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Page 1 of 13
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 May 4, 1997
- 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 486,339,169 Shares, as of May 29, 1997
Page 1 of 13
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THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
May 4, 1997
Page
Part I. Financial Information:
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS -
Three-Month Periods
Ended May 4,1997 and April 28, 1996 3
CONSOLIDATED CONDENSED BALANCE SHEETS -
As of May 4,1997 and February 2, 1997 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Three-Month Periods
Ended May 4, 1997 and April 28, 1996 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
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended
May 4, April 28,
1997 1996
<S> <C> <C>
Net Sales $ 5,657,274 $ 4,362,215
Cost of Merchandise Sold 4,105,480 3,142,285
Gross Profit 1,551,794 1,219,930
Operating Expenses:
Selling and Store Operating 1,014,580 815,659
Pre-Opening 13,039 12,859
General and Administrative 97,605 72,100
Total Operating Expenses 1,125,224 900,618
Operating Income 426,570 319,312
Interest Income (Expense):
Interest and Investment Income 9,978 4,126
Interest Expense (10,839) (2,329)
Interest, Net (861) 1,797
Minority Interest (2,075) (350)
Earnings Before Income Taxes 423,634 320,759
Income Taxes 164,800 125,740
Net Earnings $ 258,834 $ 195,019
Earnings Per Common and
Common Equivalent Share $ 0.53 $ 0.41
Dividends Per Share $ 0.06 $ 0.05
Weighted Average Number of Common
and Common Equivalent Shares 503,218 480,187
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 3 of 13
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<TABLE>
<CAPTION>
THE HOME DEPOT INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
May 4, February 2,
1997 1997
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 614,174 $ 146,006
Short-Term Investments 427,366 412,430
Receivables, Net 348,913 388,416
Merchandise Inventories 3,249,236 2,708,283
Other Current Assets 84,433 54,238
Total Current Assets 4,724,122 3,709,373
Property and Equipment, at cost 6,434,961 6,149,816
Less: Accumulated Depreciation
and Amortization (784,516) (712,770)
Net Property and Equipment 5,650,445 5,437,046
Long-Term Investments ---- 8,480
Notes Receivable 24,684 39,518
Cost in Excess of the Fair Value
of Net Assets Acquired 84,246 86,540
Other 65,169 60,753
$10,548,666 $ 9,341,710
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 1,792,742 $ 1,089,736
Accrued Salaries and Related Expenses 243,462 249,356
Sales Taxes Payable 165,447 129,284
Other Accrued Expenses 342,812 322,503
Income Taxes Payable 184,979 48,728
Current Installments of Long-Term Debt 1,834 2,519
Total Current Liabilities 2,731,276 1,842,126
Long-Term Debt, excluding
current installments 1,259,534 1,246,593
Other Long-Term Liabilities 163,731 134,034
Deferred Income Taxes 66,309 66,020
Minority Interest 97,593 97,751
Stockholders' Equity:
Common Stock, par value $0.05.
Authorized: 1,000,000,000 shares;
issued and outstanding - 486,190,000
shares at 5/4/97 and 480,515,000
shares at 2/2/97 24,309 24,026
Paid-In Capital 2,574,545 2,523,093
Retained Earnings 3,639,747 3,406,592
Cumulative Translation Adjustments (6,789) 2,173
Unrealized Loss on Investments, Net (824) (168)
6,230,988 5,955,716
Less Shares Held in Employee
Benefit Trust (765) (530)
Total Stockholders' Equity 6,230,223 5,955,186
$10,548,666 $ 9,341,710
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<TABLE>
<CAPTION>
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended
May 4, 1997 April 28, 1996
<S> <C> <C>
Cash Provided from Operations:
Net Earnings $ 258,834 $ 195,019
Reconciliation of Net Earnings to Net Cash
Provided by Operations:
Depreciation and Amortization 67,394 52,973
Deferred Income Tax Expense 658 691
Decrease in Receivables, Net 28,013 49,213
Increase in Merchandise Inventories (523,875) (348,348)
Increase in Accounts Payable and
Accrued Expenses 765,377 556,022
Increase in Income Taxes Payable 141,188 111,786
Other (17,145) 7,679
Net Cash Provided by Operations 720,444 625,035
Cash Flows Used in Investing Activities:
Capital Expenditures (265,851) (279,083)
Proceeds from Sales of Property and
Equipment 9,896 5,396
Proceeds from Sales of Investments ---- 30,737
Purchases of Investments (23,559) (63)
Proceeds from Maturities of Investments 15,926 7,734
Repayments of Advances Secured by Real
Estate, Net 28,364 2,051
Net Cash Used in Investing Activities (235,224 ) (233,228)
Cash Flows Used in Financing Activities:
Repayments of Commercial Paper Obligations,
Net ---- (421,570)
Repayments of Notes Receivable from ESOP ---- 313
Principal Repayments of Long-Term Debt (35,807) (823)
Proceeds from Sale of Common Stock, Net 46,013 42,499
Cash Dividends Paid to Stockholders (28,862) (23,894)
Shares Purchased for Employee Benefit
Trust (235) (247)
Minority Interest Contributions to
Partnership 2,233 6,847
Net Cash Used in Financing Activities (16,658) (396,875)
Decrease in Effect of Exchange Rate
Changes on Cash (394) (29)
Increase (Decrease) in Cash and Cash
Equivalents 468,168 (5,097)
Cash and Cash Equivalents at Beginning
of Period 146,006 53,269
Cash and Cash Equivalents at End of Period $ 614,174 $ 48,172
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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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 February 2, 1997, as
filed with the Securities and Exchange Commission (File No. 1-8207).
