and
Long-term Debt, respectively. The assets under capital lease recorded at
January 28, 1996 and January 29, 1995, net of amortization, in Net Property
and Equipment amounted to $85,987,000 and $68,647,000, respectively.
NOTE Six Employee Stock Ownership Plan and Trust
During fiscal 1988, the Company established a leveraged Employee Stock
Ownership Plan and Trust (ESOP) covering substantially all full-time
associates. At January 28, 1996, the ESOP held a total of 7,197,042 shares of
the Company's common stock in trust for plan participants. The ESOP purchased
the shares in the open market with the proceeds of loans obtained from the
Company during fiscal 1992, 1990 and 1989 totaling $81,442,000. Of that
amount, the Company borrowed $20,000,000 during 1988 in a private placement
(see note 2), which in turn was loaned to the ESOP for the purpose of
purchasing the shares. The additional $61,442,000 loaned to the ESOP was
funded by cash from operations of the Company. Loans totaling $16,539,000 to
the ESOP are due and payable to the Company in varying amounts from 1996
through 2001.
The Company's Board of Directors authorized loans to the ESOP up to
$90,000,000. The Company may advance funds to the ESOP so that the ESOP may
purchase up to an additional $8,558,000 of the Company's common stock on the
open market at prices the ESOP deems desirable.
The Company's common stock purchased by the ESOP is held in a "suspense
account" as collateral for amounts loaned by the Company. The Company makes
annual contributions to the ESOP at the discretion of its Board of Directors
which the plan trustee is required to use to make loan interest and principal
payments to the Company. When the Company commits to make contributions to the
ESOP, a portion of the common stock is released from the "suspense account"
and allocated to participating associates. As of January 28, 1996, 5,471,885
shares had been allocated to participating employees, 809,048 shares were
committed to be released, and 916,109 shares were held in suspense by the
trustee. Any dividends on unallocated shares are used to service the ESOP's
debt, to pay expenses of the ESOP, to purchase additional shares of the
Company's common stock or to purchase other investments. The unpaid portion of
the ESOP's obligation to the Company is recorded as a reduction of
stockholders' equity. The Company's contributions to the ESOP were
$14,000,000, $12,500,000 and $6,000,000 for the fiscal years 1995, 1994 and
1993, respectively.
The Company adopted a non-qualified ESOP Restoration Plan in fiscal 1994. The
primary purpose of the plan is to provide certain associates deferred
compensation that they would have received under the ESOP if not for the
maximum compensation limits under the Internal Revenue Code of 1986, as
amended. The Company has established a "rabbi trust" to fund the benefits
under the ESOP Restoration Plan. Compensation expensed for fiscal years 1995
and 1994 related to this plan was not material. Funds provided to the trust
are primarily used to purchase shares of the Company's common stock on the
open market.
NOTE Seven Investments
The Company's investments are all classified as available for sale and
consisted of the following at January 28, 1996 and January 29, 1995 (in
thousands):
January 28, 1996 January 29, 1995
-------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized unrealized unrealized Fair Amortized unrealized unrealized Fair
cost gains losses value cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------------
Tax-exempt
notes and bonds $56,138 $14 $ 20 $56,132 $ 95,079 $ - $1,431 $ 93,648
U.S. Treasury
securities 229 - - 229 - - - -
U.S. government
agency securities - - - - 13,000 - 296 12,704
Corporate
obligations 13,901 - 70 13,831 13,900 - 139 13,761
Preferred stock 10,000 - - 10,000 14,998 - 301 14,697
Corporate asset-
backed securities - - - - 6,415 - 127 6,288
Other - - - - 13,636 - - 13,636
- ---------------------------------------------------------------------------------------------------------------------------------
80,268 14 90 80,192 157,028 - 2,294 154,734
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term,
including current
maturities of
long-term
investments 54,751 7 2 54,756 57,345 - 633 56,712
Long-term
investments 25,517 7 88 25,436 99,683 - 1,661 98,022
- ---------------------------------------------------------------------------------------------------------------------------------
Total $80,268 $14 $90 $80,192 $157,028 $ - $2,294 $154,734
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of investments available for sale during the year ended
January 28, 1996 were $30,721,000. Gross gains of $790,000 and gross losses of
$69,000 were realized on those sales. Proceeds from sales of investments
available for sale for the year ended January 29, 1995 were $526,696,000.
