<PAGE>
Page 1 of 16
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 November 1, 1998
- 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 1,563,115,707 shares, as of November 20, 1998
<PAGE>
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
November 1, 1998
Page
Part I. Financial Information:
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS -
Three-Month and Nine-Month Periods
Ended November 1, 1998 and November 2, 1997....................3
CONSOLIDATED CONDENSED BALANCE SHEETS -
As of November 1, 1998 and February 1, 1998....................4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Nine-Month Periods
Ended November 1, 1998 and November 2, 1997....................5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME -
Three-Month and Nine-Month Periods
Ended November 1, 1998 and November 2, 1997....................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..............................................13
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
<PAGE>
<TABLE>
<CAPTION>
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
November 1, November 2, November 1, November 2,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $ 7,699 $ 6,217 $ 22,961 $ 18,425
Cost of Merchandise Sold 5,522 4,491 16,552 13,346
Gross Profit 2,177 1,726 6,409 5,079
Operating Expenses:
Selling and Store Operating 1,377 1,117 3,998 3,236
Pre-Opening 24 16 61 43
General and Administrative 131 106 375 305
Non-Recurring Charge --- 104 --- 104
Total Operating Expenses 1,532 1,343 4,434 3,688
Operating Income 645 383 1,975 1,391
Interest Income (Expense):
Interest and Investment
Income 9 13 24 37
Interest Expense (8) (10) (29) (32)
Interest, Net 1 3 (5) 5
Earnings Before Income Taxes 646 386 1,970 1,396
Income Taxes 254 150 774 543
Net Earnings $ 392 $ 236 $ 1,196 $ 853
Weighted Average Number of
Common Shares Outstanding 1,471 1,461 1,469 1,457
Basic Earnings Per Share $ 0.27 $ 0.16 $ 0.81 $ 0.59
Weighted Average Number of
Common Shares Outstanding
Assuming Dilution 1,547 1,529 1,544 1,521
Diluted Earnings Per Share $ 0.26 $ 0.16 $ 0.79 $ 0.57
Dividends Per Share $ 0.030 $ 0.025 $ 0.085 $ 0.070
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Millions, Except Share Data)
November 1, February 1,
1998 1998
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 515 $ 172
Short-Term Investments 1 2
Receivables, Net 459 556
Merchandise Inventories 4,157 3,602
Other Current Assets 116 128
Total Current Assets 5,248 4,460
Property and Equipment, at cost 8,917 7,487
Less: Accumulated Depreciation
and Amortization (1,213) (978)
Net Property and Equipment 7,704 6,509
Long-Term Investments 15 15
Notes Receivable 28 27
Cost in Excess of the Fair Value
of Net Assets Acquired 263 140
Other 66 78
$ 13,324 $ 11,229
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 2,144 $ 1,358
Accrued Salaries and Related Expenses 383 312
Sales Taxes Payable 204 143
Other Accrued Expenses 555 530
Income Taxes Payable 90 105
Current Installments of Long-Term Debt 10 8
Total Current Liabilities 3,386 2,456
Long-Term Debt, excluding current
installments 1,319 1,303
Other Long-Term Liabilities 219 178
Deferred Income Taxes 79 78
Minority Interest 5 116
Stockholders' Equity:
Common Stock, par value $0.05.
