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 31, 1999
- 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)
2455 Paces Ferry Road N.W. 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 1,534,909,250 Shares, as of December 1, 1999
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
October 31, 1999
Page
Part I. Financial Information:
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS -
Three-Month and Nine-Month Periods
Ended October 31, 1999 and November 1, 1998....................3
CONSOLIDATED CONDENSED BALANCE SHEETS -
As of October 31, 1999 and January 31, 1999....................4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Nine-Month Periods
Ended October 31, 1999 and November 1, 1998....................5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME -
Three-Month and Nine-Month Periods
Ended October 31, 1999 and November 1, 1998....................6
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS..............................................7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition..................8-13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk..............................................14
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security
Holders..................................................14
Item 5. Other Information ...........................................14
Item 6. Exhibits and Reports on Form 8-K.............................14
Signature Page........................................................15
Index to Exhibits.....................................................16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Millions, Except Per Share Data)
Three Months Ended Nine Months Ended
October 31, November 1, October 31, November 1,
1999 1998 1999 1998
Net Sales $ 9,877 $ 7,699 $ 29,260 $ 22,961
Cost of Merchandise Sold 6,983 5,522 20,771 16,552
Gross Profit 2,894 2,177 8,489 6,409
Operating Expenses:
Selling and Store Operating 1,760 1,377 5,065 3,998
Pre-Opening 24 24 78 61
General and Administrative 171 131 480 375
Total Operating Expenses 1,955 1,532 5,623 4,434
Operating Income 939 645 2,866 1,975
Interest Income (Expense):
Interest and Investment Income 12 9 24 24
Interest Expense (8) (8) (25) (29)
Interest, Net 4 1 (1) (5)
Earnings Before Income Taxes 943 646 2,865 1,970
Income Taxes 370 254 1,123 774
Net Earnings $ 573 $ 392 $ 1,742 $ 1,196
Weighted Average Number of
Common Shares Outstanding 1,490 1,471 1,483 1,469
Basic Earnings Per Share $ 0.38 $ 0.27 $ 1.17 $ 0.81
Weighted Average Number of
Common Shares Outstanding
Assuming Dilution 1,561 1,547 1,559 1,544
Diluted Earnings Per Share $ 0.37 $ 0.26 $ 1.13 $ 0.79
Dividends Per Share $ 0.040 $ 0.030 $ 0.110 $ 0.085
See accompanying notes to consolidated condensed financial statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Millions, Except Share Data)
October 31, January 31,
ASSETS 1999 1999
Current Assets:
Cash and Cash Equivalents $ 946 $ 62
Short-Term Investments 30 ---
Receivables, Net 648 469
Merchandise Inventories 5,274 4,293
Other Current Assets 160 109
Total Current Assets 7,058 4,933
Property and Equipment, at cost 11,113 9,422
Less: Accumulated Depreciation
and Amortization 1,538 1,262
Net Property and Equipment 9,575 8,160
Long-Term Investments 15 15
Notes Receivable 40 26
Cost in Excess of the Fair Value
of Net Assets Acquired 276 268
Other 73 63
$ 17,037 $ 13,465
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 2,603 $ 1,586
Accrued Salaries and Related Expenses 522 395
Sales Taxes Payable 255 176
Other Accrued Expenses 702 586
Income Taxes Payable 74 100
Current Installments of Long-Term Debt 8 14
Total Current Liabilities 4,164 2,857
Long-Term Debt,
excluding current installments 735 1,566
Other Long-Term Liabilities 275 208
Deferred Income Taxes 86 85
Minority Interest 11 9
Stockholders' Equity:
Common Stock, par value $0.05.