Gross gains of $1,638,000 and gross losses of $1,251,000 were realized on
fiscal year 1994 sales.
Maturities of investment securities classified as available for sale were as
follows at January 28, 1996 and January 29, 1995 (in thousands):
January 28, 1996 January 29, 1995
--------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------
Due within one year $54,751 $54,756 $ 52,842 $ 52,323
Due after one year
through five years 25,517 25,436 99,683 98,022
Mortgage-backed securities
not due at a single date - - 4,503 4,389
- ----------------------------------------------------------------------------------------
$80,268 $80,192 $157,028 $154,734
- ----------------------------------------------------------------------------------------
NOTE Eight Commitments and Contingencies
At January 28, 1996, the Company was contingently liable for approximately
$108,215,000 under outstanding letters of credit issued in connection with
purchase commitments.
The Company is a defendant in a class action lawsuit claiming gender
discrimination in the Company's Western Division. The action seeks injunctive
and declaratory relief and damages. Discovery is in its early stages. While
the ultimate results of this litigation cannot be determined, management does
not expect that the resolution of this proceeding will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
The Company has other litigation arising from the normal course of business.
In management's opinion, this litigation will not materially effect the
Company's consolidated financial position or results of operations.
NOTE Nine Acquisition of Interest in Canadian Company
Effective February 28, 1994, the Company entered into a partnership and, as a
result, acquired 75 percent of Aikenhead's Home Improvement Warehouse which
was operating seven warehouse-style home improvement stores in Toronto, London
and Kitchener, Ontario, Canada. Subsequent to the acquisition, the partnership
has opened 12 additional stores which include two stores each in Edmonton and
Calgary, Alberta, four stores in Toronto, Ontario, and four 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 percent of the
Canadian company. 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 percent interest in the Canadian company
was approximately $161,548,000 in cash and was accounted for by the purchase
method of accounting. Accordingly, results of the partnership's operation have
been included with those of the Company from the date of acquisition. The
excess purchase price over the estimated fair value of the net assets as of
the acquisition date of $67,626,000 has been recorded as goodwill and is being
amortized over 40 years.
NOTE Ten Quarterly Financial Data, Unaudited
The following is a summary of the unaudited quarterly results of operations
for the fiscal years ended January 28, 1996 and January 29, 1995 (in
thousands, except per share data):
Percent Net earnings
increase in per common
comparable Gross Net and common
Net sales store sales profit earnings equivalent share
- --------------------------------------------------------------------------------------------------------
Fiscal year ended
January 28, 1996:
First Quarter $ 3,568,962 5% $ 997,521 $157,765 $0.34
Second Quarter 4,151,722 4% 1,123,046 212,887 0.45
Third Quarter 3,997,790 1% 1,076,557 175,473 0.37
Fourth Quarter 3,751,884 1% 1,088,462 185,398 0.39
- --------------------------------------------------------------------------------------------------------
$ 15,470,358 3% $ 4,285,586 $731,523 $1.54
- --------------------------------------------------------------------------------------------------------
Fiscal year ended
January 29, 1995:
First Quarter $ 2,872,129 7% $ 808,757 $139,734 $0.31
Second Quarter 3,287,036 6% 895,817 178,014 0.39
Third Quarter 3,240,050 9% 880,568 140,774 0.31
Fourth Quarter 3,077,482 8% 900,351 145,979 0.32
- --------------------------------------------------------------------------------------------------------
$ 12,476,697 8% $ 3,485,493 $604,501 $1.32
- --------------------------------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Stockholders
The Home Depot, Inc.:
We have audited the accompanying consolidated balance sheets of The Home
Depot, Inc. and subsidiaries as of
January 28, 1996 and January 29, 1995, and the related consolidated statements
of earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended January 28, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Home
Depot, Inc. and subsidiaries as of January 28, 1996 and January 29, 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 28, 1996 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Atlanta, Georgia
March 8, 1996