Authorized: 2,500,000,000 shares;
issued and outstanding -
1,473,829,000 shares at 11/1/98
and 1,464,216,000 shares at 2/1/98 74 73
Paid-In Capital 2,820 2,626
Retained Earnings 5,502 4,430
Cumulative Translation Adjustments (75) (28)
8,321 7,101
Less Shares Purchased for Compensation
Plans 5 3
Total Stockholders' Equity 8,316 7,098
$ 13,324 $ 11,229
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)
Nine Months Ended
November 1, 1998 November 2, 1997
<S> <C> <C>
Cash Provided From Operations:
Net Earnings $ 1,196 $ 853
Reconciliation of Net Earnings to Net Cash
Provided by Operations:
Depreciation and Amortization 277 205
Decrease (Increase) in Receivables, Net 95 (123)
Increase in Merchandise Inventories (567) (756)
Increase in Accounts Payable and
Accrued Expenses 981 953
Increase in Income Taxes Payable 29 ---
Other 26 15
Net Cash Provided by Operations 2,037 1,147
Cash Flows From Investing Activities:
Capital Expenditures (1,486) (985)
Proceeds from Sales of Property and
Equipment 30 46
Payment for Purchase of
Minority Partnership Interest (261) ---
Purchases of Investments (2) (194)
Proceeds from Maturities of Investments 3 312
Repayments of Advances Secured by Real
Estate, Net (1) (1)
Net Cash Used in Investing Activities (1,717) (822)
Cash Flows From Financing Activities:
Proceeds from Long-Term Borrowings --- 15
Principal Repayments of Long-Term Debt (5) (37)
Proceeds from Sale of Common Stock, Net 150 106
Cash Dividends Paid to Stockholders (125) (102)
Minority Interest Contributions to
Partnership 7 5
Net Cash Provided by (Used in)
Financing Activities 27 (13)
Effect of Exchange Rate Changes on Cash, Net (4) ---
Increase in Cash and Cash Equivalents 343 312
Cash and Cash Equivalents at Beginning of
Period 172 146
Cash and Cash Equivalents at End of Period $ 515 $ 458
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Millions)
Three Months Ended Nine Months Ended
November 1, November 2, November 1, November 2,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Earnings $ 392 $ 236 $ 1,196 $ 853
Other Comprehensive
Income, net of tax:
Foreign Currency
Translation
Adjustments (9) (5) (28) (10)
Unrealized Loss on
Investments --- --- --- (1)
Other Comprehensive
Income (9) (5) (28) (11)
Comprehensive Income $ 383 $ 231 $ 1,168 $ 842
</TABLE>
<PAGE>
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 1, 1998, as filed with the
Securities and Exchange Commission (File No. 1-8207).
2. Stock Split
On May 27, 1998, the Board of Directors authorized a two-for-one stock
split, effected in the form of a stock dividend, which was distributed
on July 2, 1998 to stockholders of record on June 11, 1998. This
distribution resulted in a transfer on the Company's balance sheet of
$36,751,000 to common stock from paid-in capital. The accompanying
financial statements and Management's Discussion and Analysis of
Results of Operations and Financial Condition, including all share and
per share amounts, have been adjusted to reflect this transaction.
3. Purchase of Minority Interest in Canadian Partnership
During the first quarter of fiscal 1998, the Company purchased, for
$261 million, the remaining 25% partnership interest in The Home Depot
Canada partnership that was held by The Molson Companies. As a result
of this transaction, the Company and its subsidiaries now own all of
The Home Depot's Canadian operations. The Home Depot Canada
partnership was formed in February 1994 when the Company acquired 75%
of Aikenhead's Home Improvement Warehouse, which was then operating
seven home improvement stores in Canada. Since the original
acquisition and through the end of the third quarter of fiscal 1998,
The Home Depot Canada has opened 34 additional stores. The terms of
the original partnership agreement provided for a put/call option,
which would have resulted in the Company purchasing the remaining 25%
of The Home Depot Canada at any time after the sixth anniversary of
the original agreement. The companies reached a mutual agreement,
however, to complete the purchase transaction at an earlier date.
<PAGE>
THE HOME DEPOT, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
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 Nine Months Dollar Amounts
Ended Ended
Selected Consolidated
Statements of Earnings Nov. 1, Nov. 2, Nov. 1, Nov. 2, Three Nine
Data 1998 1997 1998 1997 Months Months
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 23.8% 24.6%
Gross Profit 28.3 27.8 27.9 27.6 26.1 26.2
Operating Expenses:
Selling and
Store Operating 17.9 17.9 17.4 17.5 23.3 23.5
Pre-Opening 0.3 0.3 0.3 0.2 50.0 41.9
General and
Administrative 1.7 1.7 1.6 1.7 23.6 23.0
Non-Recurring Charge --- 1.7 --- 0.6 N/A N/A
Total Operating
Expenses 19.9 21.6 19.3 20.0 14.1 20.2
Operating Income 8.4 6.2 8.6 7.6 68.4 42.0
Interest Income
(Expense):
Interest and Investment
Income 0.1 0.2 0.1 0.2 (30.8) (35.1)
Interest Expense (0.1) (0.2) (0.1) (0.2) (20.0) (9.4)
Interest, Net --- --- --- --- (66.7) (200.0)
Earnings Before
Income Taxes 8.4 6.2 8.6 7.6 67.4 41.1
Income Taxes 3.3 2.4 3.4 3.0 69.3 42.5
Net Earnings 5.1% 3.8% 5.2% 4.6% 66.1 40.2
Selected Consolidated
Sales Data
Number of Transactions
(in Millions) 167 139 503 418 20.1 20.3
Average Amount of Sale
Per Transaction $45.62 $44.50 $45.26 $43.89 2.5 3.1
Weighted Average
Weekly Sales
Per Operating
Store (in Thousands) $ 847 $ 838 $ 878 $ 865 1.1 1.5
Weighted Average
Sales Per Square Foot $ 412 $ 411 $ 427 $ 424 0.2 0.7
</TABLE>
<PAGE>
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 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, conditions affecting the acquisition,
development and ownership of real estate, and the impact of competition.
