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 July 28, 1996
- 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)
(770) 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 479,107,754 Shares, as of August 15, 1996
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
JULY 28, 1996
Page
Part I. Financial Information:
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS -
Three-Month and Six-Month Periods
Ended July 28, 1996 and July 30, 1995 3
CONSOLIDATED CONDENSED BALANCE SHEETS -
As of July 28, 1996 and January 28, 1996 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Six-Month Periods
Ended July 28, 1996 and July 30, 1995 5
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7 - 10
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
Index to Exhibits 13
PART I. FINANCIAL INFORMATION
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
July 28, July 30, July 28, July 30,
1996 1995 1996 1995
Net Sales $ 5,292,917 $ 4,151,722 $ 9,655,132 $ 7,720,684
Cost of Merchandise Sold 3,856,022 3,028,676 6,998,307 5,600,117
Gross Profit 1,436,895 1,123,046 2,656,825 2,120,567
Operating Expenses:
Selling and Store Operating 904,708 699,700 1,720,717 1,365,677
Pre-Opening 10,143 13,485 23,002 26,020
General and Administrative 80,108 67,703 152,208 132,559
Total Operating Expenses 994,959 780,888 1,895,927 1,524,256
Operating Income 441,936 342,158 760,898 596,311
Interest Income (Expense):
Interest and Investment
Income 2,833 4,655 6,959 8,855
Interest Expense (405) (1,216) (2,734) (3,454)
Interest, Net 2,428 3,439 4,225 5,401
Earnings Before Income
Taxes 444,364 345,597 765,123 601,712
Income Taxes 174,190 132,710 299,930 231,060
Net Earnings $ 270,174 $ 212,887 $ 465,193 $ 370,652
Earnings Per Common and
Common Equivalent Share $ 0.56 $ 0.45 $ 0.97 $ 0.78
Dividends Per Share $ 0.06 $ 0.05 $ 0.11 $ 0.09
Weighted Average Number of
Common and Common
Equivalent Shares 482,446 477,737 481,384 477,424
See accompanying notes to consolidated condensed financial
statements.
THE HOME DEPOT INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
July 28, January 28,
ASSETS 1996 1996
Current Assets:
Cash and Cash Equivalents $ 33,224 $ 53,269
Short-Term Investments 233 54,756
Receivables, Net 305,370 325,384
Merchandise Inventories 2,516,349 2,180,318
Other Current Assets 60,842 58,242
Total Current Assets 2,916,018 2,671,969
Property and Equipment, at cost 5,475,113 4,968,895
Less: Accumulated Depreciation and
Amortization (605,918) (507,871)
Net Property and Equipment 4,869,195 4,461,024
Long-Term Investments 13,831 25,436
Notes Receivable 51,955 54,715
Cost in Excess of the Fair Value of
Net Assets Acquired 86,416 87,238
Other 60,137 53,651
$ 7,997,552 $ 7,354,033
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 1,229,334 $ 824,808
Accrued Salaries and Related Expenses 233,502 198,208
Sales Taxes Payable 144,453 113,066
Other Accrued Expenses 289,306 242,859
Income Taxes Payable 77,311 35,214
Current Installments of Long-Term Debt 2,148 2,327
Total Current Liabilities 1,976,054 1,416,482
Long-Term Debt, excluding current installments 275,389 720,080
Other Long-Term Liabilities 147,911 115,917
Deferred Income Taxes 42,470 37,225
Minority Interest 87,176 76,563
Stockholders' Equity:
Common Stock, par value $0.05.
Authorized: 1,000,000,000 shares; issued
and outstanding - 479,056,000 shares at 7/28/96
and 477,106,000 shares at 1/28/96 23,953 23,855
Paid-In Capital 2,469,148 2,407,815
Retained Earnings 2,991,621 2,579,059
Cumulative Translation Adjustments (4,745) (6,131)
Unrealized Loss on Investments, Net (42) (47)
5,479,935 5,004,551
Less: Notes Receivable from ESOP 10,890 16,539
Shares Held in Employee Benefit Trust 493 246
Total Stockholders' Equity 5,468,552 4,987,766
$ 7,997,552 $ 7,354,033
See accompanying notes to consolidated condensed financial
statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands) Six Months Ended
July 28, 1996 July 30, 1995
Cash Provided from Operations:
Net Earnings $ 465,193 $ 370,652
Reconciliation of Net Earnings to Net Cash
Provided by Operations:
Depreciation and Amortization 109,332 82,494
Deferred Income Tax Expense 5,239 5,572
Decrease (Increase) in Receivables, Net 10,459 (8,565)
Increase in Merchandise Inventories (335,628) (265,748)
Increase in Accounts Payable and
Accrued Expenses 545,634 486,355
Increase in Income Taxes Payable 47,932 49,486
Other 13,586 20,742
Net Cash Provided by Operations 861,747 740,988
Cash Flows From Investing Activities:
Capital Expenditures (532,354) (665,433)
Proceeds from Sales of Property and Equipment 9,709 14,433
Sales and Maturities of Short-Term
Investments, Net 66,132 16,777
Proceeds from Maturities of Long-Term Investments 0 4,688
Proceeds from Sales of Long-Term Investments 0 3,885
Advances Secured by Real Estate, Net 11,489 (13,567)
Net Cash Used in Investing Activities (445,024) (639,217)
Cash Flows From Financing Activities:
Repayments of Commercial Paper Obligations, Net (454,000) (100,000)
Cash Received from ESOP 5,649 430
Principal Repayments of Long-Term Debt (1,357) (1,728)
Proceeds from Sale of Common Stock, Net 55,637 43,268
Shares Purchased for Employee Benefit Trust (247) (246)
Cash Dividends Paid to Stockholders (52,631) (42,089)
Minority Interest Contributions to Partnership 10,289 16,374
Net Cash Used in Financing Activities (436,660) (83,991)
Effect of Exchange Rate Changes on Cash (108) 8
(Decrease) Increase in Cash and Cash Equivalents (20,045) 17,788
Cash and Cash Equivalents at Beginning of Period 53,269 1,154
Cash and Cash Equivalents at End of Period $ 33,224 $ 18,942
See accompanying notes to consolidated condensed financial
statements.