2. Merger of Maintenance Warehouse
On March 14, 1997, the Company acquired Maintenance
Warehouse/America Corp. ("Maintenance Warehouse") through the
exchange of all the common stock of Maintenance Warehouse for shares
of The Home Depot, Inc. Common Stock. Maintenance Warehouse, which
had sales of approximately $130 million in 1996, is the leading
direct-mail marketer of maintenance, repair and operations products
serving the U.S. building and facilities management market. The San
Diego-based company will continue to operate under its own name as a
subsidiary of the Company.
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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.
Three Months Ended
Percentage
Increase
May 4, April 28, (Decrease) in
1997 1996 Dollar Amounts
Selected Consolidated
Statements of Earnings Data
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 29.7%
Gross Profit 27.4 28.0 27.2
Operating Expenses:
Selling and Store Operating 18.0 18.7 24.4
Pre-Opening 0.2 0.3 1.4
General and Administrative 1.7 1.7 35.4
Total Operating Expenses 19.9 20.7 24.9
Operating Income 7.5 7.3 33.6
Interest Income (Expense):
Interest and Investment Income 0.2 0.1 141.8
Interest Expense (0.2) ---- 365.4
Interest, Net 0.0 0.1 (147.9)
Minority Interest 0.0 0.0 492.9
Earnings Before Income Taxes 7.5 7.4 32.1
Income Taxes 2.9 2.9 31.1
Net Earnings 4.6% 4.5% 32.7%
Selected Consolidated Sales Data
Number of Transactions (000's) 129,744 104,209 24.5%
Average Amount of Sale Per
Transaction $ 43.45 $ 41.86 3.8
Weighted Average Weekly Sales
Per Operating Store (000's) $ 834 $ 782 6.7
Weighted Average Sales Per
Square Foot Per Operating
Store (000's) $ 410 $ 387 5.9%
</TABLE>
Page 7 of 13
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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 first quarter of fiscal 1997 increased 30% to $5,657,274,000
compared to sales of $4,362,215,000 for the first quarter of fiscal 1996.
The sales increase for the quarter was primarily attributable to new stores
(536 at the end of the first quarter of fiscal 1997 compared to 441 at the
end of the first quarter of fiscal 1996) and a comparable store-for-store
sales increase of 11%. Relative to last year, the Company experienced more
normal weather for the spring season in most regions, which contributed to
the stronger year-over-year sales trends.
Gross profit as a percent of sales was 27.4% for the first quarter of
fiscal 1997 compared to 28.0% for the comparable period of fiscal 1996.
The gross profit rate decrease was primarily attributable to an earlier
spring season versus last year, which resulted in higher sales penetrations
of lumber and seasonal merchandise, which are lower margin categories.
Operating expenses as a percent of sales decreased to 19.9% for the first
quarter of fiscal 1997 from 20.7% for the first quarter of fiscal 1996.
Selling and store operating expenses as a percent of sales were 18.0% for
the first quarter of fiscal 1997 compared to 18.7% for the first quarter of
fiscal 1996. This decrease was partially attributable to the high
comparable store-for-store sales increase and milder weather, which
resulted in lower utilities and facility maintenance expenses as a percent
of sales. As a percent of sales, net advertising expense for the first
quarter of fiscal 1997 was lower than last year due to strong sales and
increased co-op advertising. In addition, estimated unrecoverable costs
for store relocations were lower than last year as a percent of sales. As
a percent of sales, pre-opening expenses were 0.2% for the first quarter of
fiscal 1997 compared to 0.3% for the comparable period last year. The
decrease was attributable to efficiencies achieved in the store opening
process and a higher proportion of store openings in markets with lower
labor costs during the first quarter relative to plans for the rest of the
year. The Company opened 24 new stores and relocated one store during the
first quarter of fiscal 1997 compared to 18 new stores and four store
relocations for the first quarter of fiscal 1996. General and
administrative expenses as a percent of sales were 1.7% for both the first
quarter of fiscal 1997 and fiscal 1996.
