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 27, 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 480,328,265 Shares, as of November 14, 1996
Page 1 of 13
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
October 27, 1996
Page
Part I. Financial Information:
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS -
Three-Month and Nine-Month Periods
Ended October 27, 1996 and October 29, 1995 3
CONSOLIDATED CONDENSED BALANCE SHEETS -
As of October 27, 1996 and January 28, 1996 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Nine-Month Periods
Ended October 27, 1996 and October 29, 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
Page 2 of 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 Nine Months Ended
October 27, October 29, October 27, October 29,
1996 1995 1996 1995
Net Sales $4,921,831 $3,997,790 $14,576,963 $11,718,474
Cost of Merchandise Sold 3,583,580 2,921,233 10,581,887 8,521,350
Gross Profit 1,338,251 1,076,557 3,995,076 3,197,124
Operating Expenses:
Selling and Store Operating 880,635 714,581 2,601,352 2,080,258
Pre-Opening 14,638 14,774 37,640 40,794
General and Administrative 81,889 66,911 234,097 199,470
Total Operating Expenses 977,162 796,266 2,873,089 2,320,522
Operating Income 361,089 280,291 1,121,987 876,602
Interest Income (Expense):
Interest and Investment
Income 5,856 4,890 12,815 13,745
Interest Expense (2,834) (318) (5,568) (3,772)
Interest, Net 3,022 4,572 7,247 9,973
Earnings Before Income
Taxes 364,111 284,863 1,129,234 886,575
Income Taxes 142,740 109,390 442,670 340,450
Net Earnings $ 221,371 $ 175,473 $ 686,564 $ 546,125
Earnings Per Common and
Common Equivalent Share $ 0.46 $ 0.37 $ 1.42 $ 1.15
Dividends Per Share $ 0.06 $ 0.05 $ 0.17 $ 0.14
Weighted Average Number of
Common and Common
Equivalent Shares 487,925 477,671 483,577 477,469
See accompanying notes to consolidated condensed financial statements.
Page 3 of 13
THE HOME DEPOT INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
October 27, January 28,
1996 1996
ASSETS
Current Assets:
Cash and Cash Equivalents $ 716,700 $ 53,269
Short-Term Investments 65,845 54,756
Receivables, Net 379,197 325,384
Merchandise Inventories 2,657,349 2,180,318
Other Current Assets 54,910 58,242
Total Current Assets 3,874,001 2,671,969
Property and Equipment, at cost 5,846,711 4,968,895
Less: Accumulated Depreciation
and Amortization (659,803) (507,871)
Net Property and Equipment 5,186,908 4,461,024
Long-Term Investments 136,871 25,436
Notes Receivable 39,944 54,715
Cost in Excess of the Fair Value
of Net Assets Acquired 87,308 87,238
Other 56,284 53,651
$ 9,381,316 $7,354,033
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 1,356,748 $ 824,808
Accrued Salaries and Related Expenses 238,249 198,208
Sales Taxes Payable 159,881 113,066
Other Accrued Expenses 325,717 242,859
Income Taxes Payable 39,290 35,214
Current Installments of Long-Term Debt 2,540 2,327
Total Current Liabilities 2,122,425 1,416,482
Long-Term Debt, excluding
current installments 1,247,208 720,080
Other Long-Term Liabilities 151,649 115,917
Deferred Income Taxes 55,980 37,225
Minority Interest 92,065 76,563
Stockholders' Equity:
Common Stock, par value $0.05.
Authorized: 1,000,000,000 shares;
issued and outstanding - 480,205,000
shares at 10/27/96 and 477,106,000
shares at 1/28/96 24,010 23,855
Paid-In Capital 2,510,079 2,407,815
Retained Earnings 3,184,240 2,579,059
Cumulative Translation Adjustments 2,671 (6,131)
Unrealized Loss on Investments, Net (53) (47)
5,720,947 5,004,551
Less: Notes Receivable from ESOP 8,465 16,539
Shares Held in Employee
Benefit Trust 493 246
Total Stockholders' Equity 5,711,989 4,987,766
$ 9,381,316 $7,354,033
See accompanying notes to consolidated condensed financial statements.
