The Home Depot, Inc is an American home improvement chain based in Atlanta. It operates 2,284 DIY stores (as of April 2018) in North America (USA, Canada, Mexico, Puerto Rico) and claims to be the largest DIY store chain in the world. The company has over 400,000 employees.
The Home Depot also owns home improvement stores and user stores, such as the EXPO Design Center, Landscape Supply Garden Center, and a number of specialized stores.
The company was founded in Atlanta in 1978 by Bernie Marcus and Arthur Blank. It grew rapidly, with annual sales of $1 billion in 1986. In fiscal 2017, sales were $ 100.9 billion.
UNITED STATESSECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended July 30, 2000
-OR -
For the transition period from to
Commission file number 1-8207
THE HOME DEPOT, INC.
(Exact name of registrant as specified in its charter)
(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 2,315,905,984 Shares, as of August 18, 2000
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THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
July 30, 2000
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Millions, Except Per Share Data)
See accompanying notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions, Except Share Data)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 30, 2000, as filed with the Securities and Exchange Commission (File No. 1-8207).
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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.
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
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ability to attract, train and retain highly-qualified associates, conditions affecting the availability, acquisition, development and ownership of real estate, 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 filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended January 30, 2000.
RESULTS OF OPERATIONS
Sales for the second quarter of fiscal 2000 increased 21.0% to $12.618 billion from $10.431 billion for the second quarter of fiscal 1999. For the first six months of fiscal 2000, sales increased 22.4% to $23.731 billion from $19.383 billion for the comparable period in fiscal 1999. The sales increase for both periods was primarily attributable to new stores (1,011 stores open at the end of the second quarter of fiscal 2000 compared with 846 at the end of the second quarter of fiscal 1999) and a comparable store-for-store sales increase of 6% for the second quarter and 7% for the first six months of fiscal 2000.
Gross profit as a percent of sales was 29.6% for the second quarter of fiscal 2000 compared with 29.0% for the second quarter of fiscal 1999. For the first six months of fiscal 2000, gross profit as a percent of sales was 29.6% compared with 28.8% for the comparable period of fiscal 1999. 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 and the continued roll-out of tool rental centers. At the end of the second quarter of fiscal 2000, the Company was operating 235 tool rental centers compared to 90 in the second quarter of fiscal 1999.
Total operating expenses as a percent of sales were 18.8% for the second quarter of fiscal 2000 compared with 18.3% for the second quarter of fiscal 1999. For the first six months of fiscal 2000, operating expenses totaled 19.6% compared with 18.9% for the first six months of fiscal 1999.
Selling and store operating expenses as a percent of sales were 16.9% for the second quarter of fiscal 2000 compared to 16.5% for the same period in 1999. The increase was primarily attributable to higher store selling payroll expenses resulting from general market wage pressures, an increase in associate longevity and continued investment in customer service initiatives. In addition, the expansion of tool rental centers is increasing payroll costs, while at the same time improving gross margin and return on sales. Also, medical insurance costs were higher during the second quarter of fiscal 2000 compared to the same period of fiscal 1999 due to higher enrollment in the Company's medical plans and the continued inflation of healthcare costs. Selling and store operating expenses as a percent of sales were 17.6% for the first six months of fiscal 2000 compared to 17.0% for the first six months of fiscal 1999. This increase was primarily due to higher store selling payroll expenses and medical expenses, which increased due to the reasons stated above.
Pre-opening expenses as a percent of sales were 0.2% for the second quarter and first six months of fiscal 2000 compared to 0.3% for the second quarter and first six months of fiscal 1999. The Company opened 41 stores and relocated one store during the second quarter of fiscal 2000 compared with 49 new stores and four store relocations during the second quarter of fiscal 1999. General and administrative expenses as a percent of sales were 1.7% for the second quarter of fiscal 2000 compared to 1.5% for the second quarter of fiscal 1999. For the first six months of fiscal 2000, general and administrative expenses as a percent of sales were 1.8% compared to 1.6% for the same period in fiscal 1999. The increase for both
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periods was related to incremental expenses associated with long-term growth and strategic initiatives, including e-commerce, international expansion and the opening of four new divisional offices during the second half of fiscal 1999.
Net interest as a percent of sales was 0.0% for the second quarter and income of 0.1% for the first six months of fiscal 2000 compared to 0.0% for the second quarter and first six months of fiscal 1999. As a percent of sales, interest and investment income was 0.1% for all comparable periods of both fiscal 2000 and fiscal 1999. Interest expense as a percent of sales was 0.1% for the second quarter of both fiscal 2000 and fiscal 1999. For the first six months of fiscal 2000, interest expense as a percent of sales was 0.0% compared to 0.1% for the same period in fiscal 1999. The decrease was primarily due to higher capitalized interest resulting from a larger percentage of owned stores under construction.