Authorized: 5,000,000,000 shares;
issued and outstanding
1,534,405,000 shares at 10/31/99
and 1,475,452,000 shares at 1/31/99 76 74
Paid-In Capital 4,285 2,854
Retained Earnings 7,455 5,876
Cumulative Translation Adjustments (44) (61)
11,772 8,743
Less Shares Purchased for Compensation 6 3
Total Stockholders' Equity 11,766 8,740
$ 17,037 $ 13,465
See accompanying notes to consolidated condensed financial statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions) Nine Months Ended
October 31, 1999 November 1,1998
Cash Provided From Operations:
Net Earnings $ 1,742 $ 1,196
Reconciliation of Net Earnings to Net Cash
Provided by Operations:
Depreciation and Amortization 338 277
(Increase) Decrease in Receivables, Net (175) 95
Increase in Merchandise Inventories (963) (567)
Increase in Accounts Payable
and Accrued Expenses 1,395 981
Increase in Income Taxes Payable 62 29
Other (25) 26
Net Cash Provided by Operations 2,374 2,037
Cash Flows From Investing Activities:
Capital Expenditures (1,794) (1,486)
Proceeds from Sales of Property and Equipment 50 30
Purchase of Remaining Interest
in the Home Depot Canada --- (261)
Purchase of Business Acquired (28) ---
Purchases of Investments (32) (2)
Proceeds from Maturities of Investments 2 3
Repayments of Advances Secured
by Real Estate, Net (14) (1)
Net Cash Used in Investing Activities (1,816) (1,717)
Cash Flows From Financing Activities:
Repayments of Commercial Paper
Obligations, Net (246) ---
Proceeds from Long-Term Borrowings, Net 497 ---
Principal Repayments of Long-Term Debt (7) (5)
Proceeds from Sale of Common Stock, Net 239 150
Cash Dividends Paid to Stockholders (163) (125)
Minority Interest Contributions
to Partnership 7 7
Net Cash Provided by
Financing Activities 327 27
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (1) (4)
Increase in Cash and Cash Equivalents 884 343
Cash and Cash Equivalents
at Beginning of Period 62 172
Cash and Cash Equivalents at End of Period $ 946 $ 515
See accompanying notes to consolidated condensed financial statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Millions)
Three Months Ended Nine Months Ended
October 31, November 1, October 31, November 1,
1999 1998 1999 1998
Net Earnings $ 573 $ 392 $ 1,742 $ 1,196
Other Comprehensive Income:
Foreign Currency Translation
Adjustments 17 (9) 17 (28)
Total Other Comprehensive
Income 17 (9) 17 (28)
Comprehensive Income $ 590 $ 383 $ 1,759 $ 1,168
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 31, 1999, as filed with the
Securities and Exchange Commission (File No. 1-8207).
2. Redemption of Convertible Notes:
On October 5, 1999, the Company announced its decision to redeem, on
November 1, 1999, all of its outstanding 3.25% Convertible Subordinated
Notes due October 1, 2001 (the "Notes") at a redemption price including
a premium of $1,008.13 per $1,000 principal amount of Notes. The Notes
were convertible into Common Stock at the rate of one share for each
$23.0417 principal amount of Notes owned. All but 215 of the $1,000 Notes
were converted to Common Stock. Since the third fiscal quarter of 1996,
the Company has reported earnings per share assuming the Notes had been
converted as of the beginning of the accounting period and accordingly,
the conversion of the Notes did not have a dilutive effect on earnings
per share.
3. Issuance of Senior Notes:
On September 27, 1999, the Company issued $500,000,000 of 6.50% Senior
Notes due September 15, 2004. The Company will pay interest semiannually
on March 15 and September 15 of each year commencing March 15, 2000. The
Company, at its option, may at any time redeem all or any portion of
the Senior Notes by notice to the holders. The Senior Notes are
redeemable at a premium plus accrued interest up to the redemption date.
The net proceeds from the issuance of the Senior Notes 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 cash equivalent and short-term interest-bearing investments.
THE HOME DEPOT, INC. AND SUBSIDIARIES
Item 2.