Page 4 of 13
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
October 27, 1996 October 29, 1995
Cash Provided from Operations:
Net Earnings $ 686,564 $ 546,125
Reconciliation of Net Earnings to Net Cash
Provided by Operations:
Depreciation and Amortization 168,502 129,358
Deferred Income Tax Expense 18,747 12,444
Increase in Receivables, Net (56,057) (73,536)
Increase in Merchandise Inventories (473,854) (461,325)
Increase in Accounts Payable and
Accrued Expenses 732,823 632,911
Increase in Income Taxes Payable 13,252 26,871
Other 35,490 25,523
Net Cash Provided by Operations 1,125,467 838,371
Cash Flows From Investing Activities:
Capital Expenditures (874,690) (942,661)
Proceeds from Sales of Property and
Equipment 17,650 24,015
Purchase of Short-Term Investments, Net (122,532) 27,034
Proceeds from Maturities of Long-Term
Investments --- 6,257
Proceeds from Sales of Long-Term Investments --- 8,158
Advances Secured by Real Estate, Net 13,128 (8,962)
Net Cash Used in Investing Activities (966,444) (886,159)
Cash Flows From Financing Activities:
Proceeds from Long-Term Borrowings, Net 1,092,960 ---
Repayments of Commercial Paper Obligations,
Net (620,000) 100,000
Repayments of Notes Receivable from ESOP 8,074 1,661
Principal Repayments of Long-Term Debt (2,077) (21,524)
Proceeds from Sale of Common Stock, Net 93,378 62,995
Cash Dividends Paid to Stockholders (81,383) (65,904)
Minority Interest Contributions to
Partnership 13,208 18,482
Net Cash Provided by Financing Activities 504,160 95,710
Effect of Exchange Rate Changes on Cash 248 409
Increase in Cash and Cash Equivalents 663,431 48,331
Cash and Cash Equivalents at Beginning
of Period 53,269 1,154
Cash and Cash Equivalents at End of Period $ 716,700 $ 49,485
See accompanying notes to consolidated condensed financial statements.
Page 5 of 13
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).
2. Issuance of Convertible Subordinated Notes:
On October 2, 1996, the Company issued at par, through a registered
public offering, $1,104,000,000 of its 3.25% Convertible Subordinated
Notes, due October 1, 2001 (the "Notes"). The Notes are convertible
into shares of the Company's Common Stock at any time prior to
maturity, unless previously redeemed, at a conversion price of
$69.125 per share, subject to adjustment under certain conditions.
The Notes may be redeemed at any time on or after October 2, 1999,
at the option of the Company, in whole or in part, at a redemption
price of 100.813% of their principal amount and after October 1,
2000, at 100% of the principal amount. The Notes are not subject to
any sinking fund provisions.
The net proceeds from the sale of the Notes were used to repay
outstanding commercial paper and will be used to finance a portion
of the Company's capital expenditure programs, including planned
store expansions and renovations, and for general corporate
purposes. In the interim, the net proceeds are being invested in
both long and short-term interest-bearing securities.
3. Operating Lease Agreement:
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 purchases the
properties, pays for the construction costs and thereafter leases
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 primarily covers selected new
stores planned to open in 1996 and 1997.
Page 6 of 13
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 Nine Months Ended Dollar Amounts
Oct. 27, Oct. 29, Oct. 27, Oct. 29, Three Nine
1996 1995 1996 1995 Months Months
Selected Consolidated
Statements of Earnings Data
Net Sales 100.0% 100.0% 100.0% 100.0% 23.1% 24.4%
Gross Profit 27.2 26.9 27.4 27.3 24.3 25.0
Operating Expenses:
Selling and
Store Operating 17.9 17.9 17.8 17.7 23.2 25.0
Pre-Opening 0.3 0.3 0.3 0.4 (0.9) (7.7)
General and
Administrative 1.7 1.7 1.6 1.7 22.4 17.4
Total Operating
Expenses 19.9 19.9 19.7 19.8 22.7 23.8
Operating Income 7.3 7.0 7.7 7.5 28.8 28.0
Interest Income
(Expense):
Interest and
Investment Income 0.1 0.1 0.1 0.1 19.8 (6.8)
Interest Expense --- --- (0.1) --- 791.2 47.6
Interest, Net 0.1 0.1 0.0 0.1 (33.9) (27.3)
Earnings Before
Income Taxes 7.4 7.1 7.7 7.6 27.8 27.4
Income Taxes 2.9 2.7 3.0 2.9 30.5 30.0
Net Earnings 4.5% 4.4% 4.7% 4.7% 26.2 25.7
Selected Consolidated
Sales Data
Number of
Transactions (000's) 115,656 94,767 344,705 278,015 22.1 24.0
Average Amount of
Sale Per
Transaction $ 42.56 $ 42.19 $ 42.29 $ 42.15 0.9 0.3
Weighted Average
Weekly Sales Per
Operating Store
(000's) $ 815 $ 792 $ 836 $ 818 2.9 2.2
Weighted Average
Sales Per
Square Foot $ 403 $ 393 $ 413 $ 406 2.6 1.7
Page 7 of 13
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 1996 increased 23% to $4,921,831,000
compared to sales of $3,997,790,000 for the third quarter of fiscal 1995.