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 recurring accruals)
considered necessary for a fair presentation have been
included. These statements should be read in conjunction
with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form
10-K for the year ended January 28, 1996, as filed with
the Securities and Exchange Commission (File No. 1-8207).
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The data below reflects selected sales data, 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) in
Three Months Ended Six Months Ended Dollar Amounts
July 28, July 30, July 28, July 30, Three Six
1996 1995 1996 1995 Months Months
Selected Consolidated
Statements of Earnings Data
Net Sales 100.0% 100.0% 100.0% 100.0% 27.5% 25.1%
Gross Profit 27.1 27.0 27.5 27.5 27.9 25.3
Operating
Expenses:
Selling and
Store
Operating 17.1 16.9 17.8 17.7 29.3 26.0
Pre-Opening 0.2 0.3 0.2 0.3 (24.8)(11.6)
General and
Administrative 1.5 1.6 1.6 1.7 18.3 14.8
Total Operating
Expenses 18.8 18.8 19.6 19.7 27.4 24.4
Operating Income 8.3 8.2 7.9 7.7 29.2 27.6
Interest Income
(Expense):
Interest and
Investment
Income 0.1 0.1 0.1 0.1 (39.1)(21.4)
Interest Expense --- --- (0.1) --- (66.7)(20.8)
Interest, Net 0.1 0.1 0.0 0.1 (29.4)(21.8)
Earnings Before
Income Taxes 8.4 8.3 7.9 7.8 28.6 27.2
Income Taxes 3.3 3.2 3.1 3.0 31.3 29.8
Net Earnings 5.1% 5.1% 4.8% 4.8% 26.9 25.5
Selected
Consolidated
Sales Data
Number of
Transactions 124,840,000 98,624,000 229,048,000 183,248,000 26.6 25.0
Average Amount of
Sale Per
Transaction $ 42.40 $ 42.10 $ 42.15 $ 42.13 0.7 0.0
Weighted Average
Weekly Sales Per
Operating
Store $ 911,000 $ 871,000 $ 848,000 $ 832,000 4.6 1.9
Weighted Average
Sales Per
Square Foot $ 450 $ 433 $ 419 $ 414 3.9 1.2
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 second quarter of fiscal 1996 increased 27% to
$5,292,917,000 compared to sales of $4,151,722,000 for the second
quarter of fiscal 1995. For the first six months of fiscal 1996,
sales increased 25% to $9,655,132,000 from sales of
$7,720,684,000 for the comparable period in fiscal 1995. The
sales increase for both periods was primarily attributable to new
stores (456 at the end of the second quarter of fiscal 1996
compared to 379 at the end of the second quarter of fiscal 1995)
and a comparable store-for-store sales increase of 9% and 6% for
the second quarter and first six months of fiscal 1996,
respectively. For the second quarter, management believes a
portion of the sales increase was also due to pent-up demand
resulting from a late start to the spring season.
Gross profit as a percent of sales was 27.1% for the second
quarter of fiscal 1996 compared to 27.0% for the comparable
period of fiscal 1995. The increase for the quarter was
primarily attributable to, among other things, changes in
merchandise mix and more effective buying practices which reduced
the Company's merchandise cost. For the first six months of
fiscal 1996, gross profit as a percent of sales was 27.5%
compared to 27.5% for the comparable period of fiscal 1995.
Operating expenses as a percent to sales were 18.8% for the
second quarters of fiscal 1996 and fiscal 1995. For the first
six months of fiscal 1996, operating expenses as a percent of
sales were down slightly to 19.6% from 19.7% for the same period
of fiscal 1995. Selling and store operating expenses as a
percent of sales increased to 17.1% and 17.8% for the second
quarter and first six months of fiscal 1996, respectively, from
16.9% and 17.7% for the second quarter and first six months of
fiscal 1995, respectively. The increase for the second quarter
was attributable to, among other things, one-time expenditures
related to the Olympic Games and higher store relocation and
remodeling costs resulting primarily from the adoption in fiscal
1996 of certain accounting standards which changed the timing of
recognition of these expenses. Additionally, profits increased
in the Home Depot Canada partnership resulting in higher minority
interest. Pre-opening expenses as a percent to sales decreased
to 0.2% for both the second quarter and first six months of
fiscal 1996 from 0.3% for the comparable periods of fiscal 1995.