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.
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 1998 increased 23.8% to $7.699 billion
from $6.217 billion for the third quarter of fiscal 1997. For the first
nine months of fiscal 1998, sales increased 24.6% to $22.961 billion from
$18.425 billion for the comparable period in fiscal 1997. The sales
increase for both periods was primarily attributable to new stores (717
stores open at the end of the third quarter of fiscal 1998 compared with 583
at the end of the third quarter of fiscal 1997) and a comparable store-for-
store sales increase of 7% for both the third quarter and first nine months
of fiscal 1998.
Gross profit as a percent of sales was 28.3% for the third quarter of fiscal
1998 compared with 27.8% for the third quarter of fiscal 1997. For the first
nine months of fiscal 1998 gross profit as a percent of sales was 27.9%
compared with 27.6% for the comparable period of fiscal 1997. The gross
profit rate increase for both periods was primarily attributable to product
line reviews and other merchandising initiatives, which have resulted in
lower costs of merchandise. In addition, sales mix changes and better
shrink results contributed to a higher margin rate.
Operating expenses as a percent of sales decreased to 19.9% for the third
quarter of fiscal 1998 from 21.6% for the third quarter of fiscal 1997
primarily due to a pre-tax non-recurring charge of $104 million in the third
quarter of fiscal 1997 related to the settlements of an employment-related
class action lawsuit and three other lawsuits. For the first nine months of
fiscal 1998, operating expenses decreased to 19.3% from 20.0% for the
comparable period in fiscal 1997, primarily due to the non-recurring charge
as described above.
Selling and store operating expenses as a percent of sales were 17.9% for
the third quarter of both fiscal 1998 and fiscal 1997. Net advertising
expenses decreased as a percent of sales due to increased national
advertising and cost leverage achieved from opening new stores in existing
markets. During the first quarter of fiscal 1998, the Company purchased the
remaining 25% of The Home Depot Canada Partnership from The Molson
Companies. As a result, minority interest expense, which includes the
Molson Companies' share of earnings in the partnership, was lower as a
percent of sales in the third quarter and first nine months of fiscal 1998
compared with the third quarter and first nine months of fiscal 1997. In
addition, claims expenses related to the company's self-funded insurance
programs were lower than last year as a percent of sales due to continued
focus on safety programs and claims management. Partially offsetting these
decreases were higher store selling payroll expenses as a percent of sales
for the third quarter of fiscal 1998 compared to the third quarter of fiscal
1997 primarily due to the continued focus on certain areas, including
flooring and other decor areas that require
<PAGE>
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
RESULTS OF OPERATIONS - (Continued)
labor skills which tend to carry higher than average pay rates. Also,
credit card discounts were higher than last year due to a higher penetration
of credit card sales. Selling and store operating expenses as a percent of
sales decreased to 17.4% for the first nine months of fiscal 1998 from 17.5%
for the first nine months of fiscal 1997. This decrease was due primarily
to lower net advertising expenses and minority interest expense, partially
offset by higher store selling payroll expense, as described above.
Pre-opening expenses as a percent of sales were 0.3% for the third quarter
and first nine months of fiscal 1998 compared to 0.3% for the third quarter
and 0.2% for the first nine months of fiscal 1997. The Company opened 38
stores and relocated 3 stores during the third quarter of fiscal 1998
compared with 24 new stores and 2 store relocations during the third quarter
of fiscal 1997. General and administrative expenses as a percent of sales
were 1.7% for the third quarter of both fiscal 1998 and fiscal 1997, and
1.6% for the first nine months of fiscal 1998 compared to 1.7% for fiscal
1997.
Net interest as a percent of sales was 0.0% for the third quarter and first
nine months of both fiscal 1998 and fiscal 1997. As a percent of sales,
interest and investment income for the third quarter and first nine months
of fiscal 1998 decreased to 0.1% from 0.2% for the third quarter and first
nine months of fiscal 1997, primarily due to lower investment balances and
lower interest rates. Interest expense as a percent of sales decreased to
0.1% for the third quarter and first nine months of fiscal 1998 from 0.2%
for the comparable periods of fiscal 1997. The decrease was primarily
attributable to leverage achieved from higher sales in fiscal 1998 and to
higher capitalized interest expense during fiscal 1998.