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
Three Months Nine Months (Decrease) in
Ended Ended Dollar Amounts
Selected Consolidated Oct.31, Nov. 1, Oct.31, Nov. 1, Three Nine
Statements of Earnings Data 1999 1998 1999 1998 Months Months
Net Sales 100.0% 100.0% 100.0% 100.0% 28.3% 27.4%
Gross Profit 29.3 28.3 29.0 27.9 32.9 32.5
Operating Expenses:
Selling and Store Operating 17.8 17.9 17.3 17.4 27.8 26.7
Pre-Opening 0.3 0.3 0.3 0.3 0.0 27.9
General and Administrative 1.7 1.7 1.6 1.6 30.5 28.0
Total Operating Expenses 19.8 19.9 19.2 19.3 27.6 26.8
Operating Income 9.5 8.4 9.8 8.6 45.6 45.1
Interest Income (Expense):
Interest and Investment
Income 0.1 0.1 0.1 0.1 33.3 0.0
Interest Expense (0.1) (0.1) (0.1) (0.1) 0.0 (13.8)
Interest, Net 0.0 0.0 0.0 0.0 300.0 (80.0)
Earnings Before
Income Tax 9.5 8.4 9.8 8.6 46.0 45.4
Income Taxes 3.7 3.3 3.8 3.4 45.7 45.1
Net Earnings 5.8% 5.1% 6.0% 5.2% 46.2 45.7
Selected Consolidated
Sales Data
Number of Transactions
(000's) 201,483 167,308 602,151 503,089 20.4 19.7
Average Sale Per
Transaction $48.75 $45.62 $48.28 $45.26 6.9 6.7
Weighted Average Weekly
Sales Per Operating
Store (000's) $ 879 $ 847 $ 912 $ 878 3.8 3.9
Weighted Average Sales
Per Square Foot $ 425 $ 412 $ 441 $ 427 3.2 3.3
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by The Home Depot, Inc. and
subsidiaries (the "Company") or with the approval of an authorized
executive officer of the Company may constitute "forward-looking statements"
as defined under the Private Securities Litigation Reform Act of 1995.
Words or phrases such as "should result,""are expected to," "we anticipate,"
"we estimate," "we project" or similar expressions are intended to identify
forward-looking statements. These statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
the Company's historical experience and its present expectations or
projections. These risks and uncertainties include, but are not limited to,
unanticipated weather conditions, stability of costs and availability of
sourcing channels, our ability to attract, train and retain highly-qualified
associates, conditions affecting the availability, acquisition, development
and ownership of real estate, year 2000 problems, general economic conditions,
the impact of competition, and regulatory and litigation matters. Caution
should be taken not to place undue reliance on any such forward-looking
statements, since such statements speak only as of the date of the making
of such statements. Additional information concerning these risks and
uncertainties is contained in the Company's Annual Report on Form 10-K for
the year ended January 31, 1999, as filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 1999 increased 28.3% to $9.877 billion
from $7.699 billion for the third quarter of fiscal 1998. For the first nine
months of fiscal 1999, sales increased 27.4% to $29.260 billion from $22.961
billion for the comparable period in fiscal 1998. The sales increase for both
periods was primarily attributable to new stores (878 stores open at the end
of the third quarter of fiscal 1999 compared with 717 at the end of the third
quarter of fiscal 1998) and a comparable store-for-store sales increase of
approximately 10% for both the third quarter and first nine months of fiscal
1999.
Gross profit as a percent of sales was 29.3% for the third quarter of fiscal
1999 compared with 28.3% for the third quarter of fiscal 1998. For the first
nine months of fiscal 1999, gross profit as a percent of sales was 29.0%
compared with 27.9% for the comparable period of fiscal 1998. The gross
profit rate increase for both periods was primarily attributable to the
ongoing benefits of product line reviews, which have resulted in lower costs
of merchandise and more effective product assortments, cost reductions
through direct sourcing of imports, additional tool rental centers in
certain stores and better shrink results.
Total operating expenses as a percent of sales decreased to 19.8% for the
third quarter of fiscal 1999 from 19.9% for the third quarter of fiscal 1998.
For the first nine months of fiscal 1999, operating expenses decreased as a
percent of sales to 19.2% from 19.3% for the comparable period in fiscal 1998.