These decreases were primarily attributable to the timing of
store openings, as many of the Company's fiscal third quarter
1996 store openings are expected to occur the latter part of the
quarter and as a result have not yet incurred significant pre-
opening expenses. General and administrative expenses as a
percent to sales decreased to 1.5% and 1.6% for the second
quarter and first six months of fiscal 1996 from 1.6% and 1.7% in
the second quarter and first six months of fiscal 1995. These
decreases were attributable to higher sales volumes and continued
focus on controlling costs.
Net Interest income as a percent to sales increased to 0.1% in
the second fiscal quarter of 1996 from 0.0% in the comparable
period of 1995 due to higher capitalized interest compared to the
prior year. Interest income for the first six months of fiscal
1996 as a percent to sales was 0.1% compared to 0.1% for the
first six months of fiscal 1995.
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 increased to 39.2% for the second quarter and first six
months of fiscal 1996 from 38.4% for the comparable periods of
fiscal 1995. In the fourth quarter of fiscal 1995, the Company
adjusted its combined Federal and state effective income tax rate
to 38.8% for the fiscal year. The increase in the rate for the
second quarter and first six months of fiscal 1996 from the
adjusted 1995 tax rate was due to a higher effective state tax
rate.
Net earnings as a percent of sales were 5.1% and 4.8% for the
second quarter and first six months of fiscal 1996, respectively,
as well as for the comparable periods of fiscal 1995.
Earnings per share was $0.56 and $0.97 for the second quarter and
first six months of fiscal 1996, respectively, compared to $0.45
and $0.78 for the second quarter and first six months of fiscal
1995, 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 six months of fiscal 1996, the Company opened 33
stores and relocated 5 stores. The Company currently plans to
open approximately 57 new stores and relocate 2 stores during the
last six months of fiscal 1996 and open approximately 110 new
stores, including relocations, during fiscal 1997. Of the
planned 90 new stores and 7 relocations in fiscal 1996, it is
expected that 74 will be owned and 23 will be leased.
In June 1996, the Company entered into a $300,000,000 operating
lease agreement for the purpose of financing construction costs
of new stores. Under the agreement, the lessor will purchase the
properties, pay for the construction costs and subsequently lease
the facilities to the Company. The lease provides for
substantial residual value guarantees and includes purchase
options at original cost on each property. This agreement will
primarily cover new stores planned to open in 1996 and 1997. In
addition to the leasing agreement, some planned locations for the
remainder of fiscal 1996 and 1997 will be leased directly, and it
is expected that many may be obtained through the purchase of pre-
existing leasehold interests, acquisition of land parcels and the
construction or purchase of buildings during fiscal 1996. 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 $13,800,000 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 $2,300,000 per store. In
addition, each new store will require approximately $2,800,000 to
finance inventories, net of vendor financing.
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES - (Continued)
As of July 28, 1996, the Company had $33,457,000 in cash and
short-term investments, and $13,831,000 in long-term investments.
Management believes that its current cash position, the proceeds
from short-term and long-term investments, internally generated
funds, funds available from the $300,000,000 operating lease
agreement, 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.
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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders, on May
29, 1996, the stockholders elected the slate of nominees
for election as director with votes cast as follows: Mr.
Bernard Marcus had 411,214,359 shares for and 4,127,483
shares withheld; Mr. Donald R. Keough had 411,792,197
shares for and 3,549,645 shares withheld; Mr. Kenneth G.
Langone had 411,218,076 shares for and 4,123,766 shares
withheld; and Mr. John L. Clendenin had 410,794,093
shares for and 4,547,749 shares withheld. There were no
abstentions or broker non-votes applicable to the
election of directors. The following other directors
have terms of office as a director that continued after
the meeting: Mr. Arthur M. Blank, Col. Frank Borman, Mr.
Ronald M. Brill, Dr. Johnnetta B. Cole, Mr. Berry R.
Cox, Mr. Milledge A. Hart, III and Ms. M. Faye Wilson.
The stockholders adopted a proposal to approve the
amendment to the Senior Officers' Bonus Pool Plan with
votes cast as follows: 392,660,842 shares for;
18,645,438 shares against; 4,035,562 shares abstained;
and 0 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. $300,000,000 Operating Lease Agreement between
Home Depot U.S.A., Inc. and
Credit Suisse Leasing 92-A
11.1 Computation of Earnings per Common and Common
Equivalent Share
27. Financial Data Schedule (only submitted to SEC
in electronic format)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended July 28, 1996.
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/ Marshall L. Day
Marshall L. Day
Senior Vice President
Chief Financial Officer
August 26, 1996
(Date)
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit Description
10. $300,000,000 Operating Lease Agreement between Home Depot
U.S.A., Inc. and Credit Suisse Leasing 92-A
11.1 Computation of Earnings per Common and Common Equivalent Share
27. Financial Data Schedule (only submitted to SEC in electronic
format)