Net interest as a percent of sales was 0.0% in the first quarter of fiscal
1997 as compared to 0.1% in the first quarter of fiscal 1996. Interest
expense increased due to the issuance of $1,104,000,000 of 3.25% Convertible
Subordinated Notes ("the 3.25% Notes") during the third quarter of fiscal
1996. Also, capitalized interest was lower than last year primarily because
of a lower average borrowing rate resulting from the low interest rate on
the 3.25% Notes. Interest expense was partially offset by investment income
generated from the proceeds of the 3.25% Notes.
Page 8 of 13
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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
decreased to 38.9% for the first quarter of fiscal 1997 from 39.2% for the
first quarter of fiscal 1996. During the fourth quarter of fiscal 1996,
the Company adjusted its combined federal and state effective income tax
rate to 38.9% for the fiscal year due to the new Worker's Opportunity tax
credit and various state and local tax planning strategies.
Net earnings as a percent of sales were 4.6% for the first quarter of
fiscal 1997, compared to 4.5% for the first quarter of fiscal 1996.
Earnings per share were $0.53 for the first quarter of fiscal 1997, up 29%
from $0.41 in the first quarter of fiscal 1996.
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 three months of fiscal 1997, the Company opened 24 stores
and relocated 1 store. During the remainder of fiscal 1997, the Company
plans to open approximately 87 additional new stores and relocate 3
existing stores. In fiscal 1998, the Company plans to increase its total
number of stores by approximately 21 to 22 percent. Although some of these
locations will be leased directly, it is expected that many may be obtained
through the purchase of pre-existing leasehold interests, the acquisition
of land parcels and the construction or purchase of buildings during fiscal
1997. 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 $13,100,000 per location. The Company may purchase leasehold
interests at varying amounts depending upon the value of such properties.
In addition, each new store will require approximately $3,300,000 to
finance inventories, net of vendor financing. The cost to remodel
(including leasehold interests) and fixture stores to be leased is expected
to average approximately $2,400,000 per store. Of the 111 new stores and 4
relocations planned to open in fiscal 1997, it is expected that 74% will be
owned and the remainder will be leased.
Page 9 of 13
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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.
In May 1997, the Company increased its available funding under the
operating lease agreement to $600,000,000, which will allow the Company to
finance a portion of its 1998 store openings. As of May 4, 1997, the
Company had $1,041,540,000 in cash and short-term investments. Management
believes that its current cash position, the proceeds from short-term
investments, internally generated funds, funds available from the
$600,000,000 operating lease agreement, funds available from its
$800,000,000 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
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
During the first quarter of fiscal 1997, 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
On February 26, 1997, the Company filed a Form 8-K, pursuant to
Item 5 - Other Event, reporting on the fiscal 1996 fourth
quarter and year end results.
Page 11 of 13
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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.
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
June 2, 1997
Page 12 of 13
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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)
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<CAPTION>
Exhibit 11.1
THE HOME DEPOT, INC. AND SUBSIDIARIES
Computation of Earnings
Per Common and Common Equivalent Share
(In Thousands, Except Per Share Data)
Three Months Ended
May 4, April 28,
1997 1996
<S> <C> <C>
Net earnings applicable to
common and common equivalent
shares $ 258,834 $ 195,019
Tax effected interest expense, net
of interest capitalized, attributable
to convertible subordinated notes 5,842 ------
$ 264,676 $ 195,019
Shares:
Weighted average number of
common and common equivalent
shares assuming average market
price 487,247 480,187
Additional shares from assumed
conversion of convertible
subordinated notes 15,971 -----
503,218 480,187
Primary earnings per common and
common equivalent share $ .526 $ .406
(1) Common equivalent shares represent shares granted under the
Company's employee stock purchase plan and stock option plans
for the three month periods ended May 4,1997, and April 28, 1996.
(2) The Company's 3.25% Convertible Subordinated Notes issued on
October 2, 1996, are common stock equivalents. For the three
months ended May 4, 1997 the notes were dilutive and, accordingly,
were assumed to be converted at the beginning of the accounting
period for purposes of calculating earnings per share.
(3) Fully diluted earnings per share computations are not presented
because the impact of a higher ending market price on weighted
average common equivalent shares was not material for the three
month periods ended May 4, 1997 and April 28, 1996.
</TABLE>
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-END> MAY-04-1997
<CASH> 614174
<SECURITIES> 427366
<RECEIVABLES> 348913
<ALLOWANCES> 0
<INVENTORY> 3249236
<CURRENT-ASSETS> 4724122
<PP&E> 6434961
<DEPRECIATION> 784516
<TOTAL-ASSETS> 10548666
<CURRENT-LIABILITIES> 2731276
<BONDS> 1259534
0
0
<COMMON> 24309
<OTHER-SE> 6205914
<TOTAL-LIABILITY-AND-EQUITY> 10548666
<SALES> 5657274
<TOTAL-REVENUES> 5657274
<CGS> 4105480
<TOTAL-COSTS> 4105480
<OTHER-EXPENSES> 1127299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 861
<INCOME-PRETAX> 423634
<INCOME-TAX> 164800
<INCOME-CONTINUING> 258834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258834
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