The Company's combined federal and state effective income tax rate decreased to 38.8% for the second quarter and first six months of fiscal 2000 from 39.2% for the comparable periods of fiscal 1999. The decrease was attributable to higher tax credits for the second quarter and first six months of fiscal 2000 compared to the same periods in fiscal 1999.
Net earnings as a percent of sales increased to 6.6% and 6.2% for the second quarter and first six months of fiscal 2000, respectively, from 6.5% and 6.0% for the second quarter and first six months of fiscal 1999, respectively. The increases as a percent of sales for fiscal 2000 were primarily attributable to a higher gross profit rate partially offset by higher operating expenses as a percent of sales, as described above.
Diluted earnings per share were $0.36 and $0.62 for the second quarter and first six months of fiscal 2000, respectively, compared to $0.29 and $0.50 for the second quarter and first six months of fiscal 1999, 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 2000, the Company opened 82 stores, relocated three stores and temporarily closed one store, which is planned to reopen on the same site during the third quarter of fiscal 2000. During the remainder of fiscal 2000, the Company plans to open approximately 122 new stores and relocate five stores, for a 22% unit growth rate for the year. It is anticipated that approximately 86% of these 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 its new stores 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 and an office building in fiscal 2000. In addition, some stores opening during 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. The cost of new stores to be constructed and owned by the Company varies widely, principally due to land costs, and currently averages approximately $13.7 million per location. The cost to remodel and/or fixture stores to be leased averages approximately $4.4 million per store. In addition, each new store requires approximately $3.3 million to finance inventories, net of vendor financing.
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During fiscal 1999, the Company issued $500 million of 61/2% Senior Notes ("Senior Notes"). The Senior Notes are due on September 15, 2004, and pay interest semi-annually on March 15 and September 15 of each year. The Senior Notes may be redeemed by the Company at any time, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds from the offering were used to finance a portion of the Company's capital expenditure program, including store expansions and renovations, for working capital needs and for general corporate purposes.
The Company has a commercial paper program that allows borrowings up to a maximum of $800 million. As of July 30, 2000, 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 expires in September 2004, contains various restrictive covenants, none of which is expected to impact the Company's liquidity or capital resources.
As of July 30, 2000, the Company had $940 million in cash and cash equivalents. Management believes that its current cash position, the proceeds from short-term investments, internally generated funds, funds available from its $800 million commercial paper program and the ability to obtain alternate sources of financing should enable the Company to complete its capital expenditure programs, including store openings and renovations, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company uses derivative financial instruments at various times to manage the risk associated with foreign currency fluctuations on cross-border purchases of inventory. These contracts are currently insignificant to the Company's operations and financial position.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 31, 2000, the stockholders elected the following nominees to the Board of Directors with votes cast as follows: Col. Frank Borman: 1,987,873,799 shares for and 21,276,265 shares against and Mr. Berry R. Cox: 1,990,453,828 shares for and 18,696,237 shares against. There were no abstentions or broker non-votes applicable to the election of directors. The following other directors have terms as director that continue after the meeting: Mr. Arthur M. Blank, Mr. John L. Clendenin, Mr. William S. Davila, Mr. Milledge A. Hart, III, Ms. Bonnie G. Hill, Mr. Kenneth G. Langone, Mr. Bernard Marcus and Ms. M. Faye Wilson. Mr. Ronald M. Brill did not stand for re-election.
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The stockholders approved an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares with votes cast as follows: 1,817,014,447 shares for; 184,896,688 shares against; 7,236,224 shares abstained; and 2,550 broker non-votes.
The stockholders approved an amendment to the Company's Certificate of Incorporation to eliminate the classes of the Board of Directors with votes cast as follows: 1,549,612,737 shares for; 20,155,174 shares against; 9,867,362 shares abstained; and 429,514,792 broker non-votes.
The stockholders rejected a proposal relating to a report on certain employment matters with votes cast as follows: 153,102,100 shares for; 1,313,265,622 shares against; 113,205,132 shares abstained; and 429,577,055 broker non-votes.
The stockholders approved a proposal relating to simple-majority voting with votes cast as follows: 820,443,857 shares for; 678,781,302 shares against; 80,280,124 shares abstained; and 429,644,626 broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No reports on form 8-K were filed during the quarter ended July 30, 2000.
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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.
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INDEX TO EXHIBITS
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