Selling and store operating expenses as a percent of sales decreased to 17.8%
for the third quarter of fiscal 1999 from 17.9% for the comparable period in
fiscal 1998. Net advertising expenses decreased as a percent of sales due to
higher co-op support from vendors, increased national advertising and cost
leverage achieved from opening new stores in existing markets. Also
contributing to the decrease were store relocation costs, which were lower
than last year as the Company recorded expenses for one relocation during the
third quarter of fiscal 1999 compared to five relocations during the
comparable period in fiscal 1998. The Company also leveraged occupancy and
certain other operating expenses as the result of the high comparable store
sales. Partially offsetting these decreases were higher costs for store
selling payroll as some non-selling hours were shifted to the sales floor
combined with continued staffing tests and increased labor standards in
certain departments, and higher medical costs resulting from increased
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
RESULTS OF OPERATIONS - (Continued)
participation in the Company's medical plan and higher costs related to
prescription drugs. In addition, credit card discounts for the first nine
months of fiscal 1999 were higher than the comparable period of fiscal 1998
as a percent of sales, due to a higher penetration of credit card sales and
non-private label discount rate increases. For the first nine months of fiscal
1999 selling and store operating expenses as a percent of sales decreased to
17.3% from 17.4% for the first nine months of fiscal 1998. This decrease was
due primarily to lower net advertising expenses, fewer store relocations and
leverage achieved from high comparable store sales, partially offset by higher
credit card discounts and medical plan expenses as described above.
Pre-opening expenses as a percent of sales were 0.3% for all comparable
periods in fiscal 1999 and fiscal 1998. The Company opened 30 new stores and
reopened two stores, that were closed in prior quarters, during the third
quarter of fiscal 1999 compared with 38 new stores and three store
relocations during the third quarter of fiscal 1998. General and
administrative expenses as a percent of sales were 1.7% for the third
quarter of both fiscal 1999 and fiscal 1998, and 1.6% for the first nine
months of both fiscal 1999 and fiscal 1998.
Net interest as a percent of sales was 0.0% for the third quarter and first
nine months of both fiscal 1999 and fiscal 1998. As a percent of sales,
interest and investment income was 0.1% for both the third quarter and
first nine months of fiscal 1999 and the comparable periods of fiscal 1998.
Interest expense as a percent of sales was 0.1% for all comparable periods.
The Company's combined federal and state effective income tax rate decreased
to 39.2% for the third quarter and first nine months of fiscal 1999 from
39.3% for the comparable periods of fiscal 1998, respectively. During the
fourth quarter of fiscal 1998, an adjustment was made to lower the annual
effective tax rate to 39.2%.
Net earnings as a percent of sales increased to 5.8% and 6.0% for the third
quarter and first nine months of fiscal 1999, respectively, from 5.1% and
5.2% for the third quarter and first nine months of fiscal 1998, respectively.
The increases for fiscal 1999 were primarily attributable to higher gross
margin rates and lower selling and store operating expenses, as a percent of
sales, as described above.
Diluted earnings per share were $0.37 and $1.13 for the third quarter and
first nine months of fiscal 1999, respectively, compared to $0.26 and $0.79
for the third quarter and first nine months of fiscal 1998, 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 1999, the Company opened 117 new stores,
reopened 1 store that was closed in fiscal 1998 and relocated 5 stores.
During the remainder of fiscal 1999, the Company plans to open approximately
52 new stores including 1 additional Villager's Hardware test store, and
relocate 1 store, for a 22% unit growth rate for the year. It is
anticipated that approximately 84% of the fourth quarter new locations will
be owned, and the remainder will be leased.
The Company has two operating lease agreements totaling $882 million for the
purpose of financing construction costs of certain new stores. Under the
operating lease agreements, the lessor purchases the properties, pays for
the construction costs and subsequently leases the facilities to the Company.
The leases provide for substantial residual value guarantees and include
purchase options at original cost on each property.
The Company financed a portion of new stores opened in fiscal 1997, 1998 and
1999 as well as an office building in fiscal 1999 under the operating lease
agreements and anticipates utilizing these facilities to finance selected new
stores during the remainder of fiscal 1999 and in fiscal 2000. In addition,
some planned locations for fiscal 1999 and fiscal 2000 will be leased
individually, and it is expected that many locations may be obtained through
the acquisition of land parcels and 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 $13.0 million per location. The cost to
remodel and/or fixture stores to be leased is expected to average
approximately $4.1 million per store. In addition, each new store will
require approximately $3.1 million to finance inventories, net of vendor
financing.