For the first nine months of fiscal 1996, sales increased 24% to
$14,576,963,000 from sales of $11,718,474,000 for the comparable period in
fiscal 1995. The sales increase for both periods was primarily
attributable to new stores (479 at the end of the third quarter of fiscal
1996 compared to 401 at the end of the third quarter of fiscal 1995) and a
comparable store-for-store sales increase of 7% for both the third quarter
and first nine months of fiscal 1996.
Gross profit as a percent of sales was 27.2% for the third quarter of
fiscal 1996 compared to 26.9% for the comparable period of fiscal 1995.
The increase for the quarter was primarily attributable to, among other
things, more effective buying practices initiated in the first and second
quarters of 1996 and other merchandising initiatives which reduced the
Company's cost of merchandise. For the first nine months of fiscal 1996,
gross profit as a percent of sales was 27.4% compared to 27.3% for the
comparable period of fiscal 1995.
Operating expenses as a percent to sales were 19.9% for the third quarter
of both fiscal 1996 and fiscal 1995. For the first nine months of fiscal
1996 operating expenses as a percent to sales were down slightly to 19.7%
from 19.8% for the same period of fiscal 1995. Selling and store operating
expenses as a percent to sales were 17.9% for both the third quarter of
fiscal 1996 and the third quarter of fiscal 1995. Increases in selling and
store operating expenses from the previous year include minority interest
expense, which resulted from higher operating profits from the Canadian
partnership. In addition, property taxes were higher than the previous
year due to the addition of more stores in states with higher property tax
rates and valuations. These increases were offset by lower net advertising
expenses resulting from increased vendor participation and economies
realized from more national advertising, as well as more favorable claims
experience under the Company's self-funded insurance programs. Pre-opening
expenses as a percent to sales were 0.3% for both the third quarter and
first nine months of fiscal 1996. For fiscal 1995 pre-opening expenses
were 0.3% for the third quarter and 0.4% for the nine month period. The
Company opened 23 new stores during the third quarter of fiscal 1996
compared to 22 new stores and one store relocation for the third quarter of
fiscal 1995. General and administrative expenses as a percent to sales
were 1.7% and 1.6% for the third quarter and first nine months of fiscal
1996, respectively, versus 1.7% for the comparable periods of fiscal 1995.
Net interest income as a percent to sales was 0.1% in the third fiscal
quarter of 1996 and 1995. Interest expense increased due to the issuance of
$1,104,000,000 of 3.25% Convertible Subordinated Notes during October 1996.
Interest expense was offset by investment income generated from the
proceeds of the Notes.
Page 8 of 13
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 third quarter and first nine 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 third quarter and first nine 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 4.5% and 4.7% for the third quarter
and first nine months of fiscal 1996, respectively, compared to 4.4% and
4.7% for the same periods of fiscal 1995.
Earnings per share were $0.46 and $1.42 for the third quarter and first
nine months of fiscal 1996, respectively, compared to $0.37 and $1.15 for
the third quarter and first nine 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 nine months of fiscal 1996, the Company opened 56 stores
and relocated 5 stores. The Company currently plans to open approximately
34 new stores and relocate 2 stores during the fourth quarter of fiscal
1996 and open approximately 110 new stores and relocate 7 stores during
fiscal 1997. Of the planned 90 new stores and 7 relocations in fiscal
1996, it is expected that 83 will be owned and 14 will be leased.
On October 2, 1996, the Company issued at par, through a registered public
offering, $1,104,000,000 of its 3.25% Convertible Subordinated Notes, due
October 1, 2001 (the "Notes"). The Notes are convertible into shares of
the Company's Common Stock at any time prior to maturity, unless previously
redeemed, at a conversion price of $69.125 per share, subject to adjustment
under certain conditions. The Notes may be redeemed at any time on or
after October 2, 1999, at the option of the Company, in whole or in part,
at a redemption price of 100.813% of their principal amount and after
October 1, 2000, at 100% of the principal amount.
The net proceeds from the sale of the Notes of approximately $1,092,960,000
were used to repay outstanding commercial paper obligations and will be
used to finance a portion of the Company's capital expenditure programs,
including planned store expansions and renovations, and for general
corporate purposes. In the interim, the net proceeds have been invested in
both long and short-term interest-bearing securities.
Page 9 of 13
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 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 selected 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
interest, 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 $13,400,000 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 $2,400,000 per store. In addition, each new store will
require approximately $2,800,000 to finance inventories, net of vendor
financing.
As of October 27, 1996, the Company had $782,545,000 in cash and short-term
investments, and $136,871,000 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.
Page 10 of 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
During the third quarter of fiscal 1996, no matters were submitted
to a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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
October 27, 1996.
Page 11 of 13
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
11/22/96
Page 12 of 13
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit Description
11.1 Computation of Earnings per Common and Common Equivalent Share
27. Financial Data Schedule (only submitted to SEC in electronic
format)
Page 13 of 13