The Company's combined federal and state effective income tax rate increased
to 39.3% for the third quarter and first nine months of fiscal 1998 from
38.9% for the comparable periods of fiscal 1997. The increase was due to
higher effective state tax rates and a reduction in tax-exempt interest
income.
Net earnings as a percent of sales increased to 5.1% and 5.2% for the third
quarter and first nine months of fiscal 1998, respectively, from 3.8% and
4.6% for the third quarter and first nine months of fiscal 1997 (4.8% and
5.0% for the third quarter and first nine months of fiscal 1997 excluding
the non-recurring charge.) The increases as a percent of sales for fiscal
1998, excluding the non-recurring charge last year, were primarily
attributable to higher gross margin rates and lower selling and store
operating expenses, partially offset by higher income tax rates, as
described above.
Diluted earnings per share was $0.26 and $0.79 for the third quarter and
first nine months of fiscal 1998, respectively, compared to $0.16 and $0.57
for the third quarter and first nine months of fiscal 1997, respectively.
Diluted earnings per share for 1997, excluding the non-recurring charge, was
$0.20 for the third quarter and $0.61 for the first nine months.
<PAGE>
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
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 1998, the Company opened 93 stores and relocated 4
stores. During the remainder of fiscal 1998, the Company plans to open
approximately 44 new stores, for a 22% unit growth rate. It is anticipated
that approximately 82% of these locations will be owned, and the remainder
will be leased. The Company also plans to open approximately 170 stores,
including relocations, in fiscal 1999.
In June 1996, the Company entered into a $300 million operating lease
agreement for the purpose of financing construction costs of certain new
stores. The Company increased its available funding under the operating
lease agreement to $600 million in May 1997 and to $882 million in October
1998. Under the agreement, the lessor purchases the properties, pays for
the construction costs and subsequently leases the facilities to the
Company. The lease provides for substantial residual value guarantees and
includes purchase options at original cost on each property.
The Company financed a portion of new stores opened in fiscal 1997 under the
operating lease agreement and anticipates utilizing this facility to finance
selected new stores in fiscal 1998 and 1999, and an office building in
fiscal 1999. In addition, some planned locations for fiscal 1998 and fiscal
1999 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 $13.1 million per
location. The cost to remodel and fixture stores to be leased is expected
to average approximately $2.5 million per store. In addition, each new
store will require approximately $3.0 million to finance inventories, net of
vendor financing.
During fiscal 1996, the Company issued, through a public offering, $1.1
billion of 3.25% Convertible Subordinated Notes due October 1, 2001 ("3.25%
Notes"). The 3.25% Notes were issued at par and are convertible into shares
of the Company's common stock at any time prior to maturity, unless
previously redeemed by the Company, at a conversion price of $23.0416 per
share, subject to adjustment under certain conditions. The 3.25% Notes may be
redeemed, at the option of the Company, at any time on or after October 2,
1999, in whole or in part, at a redemption price of 100.813% of the
principal amount and after October 1, 2000, at 100% of the principal amount.
The Company used the net proceeds from the offering to repay outstanding
commercial paper obligations, to finance a portion of the Company's capital
expenditure program, including store expansions and renovations, and for
general corporate purposes.
The Company has a commercial paper program that allows borrowings up to a
maximum of $800 million. As of November 1, 1998, 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 December 2000, contains
various restrictive covenants, none of which is expected to materially
impact the Company's liquidity or capital resources.
<PAGE>
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 November 1, 1998, the Company had $516 million in cash and cash
equivalents and short-term investments, as well as $15 million 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 its $800 million commercial paper program, funds
available from the $882 million operating lease agreement, 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 total cost of executing
this plan is estimated at $13,000,000 and, as of November 1, 1998, the
Company had expended approximately $5,250,000 to effect the plan.
The Company has substantially completed the intial phases of the systems
portion of the compliance plan. The intial phases include completing an
inventory of all software programs operating on Company systems, identifying
Year 2000 problems and developing contingency plans. The next phase involves
creating an appropriate testing environment and, as of November 1, 1998, this
phase was approximately 70% complete. Subsequent phases of the systems portion
of the compliance plan involve execution of testing and the installation of
Year 2000 compliant software into the production environment, which were,
respectively, approximately 30% and 25% complete as of the end of the third
quarter of fiscal 1998. The Company anticipates completing the systems
portion of its compliance plan by the end of the first quarter of fiscal 1999.