On October 5, 1999, the Company announced its decision to redeem, on
November 1, 1999, all of its outstanding 3.25% Convertible Subordinated Notes
due October 1, 2001 (the "Notes") at a redemption price including a premium of
$1,008.13 per $1,000 principal amount of Notes. The Notes were convertible
into Common Stock at the rate of one share for each $23.0417 principal amount
of Notes owned. All but 215 of the $1,000 Notes were converted to Common
Stock. Since the third fiscal quarter of 1996, the Notes had a dilutive
effect on earnings per share and accordingly, the Company has reported
earnings per share assuming the Notes had converted at the beginning of the
accounting period and accordingly, the conversion of the Notes did not have a
dilutive effect on earnings per share.
On September 27, 1999, the Company issued $500,000,000 of 6.50% Senior Notes
due on September 15, 2004. The Company will pay interest semiannually on
March 15 and September 15 of each year commencing March 15, 2000. The
Company, at its option, may at any time redeem all or any portion of the
Senior Notes by notice to the holders. The Senior Notes are redeemable at a
premium plus accrued interest up to the redemption date.
The net proceeds from the issuance of the Senior Notes 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 cash
equivalent and short-term interest-bearing investments.
The Company has a commercial paper program that allows borrowings up to a
maximum of $800 million. As of October 31, 1999, there were no borrowings
outstanding under the program. In connection with the program, the Company
has a back-up credit facility with a consortium of banks for up to $800
million. The credit facility, which was refinanced during fiscal 1999 and
expires on September 2004, contains various restrictive covenants, none of
which is expected to materially impact the Company's liquidity or capital
resources.
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 October 31, 1999, the Company had $976 million in cash and cash
equivalents and short-term investments, as well as $15 million in long-term
investments. The increase in cash and cash equivalents from the prior quarter
is primarily attributable to the issuance of the Senior Notes. Management
believes that its current cash position, the proceeds from short-term and
long-term investments, internally generated funds, funds available from its
$800 million commercial paper program, funds available from the $882 million
operating lease agreements, and/or the ability to obtain alternate sources of
financing should enable the Company to complete its capital expenditure
programs, including store expansions and renovations, through the next several
fiscal years.
YEAR 2000
The Company is currently addressing a universal situation commonly referred
to as the "Year 2000 Problem." The Year 2000 Problem relates to the inability
of certain computer software programs to properly recognize and process
date-sensitive information relative to the year 2000 and beyond. During
fiscal 1997, the Company developed a plan to devote the necessary resources
to identify and modify internal systems impacted by the Year 2000 Problem, or
implement new systems to become year 2000 compliant, in a timely manner.
This compliance plan consists of four major areas of focus: systems,
desktops, facilities and supplier management. The revised estimated total
cost of executing this plan is approximately $11.5 million, and as of October
31, 1999, the Company had expended approximately $10.4 million to effect the
plan. All expenditures related to the Company's year 2000 readiness
initiative have been funded by cash flow from operations, have been expensed
as incurred and have not materially impacted its other operating or investment
plans.
The Company has completed the systems portion of the compliance plan and no
system replacements were necessary. The compliance plan for desktop
applications critical to the Company's overall business infrastructure
was complete at the end of the third quarter of fiscal 1999. Substantially
all critical facilities systems, including, but not limited to, security
systems, energy management, material handling, copiers and faxes, have been
inventoried and tested. The testing revealed that some of these systems
needed to be remediated to avoid year 2000 problems and the Company hired
third parties to complete this remediation. As of October 31, 1999, the
Company had substantially completed the facilities systems portion of its
compliance plan. The Company, to date, has experienced no material year
2000 system problems. In implementing the systems portion of the plan,
the Company completed an inventory of all software programs operating
on its systems, identified year 2000 problems, created an appropriate
testing environment, completed testing and installed year 2000 compliant
software in the production environment.