The Company has conducted an inventory of all desktop applications. All
desktop applications critical to the Company's overall business are being
evaluated under the method described above. As of November 1, 1998, this
process was approximately 70% complete. The Company expects the execution of
this portion of the plan to be substantially complete by the end of the fiscal
year 1998. Desktop infrastructure is also being tested. The Company expects
the testing of desktop infrastructure to be subsantially complete during the
first 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 are being tested. As of November 1, 1998, this
process was approximately 33% complete. The Company anticipates completing
the facilities systems portion of its compliance plan before the end of the
second quarter of fiscal 1999.
<PAGE>
THE HOME DEPOT,INC.AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
YEAR 2000 - (Continued)
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. The Company anticipates conducting substantial
testing with EDI merchandise suppliers during 1999. In addition, the Company
plans to communicate with all its transportation carriers and to conduct
similar testing. With respect to merchandise suppliers participating in EDI
programs with the Company, the Company anticipates conducting point-to-point
testing of these EDI systems for Year 2000 compliance.
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 electric
power, loss of telecommunication services, delays or cancellations of
shipping or transportation of merchandise, manufacturing shut-downs, delays
in processing customer transactions, 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 affect on its results
of operations, financial condition or business. The Company is developing
contingency plans for those areas of its business which may be affected by
the Year 2000 Problem.
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) are not material.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
During the third quarter of fiscal 1998, no matters were submitted
to a vote of security holders.
Item 5. Other Information
None
Item 6. Exhibits
11.1 Computation of Basic and Diluted Earnings Per Share
27. Financial Data Schedule (only submitted to SEC in
electronic format)
<PAGE>
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 7, 1998
(Date)
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THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit Description
11.1 Computation of Basic and Diluted Earnings Per Share
27. Financial Data Schedule (only submitted to SEC in electronic
format)
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Exhibit 11.1
THE HOME DEPOT, INC. AND SUBSIDIARIES
COMPUTATION OF BASIC AND DILUTED
EARNINGS PER SHARE
(In Millions, Except Per Share Data)
Three Months Ended Nine Months Ended
Nov 1, Nov 2, Nov 1, Nov 2,
BASIC 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Earnings Available to
Common Shareholders $ 392 $ 236 $ 1,196 $ 853
Weighted Average Number
of Common Shares
Outstanding 1,471 1,461 1,469 1,457
Basic Earnings Per Share $ 0.27 $ 0.16 $ 0.81 $ 0.59
DILUTED
Net Earnings Available to
Common Shareholders $ 392 $ 236 $ 1,196 $ 853
Tax-Effected Interest
Expense Attributable to
3.25% Convertible
Subordinated Notes 5 6 17 18
Net Earnings Available to
Common Shareholders
Assuming Dilution $ 397 $ 242 $ 1,213 $ 871
Weighted Average Number of
Common Shares Outstanding 1,471 1,461 1,469 1,457
Effect of Potentially
Dilutive Securities:
3.25% Convertible
Subordinated Notes 48 48 48 48
Employee Stock Plans 28 20 27 16
Weighted Average Number of
Common Shares Outstanding
Assuming Dilution 1,547 1,529 1,544 1,521
Diluted Earnings Per Share $ 0.26 $ 0.16 $ 0.79 $ 0.57
(1) Employee stock plans represent shares granted under the Company's
employee stock purchase plan and stock option plans, as well as shares
issued for deferred compensation stock plans. For fiscal years 1998 and
1997, shares issuable upon conversion of the Company's 3.25% Notes, issued
in October 1996, were included in weighted average shares assuming dilution
for purposes of calculating diluted earnings per share. To calculate diluted
earnings per share, net earnings are adjusted for tax-effected net interest
and issue costs on the 3.25% Notes and divided by weighted average shares
assuming dilution.
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-END> Nov-01-1998
<CASH> 515
<SECURITIES> 1
<RECEIVABLES> 459
<ALLOWANCES> 0
<INVENTORY> 4,157
<CURRENT-ASSETS> 5,248
<PP&E> 8,917
<DEPRECIATION> 1,213
<TOTAL-ASSETS> 13,324
<CURRENT-LIABILITIES> 3,386
<BONDS> 1,319
0
0
<COMMON> 74
<OTHER-SE> 8,242
<TOTAL-LIABILITY-AND-EQUITY> 13,324
<SALES> 7,699
<TOTAL-REVENUES> 7,699
<CGS> 5,522
<TOTAL-COSTS> 5,522
<OTHER-EXPENSES> 1,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 646
<INCOME-TAX> 254
<INCOME-CONTINUING> 392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392
<EPS-PRIMARY> .27
<EPS-DILUTED> .26
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