The Company is assessing the year 2000 compliance status of its suppliers,
many of which participate in electronic data interchange ("EDI") or similar
programs with the Company. Based on information provided by the suppliers and
carriers through surveys and telephone interviews, the Company has confirmed
that suppliers and carriers representing approximately 98% of its EDI
volume have completed their internal year 2000 testing of both EDI and
non-EDI systems. Additionally, the Company is conducting substantial
testing with EDI merchandise suppliers and transportation carriers including,
with respect to merchandise suppliers participating in EDI programs, point-to-
point testing of EDI systems for year 2000 compliance. As of October 31, 1999,
the Company had completed testing with suppliers and carriers representing
approximately 50% of its EDI volume and had completed testing suppliers and
carriers representing approximately 70% of its EDI volume as of November 30,
1999. The Company has engaged in written or oral communications concerning
the year 2000 readiness of the remaining 30%. These communications have not
revealed to the Company any information that has caused the Company to
believe that the systems of its suppliers and carriers will fail to be year
2000 compliant in a timely manner.
The Company's risks involved with not solving the Year 2000 Problem include,
but are not limited to, the following:
- loss of local or regional electrical power;
- loss of telecommunication services;
- delays or cancellations of merchandise shipments;
- manufacturing shutdowns;
- delays in processing customer transactions; and
- bank errors and computer errors by suppliers.
Because the Company's year 2000 compliance is dependent upon certain third
parties (including infrastructure providers) also being year 2000 compliant
on a timely basis, there can be no assurance that the Company's efforts will
prevent a material adverse impact on its results of operations, financial
condition or business. However, the Company is taking steps to enable its
stores to operate in an independent mode in case of power or tele-
communications systems outages, which steps include building alternative
processes for stores to communicate with the store support center.
The Company has designed its year 2000 contingency plan as an extension of
its current business recovery plan, which prescribes the measures to be taken
upon the occurrence of a variety of contingencies. The contingency plan
focuses on the following priorities:
- ability to sell products to customers;
- order and distribute merchandise;
- pay employees; and
- meet other regulatory and administrative needs.
In addition to relying upon recovery actions contained in the Company's
existing business recovery plan, the Company's year 2000 contingency plan
is supported by its year 2000 command center. Key personnel (including
managerial, technical, maintenance, logistics and other personnel employed at
its stores and store support centers) will be available in the year 2000
command center 24 hours a day beginning on December 31, 1999, to identify and
seek to rectify as promptly as possible any business disruptions. Although the
Company has substantially completed its year 2000 contingency planning, it
will continue to modify and test implementation of these contingency plans
throughout the remainder of 1999. In addition, the Company has identified
critical activities that would normally be conducted during the first two
weeks of January 2000, which may be completed instead in December 1999.
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has not entered into any transactions using
derivative financial instruments or derivative commodity
instruments and believes that its exposure to market risk
associated with other financial instruments (such as
investments) is not material.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
During the third quarter of fiscal 1999, no matters
were submitted to a vote of security holders.
Item 5. Other Information
None
PART II. OTHER INFORMATION - Continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Credit Agreement dated September 17, 1999 by and among The
Home Depot, Inc., Bank of America, N.A., as Administrative
Agent, Wachovia Bank, N.A., as Syndication Agent, First Union
National Bank and The Bank of New York, as Co-Documentation
Agents, and the banks party thereto.
11.1 Computation of Basic and Diluted Earnings Per 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 31, 1999.
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 & CEO
/s/ Marshall L. Day
Marshall L. Day
Senior Vice President Finance
& Accounting
December 2, 1999
(Date)
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit Description
10.1 Credit Agreement dated September 17, 1999 by and among The Home
Depot, Inc., Bank of America, N.A., as Administrative Agent,
Wachovia Bank, N.A., as Syndication Agent, First Union National
Bank and The Bank of New York, as Co-Documentation Agents, and
banks party thereto.
11.1 Computation of Basic and Diluted Earnings Per Share
27. Financial Data Schedule (only submitted to SEC in electronic
format)